The 2024 election cycle is behind us, and lawmakers can get back to getting work done on behalf of the American people.
Given the biggest factors of the presidential race were the economy and inflation, Congress has a mandate during the lame duck session to address consumer costs. An upcoming Senate hearing on bipartisan legislation that rehabs the payments arena is a golden opportunity to bring the issue to the forefront and deliver for the American people.
Stronger alternatives in the credit card industry are sorely needed. Visa and other large corporate powerhouses have established a monopoly-like presence in the payments arena, granting the company total control over the fees it charges small businesses.
As reported in The Wall Street Journal, as e-commerce exploded in the 2010s and Americans moved away from using cash, Visa designed a series of strategies to prevent financial and tech companies from encroaching on its turf. Practices like aligning incentives with Apple, strong-arming Paypal, and undercutting Chase Bank are some of the many examples.
Not only has Visa’s actions hindered innovation, but they’ve also enabled the company to capture more and more of the credit and debit card market share. In fact, Visa and Mastercard — the second largest card issuer and Visa’s closest competitor — now account for nearly three-quarters of all credit card purchases.
Because of its dominance in the payments arena, Visa has been able to rake in profits through exorbitant fees with minimal pushback. One prime example is credit card “swipe fees.”
“Swipe fees” are a transaction tax that gets levied on small businesses each time a customer taps, inserts, or swipes a credit card. While they were initially introduced to offset the cost of processing a transaction, technological advancements in the payments sector have significantly lowered the cost of doing business.
The kicker? Despite these lower costs, “swipe fees” have continued to rise.
In 2023, major credit card networks like Visa swiped $135 billion from small businesses. And that’s a $10 billion increase compared to the year before. For many small businesses, “swipe fees” are often the second highest operating expense behind labor costs.
And it’s not just merchants feeling the burn — American consumers are bearing the brunt, as well. These extra costs often translate to higher prices at checkout. Last year alone, Americans paid an additional $1,102 thanks to the growing expenses associated with “swipe fees.”
Recognizing the burden on both businesses and consumers, the U.S. Department of Justice recently filed an antitrust lawsuit against Visa alleging it illegally monopolized the debit card market. Officials claim Visa set the U.S. payments system years behind the rest of the world.
Enter the Credit Card Competition Act. The measure — which was co-sponsored by a bipartisan coalition of lawmakers including soon-to-be Vice President J.D. Vance — would curb Visa’s unchecked power by promoting competition in the credit card industry.
The legislation mandates that large banks with over $100 billion in assets include a second processing network — in addition to Visa and Mastercard — on the credit cards they issue to consumers. Doing so would pressure credit card networks to lower their “swipe fees” to compete for a merchant’s business, driving down costs in the process.
If passed, businesses and consumers are expected to save $16 billion annually. It’s a no-brainer for lawmakers looking to support a fairer marketplace and reduce costs for hard working Americans.
Competition is the cornerstone of a healthy economy. But the unrestrained dominance of power players like Visa silences both businesses and consumers. Federal lawmakers should keep this in mind and pass the Credit Card Competition Act during this year’s lame duck session.
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