On November 19, food retailers highlighted the challenges imposed by the “duopoly” of Visa and Mastercard during a U.S. Senate Judiciary Committee hearing. This hearing is pivotal as it coincides with the proposed Credit Card Competition Act (CCCA), promoted by Senator Dick Durbin, D-Ill., and Senator Roger Marshall, R-Kan. Testimonies from industry experts revealed how these two companies dominate over 80% of the U.S. credit card market, significantly impacting transaction costs for retailers and consumers alike.
The Food Industry Association (FMI), in its statement for the hearing record, articulated that while the grocery sector is one of the most competitive in the U.S. economy, there is no competition in the routing of credit card transactions or the setting of associated fees. Christine Pollack, Vice President of Government Relations at FMI, noted that merchants are typically charged swipe fees averaging between 2% and 4% for each credit card transaction. In contrast, the average profit margin in the grocery sector is just 1.6%. This discrepancy renders retailers’ profit margins vulnerable, often resulting in increased prices for consumers.
Doug Kantor, representing the Merchants Payment Coalition (MPC) and the National Association of Convenience Stores, pointed out that many consumers are unaware of these hidden costs and their profound effects on the economy. “For merchants, these excessive and ever-increasing fees create financial strain, contributing significantly to inflation,” Kantor stated. He elaborated that the structure of the market allows Visa and Mastercard to dictate swipe fee rates while hampering competition by prohibiting transactions from being processed over networks that could potentially offer lower rates and enhanced security.
The issues are further compounded by the “honor all cards” policy enforced by Visa and Mastercard, which obliges merchants to accept all cards from these networks. This policy significantly diminishes the bargaining power of retailers, leaving them with limited options to negotiate more favorable transaction terms. A recent antitrust lawsuit filed by the Department of Justice against Visa serves as evidence of the network’s practices that may stifle innovation in payment processing by favoring selective partners through payoffs and manipulative fee structures.
Financially, the implications are staggering. The Nilson Report revealed that last year, U.S. retailers faced credit and debit card fees totaling $172.05 billion, marking a 7.1% increase compared to the previous year. Out of this total, approximately $100.7 billion was attributed specifically to Visa and Mastercard transactions. This means that the average cost associated with these payments exceeds $1,100 for every U.S. household, regardless of whether cash or credit is utilized for purchases.
Austen Jensen, Executive Vice President of Government Affairs at the Retail Industry Leaders Association, expressed the growing frustration among Americans: “Families are struggling with inflation and rising costs while financial institutions reap enormous profits. Congress must intervene and support merchants and consumers by enacting the Credit Card Competition Act.”
The CCCA, if passed, intends to foster competition by mandating that large banks facilitating credit card issuance enable a second, secure network for routing transactions. This legislation promotes transparency, reduces swipe fees, and enhances service innovation and fraud protection. Pollack emphasized that this act would alleviate current burdens on food retailers and their customers, advocating for Congress to act swiftly before year-end.
The push for the CCCA has garnered broad backing from diverse consumer and labor organizations, including the International Brotherhood of Teamsters and Americans for Financial Reform. This coalition underscores the demand for reform in the credit card market to ensure fair practices that benefit both merchants and consumers.
In conclusion, the current credit card market dynamics, dominated by Visa and Mastercard, pose significant challenges to retailers. With the potential passing of the Credit Card Competition Act, a more competitive landscape could be established, promising relief for consumers and stability for grocery margins. The forthcoming legislative actions will be crucial in reshaping the future of credit card transactions and their implications on the retail sector and broader economy.