Free Market Competition Is No Passing Fad

Op-ed highlights that when it comes to merchants, banks would rather fix prices instead of compete.

October 06, 2016

WASHINGTON – NACS Senior Vice President of Government Relations Lyle Beckwith responded this week to a recent op-ed in The Hill written by a credit card and banking industry spokesperson who attempted to dismantle debit reforms contained in the Durbin Amendment. The story called them a bad idea, “Like New Coke and Fonzie’s infamous shark jumping stint in the fifth season of ‘Happy Days.’”

“Molly Wilkinson, in her Sept. 30 op-ed, takes us for a pop culture walk down memory lane. Pop culture fads, of course, come and go,” writes Beckwith, adding, “Antitrust laws, however, stayed—in large measure due to past monopolistic control over key elements of the economy like railroads, oil and telecommunications.”

And while cultural fads can bring back a good laugh, merchants are thankful that antitrust laws endure. “We need them to protect against the lure of profits that a little price-fixing or market manipulation might bring,” Beckwith writes.

He explains that debit reforms contained in the Durbin Amendment and enacted in 2010 as part of the Wall Street Reform Act struck a blow for competition. Before the law, Visa and MasterCard “were busy giving banks payoffs for the banks’ agreement that they would block competitor debit networks (companies like Star and Pulse) from handling transactions on those banks’ debit cards. It got to the point that a majority of transactions happened without any competitor network being available.”

Debit reform ended those market-blocking payouts, ensuring that at least two competitor networks would be available for merchants to choose.

“And, Visa and MasterCard set the prices that all their banks agreed they would charge merchants for handling card swipes,” writes Beckwith. “Reform gave those banks an incentive to set their own prices and compete. It said that if they competed on price, they could charge anything they want.  But, if they chose to go with the prices fixed by Visa or MasterCard, the fee would face a reasonable limit put in place by the Federal Reserve.

“Rather than taking the incentive to compete and charge whatever they want, however, the big banks chose instead to argue that Congress should let them price-fix and pay to block competition once again.”

Beckwith states that, contrary to Wilkinson’s Electronic Payments Coalition, retail profit margins did not increase after debit reform. “They remained very tight…even as wholesale prices for many goods rose, consumers were shielded from price increases by retail price competition (and debit fee reductions).”

The bottom line, he says, “is that the banking giants like Wells Fargo want price-fixing and want to be paid to block competition…it’s amazing for the industry that has shown such disdain for ethics and the economy—from the mortgage crisis to unauthorized accounts—to argue that Congress should roll back reforms that brought some competition and limits on price-fixing to debit cards.”

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