Senator Dick Durbin, a long-time advocate for payment system reform, is renewing his fight against what he describes as the “Visa-Mastercard duopoly.”
With Visa and Mastercard processing over 80% of U.S. credit card transactions, Durbin argues their dominance stifles competition and leads to excessive fees for merchants and consumers alike.
Chairman Dick Durbin (D-Ill.), in his opening remarks during the hearing, contended that there is a “hidden contributor to the high price” consumers pay “on everything from furniture to eggs.”
He said the interchange component of the card swipe fees, paid to the issuing banks, is set by the payment networks, running between 1% to 3% of the total bill consumers pay.
As chairman of the Senate Judiciary Committee, Durbin is pushing the Credit Card Competition Act in what he sees as a final effort to introduce competition into a sector he believes is overdue for reform.
With his chairmanship of the Senate Judiciary Committee nearing its end, Durbin views this moment as crucial for laying the groundwork for a more equitable payment system.
The Credit Card Competition Act (CCCA) would require banks to support at least one alternative payment processing network beyond Visa and Mastercard.
This provision aims to foster competition in a market where businesses paid $160.7 billion in processing fees in 2022.
These fees, often referred to as “swipe fees,” are borne by merchants every time a customer uses a credit card and are frequently passed on to consumers through higher prices.
By creating more competition among networks, the proposed legislation could help reduce these costs for businesses and potentially lower prices for everyday consumers.
Durbin’s efforts build on his previous success with the Durbin Amendment, a provision of the 2010 Dodd-Frank Act.
That amendment capped interchange fees for debit cards and allowed merchants to choose between multiple debit processing networks.
The result was cost savings for businesses, estimated at $10 billion annually, and increased competition among debit card networks.
Durbin believes similar principles can apply to credit card processing, where merchants currently have little to no choice in routing transactions outside Visa and Mastercard.
Executives from Visa and Mastercard maintained that the size and scale of their networks help deliver value to those same consumers and businesses.
Along with technological innovations, particularly for cybersecurity and zero liability on the part of consumers for fraudulent transactions, it actually benefits all stakeholders in the commerce ecosystem.
They countered that the payments landscape is competitive, with the recent rise of FinTechs and other players, where payments take place outside the card rails.
Durbin charged that the Visa and Mastercard “duopoly virtually prints money on behalf of their big bank partners” and said the CCCA would break a “stranglehold” on the credit card market as merchants would choose the payment network over which transactions would be routed.
In testimony during the hearing, Christopher Callahan, co-owner of New York-based Battenkill Books, said that “high swipe fees are a challenge for every merchant, regardless of size or sector.
Most main street businesses have no choice but to share that burden with their customers in the form of higher prices, surcharges or decreased services.”
Visa’s Bill Sheedy, senior advisor to the CEO, said in his Senate testimony that Interchange is a bank-to-bank fee paid by acquirers to issuers for credit and debit transactions (the reverse is true for certain other transactions like ATM).
It’s important to note that Visa has no incentive to set these inter-bank interchange fees at levels that are too high or too low.
“We focus on growing and optimizing transactions on our network, which we can only do when merchants and consumers successfully and securely complete sales. Without those sales, we have no transactions to process.”
Senator Roger Marshall of Kansas has co-sponsored the legislation, making it a bipartisan effort.
Trade organizations, including the National Retail Federation, have also rallied behind the bill, emphasizing its potential to save businesses billions of dollars annually.
Lower fees, advocates argue, would not only improve profit margins for merchants but could also lead to reduced prices for consumers.
Additionally, the Justice Department’s ongoing scrutiny of Visa’s practices, including allegations of monopolistic behavior, has added weight to arguments for reform.
Verifee, a company dedicated to uncovering hidden transaction fees, has emerged as a vocal supporter of Durbin’s initiative.
Verifee’s mission aligns closely with the goals of the Credit Card Competition Act, as the company provides businesses with tools to understand and manage the often opaque costs of credit card processing. This involves demystifying complex payment structures, empowering businesses to make informed financial decisions, and ultimately helping them reclaim control over their costs.
For Verifee, Durbin’s initiative is not just about reducing fees; it’s about creating a fairer ecosystem where businesses are no longer at the mercy of restrictive payment networks.
The company’s advocacy reflects a broader push for accountability in an industry where hidden fees and lack of competition have long been the norm.
VeriFee’s support emphasizes the need for greater transparency in a system that affects every business accepting credit card payments and, by extension, every consumer paying with plastic.
Durbin has also made public awareness a central part of his strategy.
While interchange fees greatly impact prices, many consumers are unaware of how these costs are factored into their everyday purchases.
Durbin has repeatedly called for greater scrutiny of Visa and Mastercard, emphasizing the importance of bringing this issue to the forefront of public debate.
VeriFee echoes this call, showing transparency’s role in fostering trust and fairness in the marketplace. Critics of the bill often cite potential disruptions to fraud prevention and loyalty rewards programs as reasons for opposition.
However, experts note that these concerns are overblown.
Fraud prevention technologies have grown significantly in recent years, with many solutions now network-agnostic.
Furthermore, loyalty rewards programs, while popular, are not directly tied to interchange fees and could adapt to changes in the payment ecosystem.
Advocates argue that these criticisms serve primarily to protect the status quo rather than address the legitimate concerns of businesses and consumers.
As Durbin prepares to step down from his chairmanship, the Credit Card Competition Act represents what could be his final major push for reform in the payment processing industry.
VeriFee’s support of Durbin’s initiative reflects a shared commitment to a more equitable and transparent payment system. By advocating for clarity and competition, we aim to empower businesses to thrive without being burdened by excessive fees.
As public awareness grows and pressure mounts on industry leaders, the call for reform is unlikely to fade.
