Mastercard and Visa are responsible for nearly 80% of credit card transactions in the United States each year. A bipartisan bill in Congress aims to break up the duopoly by creating competition for swipe fees merchants pay to accept cards. Opponents of the bill believe the result could be a rollback of rewards programs and an increase in credit card fraud.
The bill was co-authored by Sens. Dick Durbin (D-IL), Peter Welch (D-VT), Roger Marshall (R-KS), and J.D. Vance (R-OH). According to a statement from Durbin’s office, the bill aims to reduce costs to low-income Americans, create competition between card issuing companies, and break up profits the companies make.
Senators Durbin & Marshall earlier this year introduced the Credit Card Competition Act to quick pushback from industry and consumers — and it’s clear why.
The legislation would upend credit card miles and points programs and threaten $60 billion in consumer rewards every year.… https://t.co/qYluRyi2OU
— Taxpayers Protection Alliance (@Protectaxpayers) November 1, 2023
Every time that a consumer uses a credit card to make a purchase, the retailer is charged a small fee, typically between 1% and 2% of the purchase price. This fee is called an “interchange fee” and is often blamed for higher prices at small businesses which pass the cost onto consumers. These fees are the second-largest expense incurred by businesses behind labor costs.
Often, competition can lead to lower costs, but not always. A similar approach to preventing credit card companies from profiting through card swipes has been in place in the European Union for several years. There is no concrete or direct evidence that lower interchange fees have resulted in consumer savings in the EU.
Mastercard says the interchange fees help fund things like rewards programs and fraud prevention technology. They say that just one piece of software prevented $20 million in fraud in 2022 alone. The company has invested over $7 billion in fraud prevention technology over the last several years to counter increasingly sophisticated scammers.
The company says that absent the interchange fees, investments in fraud prevention moving forward would be lower, leaving more consumers on the hook for fraudulent purchases or facing expensive and lengthy court battles to recover their money. They point out that interchange fees are lower now than they were in 2018 and are currently capped for 16 years.
Further, the bill opens up competition to non-U.S. institutions not bound by the same laws and regulations the current system is held to. This could lead to relatively cheap interchange rates being offered by companies that have little to no fraud protection.
Declining profits would also motivate credit card companies to reduce rewards, significantly impacting air miles, cash-back rewards, and similar perks used to sell credit cards. Many consumers will specifically use a card for purchases simply to earn the reward. Deincentivizing rewards would hurt consumers who have come to rely on these perks for things like travel and vacations.
Of note, the bill specifically excludes American Express and Discover, the other two credit card issuing agencies. The bill is backed by several large retailer organizations and is opposed by airlines and credit issuing agencies.