The credit card industry in the United States could undergo major changes as a result of new legislation.
Credit Card Competition Act of 2023 is a law that aims at bringing competition into the credit card processing market, which Visa and Mastercard currently dominate. It could have a major impact on the relationship between consumers and credit card companies if it is passed.
Takeaway:The Credit Card Competition Act of 2020 has the ability to reduce credit card processing fees and have a meaningful impact on the U.S. Consumer banking business. Congress has not yet set a date for a vote, so it is difficult to know the precise implications.
This bill will reduce costs for consumers and businesses
According to the Credit Card Competition Act, big credit card companies would be required to accept payments through at least one other payment network than Visa and Mastercard.
The bill’s supporters say that increased competition in processing would give merchants more choices, and this would lead to banks charging merchants less “swipe fee”. Theoretically, this would also lead to a drop in the price of products, which would ultimately result in consumers paying less.
Current state of swipe fee
- Visa, Mastercard and American Express dominate the payment processing industry. According to National Retail Federation (NRF), 80% of credit card transactions are processed through Visa or Mastercard.
- According to NRF, the average merchant processing fee for Visa or Mastercard transactions is 2.24 percent of the transaction.
The Credit Card Competition Act is divided in opinion
Both the House of Representatives as well as the Senate have sponsored the Credit Card Competition Act, although the support of each party in the other is not clear.
There hasn’t been a vote on the bill in either chamber yet, but there have been rumblings about a possible vote before 2023. Despite the lack of a scheduled vote, very few congressmen have expressed their support or opposition to this bill.
Various business groups issued statements in support and opposition of the Credit Card Competition Act.
Retail groups support it in hopes that this will reduce their costs of operation and increase consumer spending. Many large banks oppose it because they fear that the CCCA will disrupt their revenue and established practices. While there are many opinions about what the CCCA will do, if it passes, the effects on the economy and the banking industry remain largely unknow.
What interest groups have to say
- National Retail Federation : According to CMSPI, competition over credit card processing could save both retailers and customers $11 billion per year.
- Merchants Payments Coalition : The swipe fee for credit and debit cards has doubled in the last decade. It will reach a new record of $160.7 billion by 2022. This is the second highest cost to merchants after wages, which drives up the price by $1,024 per year on average.
- Electronic Payments Coalition – “[The] CCAA [will] result in fewer choices for consumers, increased threats to privacy and data, weakened credit unions and community banks, and disappearance of rewards card programs that are used by families at all income levels.”
- American Bankers Association “Make no mistake, this bill has been written specifically to provide a large payday for the big retailers and grocery stores at a moment when these giants are getting bigger and increasing profits and raising prices.
The predictions are a mixture of speculation and fact
It’s hard to know where the situation will end up, as both sides are making broad claims about what the Credit Card Competition Act could mean.
Considerations about Bill’s Effects
- It’s not guaranteed that swipe fees will drop. A greater number of small payment processors won’t guarantee lower fees. It’s not a rule that more providers will lower costs. This is more of an economic assumption than a hard and fast rule.
- Credit card issuers may not alter their rewards. Banks will look to compensate for any lost revenue from reduced fees. However, fears of severely reduced credit card reward programs could be unfounded. Banks could pass increased costs on to their less wealthy clients by introducing new account fees or increasing existing ones.
- It’s not guaranteed that retailers will lower their prices. Retailers may decide to hold onto revenue and keep the prices as they are, even if processing costs have decreased.