Lower credit card swipe fees would help consumers, businesses | Opinion
I was glad to read that Senator J.D. Vance from Ohio is taking the lead on overhauling the credit card industry by introducing the Credit Card Competition Act. Over one-third (35%) of Americans said they were worse off in 2022 than the year prior. This is a major spike from 2021 when 20% said the same, according to a new Federal Reserve financial well-being survey. Over half of the survey’s respondents said they spent more than they made, and overall financial well-being dropped the most since the survey began.
Fortunately, Vance and Sen. Roger Marshall of Kansas are taking action. By reintroducing the Credit Card Competition Act, a bipartisan, bicameral group of legislators are hoping to reduce costs for businesses and consumers by leveraging free market competition to lower excessive credit card swipe fees and help hard-working Americans make ends meet.
As Americans, we are currently subject to the highest swipe fees found anywhere in the industrialized world. Averaging between 1.5% and 3.5% of a total purchase amount, these fees are charged to merchants on every transaction paid with a credit card. As one who has worked in the financial services industry, I know what these fees can do not only to consumers, but to prices as well.
While seemingly small, these fees add up quickly and are actually some of the most lucrative for major credit card companies. In fact, merchants paid over $160 billion last year, a $22 billion increase from the year prior. For small businesses already struggling to deal with inflation, these fees are a crushing financial blow that often forces them to raise their prices on goods and services just to keep their doors open. Unfortunately, this means regardless of whether a consumer uses a credit card, the average American household is now paying over $1,000 a year in higher priced goods as a result of these fees.
The situation is only worsening as major companies like Visa and Mastercard continue to raise credit card swipe fees. Despite the technology for transaction processing becoming cheaper, Visa continues to use swipe fees to pad its over 50% net profit margin. Mastercard, with a nearly 45% margin, is doing the same. This growing duopoly has cornered over 80% of the market share, giving them the ability to shut out competitors and further consolidate power in the industry.
The Credit Card Competition Act is a critical next step to correcting this market failure and ensuring fair market competition applies to all industries. Currently, major banks are eager to implement the swipe fees set by Visa and Mastercard in return for a cut of the profit and the basic card services they offer. However, the banks then offer only a single routing network to merchants, forcing small businesses to pay the high swipe fees or forfeit credit cards as a payment option altogether − which is a non-starter in today’s increasingly cashless society.
To solve this, the CCCA would provide a second routing option to merchants, giving them a choice and ensuring major financial institutions compete for business. Smaller networks like Pulse and Star have long awaited a fair market where they could offer their payment services and heightened security track record in a competitive market.
Despite misinformation from major financial institutions, the bill’s sponsors were careful to exclude small banks and community credit unions that often provide critical financial services. The CCCA only applies to major financial institutions with over $100 billion in assets, keeping the focus on those exploiting the current system. Small banks and credit unions, in fact, are helped by competition. Following competition among networks on debit cards, community banks were able to increase their market share and credit unions were able to use the opportunity to negotiate a better deal of their own with the Star network.
If Congress wants to relieve the financial anxiety so many consumers and businesses are feeling, it must address unnecessary and excessive credit card swipe fees. A strong American economy thrives off free market competition. It’s time for Congress to address the credit card duopoly that is making it harder for businesses to stay open and for families to balance their budgets. I appreciate Sen. Vance for sponsoring the Credit Card Competition Act, and I hope his colleagues on Capitol Hill will join him in supporting this legislation.Ron Mosby is the CEO of HIQ Enterprises in Cincinnati.
This article originally appeared on Cincinnati Enquirer: Lower credit card swipe fees would help consumers, businesses | Opinion
