The recent article titled “Stop Target From Passing Democrats’ Credit Card Competition Act” made outlandish and intentionally misleading claims about the bipartisan, bicameral bill that require a correction.
The author of this piece blatantly disregarded the benefit the Credit Card Competition Act (CCCA) would have on small businesses and customers alike through innovation and security advancements. Rather, the writer repeatedly espoused misinformation spread by major financial institutions, which have contributed to excessive fees that greatly burden American companies and consumers.
But there is one thing the author got right: Inflationary prices are still hammering Americans who need real relief from Congress. That’s where the CCCA can be helpful. The bill helps reduce the cost of swipe fees that are currently adding an average 1.5-3.5 percent fee on top of every credit card purchase transaction.
Just last year, merchants paid over $126 billion in credit card processing fees, which jumped more than 20 percent from the year prior. These escalating fees can take a huge toll on small businesses and the general retail sector, which has a net profit margin of just over 2 percent. With hardly any room for error, business owners are often forced to pass these fees onto consumers in the form of higher priced goods and services. On average, American households are paying more than $1,000 a year in inflated prices as a result of swipe fees.
Meanwhile, major financial institutions are focused on maintaining the current system that helps pad their already large profit margins. Visa, for instance, enjoyed a net profit margin of over 50 percent last year, while Mastercard trailed behind at just under 45 percent, undoubtedly fueled by excessive credit card swipe fees that continue to rise.
Unfortunately, as this credit card duopoly continues to expand their domination of over 80 percent of the market, competitors are left with little-to-no chance of entering the market. Visa and Mastercard have successfully used their control in the credit card space to set a schedule of ever rising swipe fees that major banks are eager to implement in return for their card services and a share of the profit. By agreeing to uniform swipe fee rates industry-wide, major banks offer merchants a single option to route their transactions.
This means that businesses have no choice but to accept these excessive fees or forfeit credit card payments altogether. A lose-lose situation for merchants, considering credit cards have only grown in popularity among American consumers.
The CCCA would change this by mandating that a second routing option is available to merchants when processing credit card transactions. This would finally give business owners a better choice and smaller processing networks an opportunity to compete on a level playing field and offer similar services at a lower cost.
Critics of the CCCA have tried to claim smaller networks like Shazam and Pulse would sacrifice security standards in the American payments system, but these claims are fabricated. In fact, these networks have provided protections for debit and ATM cards that have contributed to fraud rates that are one fifth the rate of Visa and Mastercard’s, according to the Federal Reserve.
Deeper concerns around foreign intervention in our payments system are also addressed by blocking networks that pose a threat to national security. Despite false claims from the author of the aforementioned piece, these protections include China UnionPay, a Chinese state-owned financial services corporation. Visa and Mastercard helped UnionPay take positions on security standard-setting organizations in the U.S. such as EMVCo and PCI, giving a foreign entity leverage over the security of our payments sector. The CCCA would help rollback UnionPay’s influence on our payments sector by preventing them from servicing American credit cards.
This is a large reason why the CCCA has garnered bipartisan support, with a growing number of conservative cosponsors, including myself. Major financial institutions will continue to spend enormous sums of money to spread misinformation and prevent the CCCA from becoming law. But it’s critical during this time of inflationary pricing that Congress comes together to stand behind Main Street businesses and American consumers and pass the CCCA to bring down overwhelming credit card swipe fees.
Frank Corte represented San Antonio in the Texas House of Representatives from 1993-2011.