COMMENTARY: Why the Credit Card Competition Act Falls Short

The Credit Card Competition Act (CCCA) looks to be headed for a vote before the end of the year, spurred in part by Sen. Dick Durbin’s recent urging that it be brought to the Senate floor. While the Illinois Senator is of the mind it will help increase industrywide competition with Visa and Mastercard, the bill deserves more outside scrutiny prior to its formal passage.

Proponents argue it will help fight inflation, as more choice in network providers could force competition for merchant business, lessening credit card and interchange fees—savings that could then be passed on via lower prices to consumers. Opponents of the bill argue there is no guarantee that customers will reap any of the benefits, while new, unestablished networks could create additional problems. In any case, the issues the CCCA is trying to address are inherently complicated and require a more nuanced look.

Essentially, Sens. Durbin and Roger Marshall (R-Kan.), who have offered bipartisan sponsorship of the bill, want to create a more competitive landscape where additional payment networks not controlled by big companies like Visa and MasterCard are given a chance to work with businesses. This argument has merit—after all, the cost of accepting card payments is a pain point for any business, especially small businesses focused on keeping their doors open.

But will the bill create competition, lower merchants’ acceptance costs, and ultimately help drive consumer prices down? Let’s look at a few potential flaws:

1. Allowing merchants to choose their own network is a good idea in a perfect world. However, as it stands, the merchant isn’t likely to know which is right for them. Small businesses, which make up 99% of U.S. businesses, often do not have the time or the expertise to make the optimal choice. The best network for them might even be a major one. Visa, for example, recently reduced fees for small businesses and is more competitive than perceived.
2. There is a major risk of increased fraud on smaller, cheaper networks. Let’s say a merchant picks a less expensive network with fewer protections, and fraud occurs. Who is financially responsible? If the merchant owns the cost, they could be spending more in the long run.
3. Another major, unanswered question: what will come of credit card rewards? It’s unclear whether cheaper networks will offer the same level of rewards to customers. If customers notice fewer rewards on their purchases, they may give the average pizza shop, clothing store, or laundromat less of their business.

With these outstanding questions, it’s worth exploring how businesses can independently reduce their credit card processing cost. In most cases, this cost has gone up in direct response to the increase in spending volume on credit cards. In other words, the fee percentage hasn’t changed much, but the overall cost has increased due to additional transactions.

There are other circumstances, however, in which businesses may be dealing with increased fees—not from Visa and Mastercard, but from a processor charging excessive markups and hidden fees.

Additionally, a lack of understanding of interchange or compliance rules can add avoidable costs that the average business owner isn’t equipped to optimize. The simple answer to reducing these fees is for businesses to gain a better understanding of the credit card processing landscape.

It is vital to become more familiar with monthly merchant statements—particularly those with hidden or junk fees—and use these data points to negotiate lower fees. This can happen in a couple of ways: through more vigilant auditing on a company’s part, or by working with an expert who can help decipher these confusing statements.

Put it this way: If you’re having trouble with your taxes, you hire an accountant. Likewise, there are tools and experts at any company’s disposal to help navigate the card-processing space. Leveraging them will pave the way for savings in the future.

Regardless of what happens with the CCCA, merchants should not expect that it will be a cure-all for the problems permeating the space today. While it may help move the needle slightly, the onus is on business owners and card-processing experts to work together to find solutions to reduce processing fees, strengthen the customer experience, and create a partnership that works for both sides.

—Eric Cohen is founder chief executive, Merchant Advocate