Credit Card Competition Act Tosses Duopoly of Mastercard and Visa

New legislation focuses on enhancing competition and choice in the credit card industry, targeting the dominant Visa-Mastercard duopoly and its impact on rising fees.

Credit Card Competition (CCC) Act Proposes Alleviating Inflation Concerns and Driving Market Efficiency

Amidst mounting concerns surrounding inflation and escalating prices, American consumers are increasingly apprehensive about the adverse effects of credit card swipe fees. In this context, the Visa-Mastercard duopoly, having dominion over 80 % share of the U.S. credit card network market, comes under scrutiny as a significant contributor to the issue at hand. Each instance of a Visa or Mastercard credit card transaction results in a deduction of approximately 2-3 % from the merchant's received amount, thereby decreasing their share. Ultimately, consumers shoulder the burden of these fees through augmented prices across various goods and services.

Visa, Mastercard, and their associated card-issuing banks imposed a $93 billion credit card fees on merchants in 2022 alone. These fees passed on to consumers, spreading the costs over the everyday essentials such as fuel and groceries.

Despite market being competitive on fee regulations, Visa and Mastercard have strategically devised their networks to evade competitive pressures. By setting fixed fee rates for all cards, these entities seize the space for banks to engage in pricing competition. Merchants are legally obligated to accept any Visa or Mastercard credit card, regardless of the associated fees. Failure to comply may result in losing access to all cards within the Visa and Mastercard networks.?

Consequently, businesses face considerable challenges maintaining their operations without accepting cards from Visa and Mastercard.

The proposed Credit Card Competition Act of 2023 aims to addressing these concerns by fostering increased competition and choice within the industry. The legislation mandates financial institutions with assets exceeding $100 billion to enable engagement of at least two credit card networks on their cards, with one being an alternative to the Visa/Mastercard.

Following a transitional period, during which implementing regulations are to be done by the Federal Reserve, banks responsible for issuing the majority of Visa and Mastercard credit cards are to select a second competitive network for each card. Merchants will be having liberty of choosing network through which they process their transactions.?

This perfect competition and spanned choice of networks are to incentivize improved service quality and lower costs. The bill lays exemptions to majority banks and credit unions, limiting the need to add a second credit card network.

Furthermore, where the card network is also the card issuer, such as American Express and Discover, shall not be under any obligation incorporating a second network.?

However, these networks may be the second network on cards issued by other banks. Additionally, the bill does not prescribe a specific network for banks to add, granting them the autonomy to choose based on factors such as service quality, security, and value. The Federal Reserve is to compile a list of networks posing national security threats or owned/operated by foreign state entities, thereby excluding them from consideration.

Introduction of a second network to credit cards, shall incentivize network to maintain competitive merchant fees to attract transactions over their rivals. The presence of marketplace competition, currently absent within the credit card system dominated by the duopoly, is widely viewed as long overdue and essential for addressing rising fees and fostering a healthier economic environment.

As the Credit Card Competition Act of 2023 gains traction, consumers and businesses eagerly anticipate the potential benefits of heightened competition, reduced fees, and an overall more affordable cost of living.

Breakdown: Credit Card Competition Act

Prioritizing Main Street Over Wall Street: The Credit Card Competition Act addresses Visa and Mastercard's dominant market control, requiring large banks with assets over $100 billion to establish a secondary network on each credit card. This promotes competition and reduces high swipe fees burdening American families.

Reducing Swipe Fees: Average swipe fees, over 2% of transactions, weigh on merchants. These fees have more than doubled in the past decade, becoming a significant cost after labor. This results in higher consumer prices, adding $1,000 per year for the average family in 2022.

Restricting Chinese Communist Party Influence: The Act prohibits networks owned or sponsored by foreign state entities, exclusively targeting China Union Pay, from processing U.S. credit card transactions. This change enhances market security by mitigating risks associated with the Chinese Communist Party.

Enhancing Payments System Security: To address cyber threats, the legislation introduces a secondary network for credit card transactions in case of cyberattacks on Visa or Mastercard. This ensures continuous payment processing and protects the stability of the financial system.

Safeguarding Financial Institutions: The Act exempts small and mid-sized financial institutions with assets under $100 billion, focusing on larger banks. This approach balances regulation and operational considerations, ensuring stability and competitiveness in the credit card market.

?Source:?https://shorturl.at/fmvBK

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