ALEXANDRIA, Va.—NACS sent a letter to the Federal Trade Commission in response to its request for comments on contract terms that may harm competition and called on the agency to address the lack of competition in regards to credit card transactions.
“We wanted to bring to your attention the problems created by Visa and Mastercard contractual terms that prohibit the banks that issue credit cards that use the Visa or Mastercard networks from allowing those credit card transactions to be handled by competing card networks,” wrote NACS. “These terms seriously inhibit competition for credit card network services and remove competitive market dynamics that might otherwise exist for credit card transactions.”
In 2010, Congress addressed the issue of network competition on debit cards with the passage of the the Durbin Amendment, which requires issuing banks to enable two unaffiliated networks on debit cards. The networks have tried to circumvent these non-exclusivity provisions, especially on card-not-present transactions, and the FTC and Department of Justice have investigated actions that undermine debit network competition. But Visa and Mastercard provisions preventing network competition for credit card transactions have not yet been the subject of regulatory scrutiny and action.
“The time has come for such action because credit card network exclusivity continues to undermine competition, and financial institutions that issue credit cards should have the option to contract with multiple networks whenever they find such arrangements to be beneficial to their businesses. Any and all contractual provisions preventing that freedom to contract with competitive networks should be removed,” NACS states in the letter.
While there are more than a dozen payment networks in the United States, the global brands—Visa and Mastercard—have historically blocked smaller competitors such as Star, NYCE, Shazam, Accel, and Pulse, among others. Nevertheless, the emergence of technology in this space has created the ability to dramatically open competition for payments. No longer are transactions just bank-to-bank but they are also consumer-to-consumer, and consumer-to-merchant should be just as easy. The rapid pace of innovation is opening up more payments options than ever before yet the contractual terms of the dominant networks preserve their market power at the expense of competition.
“For credit card transactions, Visa and Mastercard explicitly prohibit banks that issue their cards from using traditional and untraditional payment network service providers to help improve their credit card offerings’ cost or service profiles,” states the letter. “Rather than allow banks and merchants to deal directly with each other concerning their mutual customers, Visa and Mastercard impose themselves as intermediaries to continue to extract a toll on all credit card transactions. This clearly undermines competition for credit network services across the board.”