Merchants Urge Congress to Pass the Credit Card Competition Act

The industry says the legislation would block a national security threat from China UnionPay.

February 08, 2023

WASHINGTON—The Merchants Payments Coalition (MPC) told a House committee holding a hearing on economic threats from China that passage of the Credit Card Competition Act is needed to keep China from “infiltrating” the U.S. payments processing market. NACS is a founding member of the MPC.

“MPC has grave concerns over the level of involvement that China has in our nation’s payment system,” MPC said in a letter to the House Financial Services Committee. “Preventing China from infiltrating the U.S. payments system is one of our top priorities.”

“Currently, there is no federal law that prevents any financial institution from doing business with China UnionPay to process payments on its credit cards,” the letter said. “If enacted, the Credit Card Competition Act would explicitly forbid card networks that present a national security threat to the United States (including China UnionPay) from entering the U.S. market. This is a vital provision of the legislation that would significantly serve our national security interests.”

The letter was sent to Chairman Patrick McHenry (R-N.C.), Ranking Member Maxine Waters (D-Calif.) and other committee members, as the panel prepared to hold a hearing on “Combatting the Economic Threat from China.”

The letter cited China UnionPay’s membership in the Payment Card Industry (PCI) Security Standards Council and EMVCo, the two bodies that set security standards for the U.S. credit and debit card system. The two groups are controlled by Visa and Mastercard, along with American Express and Discover, but UnionPay became a member of EMVCo’s governing body in 2013 and has been a member of the PCI council since 2017. Japan’s JCB is the only other foreign card network that sits on the panels.

Participation in the two organizations gives UnionPay—and through it the Chinese government—a role in “the creation and implementation of security standards that impact all U.S. businesses and consumers,” the letter said.

The Credit Card Competition Act is awaiting reintroduction in the new session of Congress. The legislation was introduced last year by Senator Richard Durbin (D-Ill.), Senator Roger Marshall (R-Kan.), Representative Peter Welch (D-Vt.—now a senator) and Representative Lance Gooden (R-Texas).

The legislation would end Visa and Mastercard’s longstanding monopoly over how transactions on cards issued under their brands are routed for processing. Instead, cards from the nation’s largest banks would be required to be able to be routed over at least one competing network in addition to Visa or Mastercard’s networks. Banks would choose which networks to enable but merchants would then choose which to use, meaning networks would have to compete over fees, security and service, saving merchants and their customers an estimated $11 billion a year.

Under the legislation, the second network could be American Express, Discover or an independent network like NYCE, Star or Shazam, which the Federal Reserve says have less fraud than Visa and Mastercard. The legislation would close a glaring security gap by blocking networks supported by foreign governments like UnionPay from entering the U.S. processing market. Currently, any bank could choose to route its credit card processing to UnionPay, effectively giving consumers’ sensitive financial data to a foreign government.

Credit and debit card swipe fees—which doubled over the past decade and soared 25% to a record $137.8 billion in 2021—are most merchants’ highest operating cost after labor. Convenience store swipe fees were $14 billion in 2021, a 26% increase over the year prior. The fees are far too high to absorb, especially for small merchants, and drive up consumer prices by nearly $1,000 a year for the average family.

In May 2022, Doug Kantor, NACS general counsel, testified before the U.S. Senate Committee on the Judiciary, underscoring the exorbitant swipe fees levied on retailers and how those fees are the direct result of price-fixing by Visa and Mastercard.