Credit Card Swipe-Fee Bill Will Inject Competition in Market

Legislation introduced by Sens. Durbin and Marshall proposes an open marketplace for credit card processing.

July 29, 2022

ALEXANDRIA, Va.—The country’s 148,000-plus convenience and fuel retailers are supporting bipartisan legislation introduced yesterday in Congress that creates choice for the processing of credit card purchases. The bill—endorsed by NACS—seeks to bring long-overdue competition to the market and addresses the estimated more than $138 billion in exorbitant swipe fees imposed on U.S. retailers.

The Credit Card Competition Act introduced by Majority Whip Dick Durbin (D-IL) and Senator Roger Marshall (R-KS) would require the largest U.S. banks that issue Visa or Mastercard credit cards to allow transactions to be processed over at least two unaffiliated card payment networks—the same process that has been used for debit card transactions for more than a decade. According to payments consulting firm CMSPI, credit card routing competition would reduce swipe fees by $11 billion or more annually.

“When it comes to Main Street vs. Wall Street, I’ll choose Main Street every time,” said Senator Marshall in a press statement announcing the bill’s introduction. “Convenience stores, gas stations and other small businesses in Kansas are being taken advantage of by Visa and MasterCard on behalf of big banks in New York City at a time when they, and the communities they serve, are grappling with crippling inflation and staring down the barrel of a looming recession. It’s gone on long enough. Competition is the heartbeat of capitalism and that is what our bill will create, competition.”

The legislation proposes an open marketplace for credit card processing where retailers could choose which service provider to use to handle a transaction. Under the bill, one network on a credit card could be Visa or Mastercard, but the largest banks that issue credit cards would also have to include an unaffiliated competitor, such as another credit card network or one of the dozen card payment networks that process debit card transactions. Currently, independent networks equipped to route these transactions have been blocked from entering the market.

“Credit card swipe fees inflate the prices that consumers pay for groceries and gas,” said Senator Durbin.  It’s time to inject real competition into the credit card network market, which is dominated by the Visa-Mastercard duopoly,” Senator Durbin said in a press statement yesterday. “This legislation, which builds upon pro-competition reforms Congress enacted in 2010, would give small businesses a meaningful choice when it comes to card networks, and it would enable innovators to gain a foothold in credit cards. Bringing real competition to credit card networks will help reduce swipe fees and hold down costs for Main Street merchants and their customers.”

Visa and Mastercard, which dominate the U.S. market and issue 83% of all credit cards, have blocked competitors and the innovation they would bring—even with debit card reform demonstrating a positive impact on consumers. Without competition in the market, credit card swipe fees continue to rise year after year, and since they are a percentage of the transaction cost, they multiply with every cent of inflation.

“With 41-year high inflation and record gas prices, convenience retailers have seen a historic jump in their credit card fees, which were up 33% in the first quarter of this year. While our retailers can negotiate the cost of other goods and services in their stores, they are powerless when it comes to negotiating with the credit card industry. NACS strongly supports the Credit Card Competition Act because it injects competition in a market that is otherwise devoid of it, giving retailers a real choice when routing transactions,” said Anna Ready Blom, director of government relations, NACS.

In the United States, banks that issue Visa and Mastercard credit cards charge a swipe fee that averages 2.25% of the purchase price when the cards are processed over Visa or Mastercard’s networks, a rate that is significantly higher than in other countries. American businesses pay seven times more in swipe fees than businesses in Europe and five times more than businesses in China.

“By requiring card networks to compete for transaction processing, exorbitant fees that have skyrocketed could finally be brought in touch with reality. This is a market-driven solution that would allow a free, fair and competitive market to determine prices in the payments industry, just as it does in most sectors of the economy,” added NACS General Counsel Doug Kantor.

“Small businesses are struggling now, and the increased cost of swipe fees makes it that much harder to do business, especially as more customers pay with cards,” said Ready Blom, noting that 75.4% of all transactions at convenience stores are made with payment cards, including 87% of gas purchases. Convenience stores sell an estimated 80% of the fuel purchased in the United States.

Visa and Mastercard have repeatedly tried to inhibit debit card network competition. Foreseeing a similar issue by the networks, the bill seeks to prohibit interference with routing on credit cards, including a requirement that proprietary mechanisms owned by Visa or Mastercard not be used to block their competitors’ transactions. The Department of Justice is currently investigating whether Visa has violated antitrust laws by limiting merchants’ ability to route debit transactions, while the Federal Trade Commission is investigating both Visa and Mastercard.

“Convenience retailers thrive on competition and have introduced incredible innovations over the past two years to ensure Americans had access to fuel, food and other necessities. Yet these businesses paid an overwhelming amount in credit card swipe fees. It is common sense to allow for routing competition on credit cards, just as we have on debit cards. Our local businesses and the communities they serve deserve this long-overdue change,” said Ready Blom.

NACS is calling the entire industry to action to get this bill over the finish line. Members of the convenience store industry should contact their Senators today to ask them to cosponsor the Credit Card Competition Act using the NACS Grassroots Portal. Lawmakers need to hear directly from constituents in their states about how this legislation will provide needed relief to their businesses and customers.