Digital Transactions Authoritative, insightful and timely information for payments professionals
It’s July, the peak of summer-vacation season, so we apologize in advance if we’re interrupting your beach time with a message about the mundane mechanics of payments. But butt in we will, if only because the the topic of acceptance costs just won’t yield to a seasonal hiatus.
As you recline on the sand, the Credit Card Competition Act is returning to the spotlight in Washington, this time with notably more bipartisan support than was the case last year. You may recall the CCCA. That’s the legislation, backed by Sens. Richard Durbin, D.-Ill., and Roger Marshall, R-Iowa, that seeks to put a lid on rising merchant costs for credit card acceptance by requiring more competition for processing (more on that in a moment).
The bill got little traction in 2022, but now it’s back with more Republicans in both chambers of Congress joining Durbin’s fellow Democrats in lining up behind it. Instead of requiring a hard cap on transaction costs—as Durbin’s debit card regulation did a decade ago—the bill cleverly evades that minefield by adopting a fig leaf of market-sounding wisdom. It says each credit card transaction must offer merchants a choice of networks, one that is not limited to the Visa/Mastercard duality. Visa can be one of the networks, but if so Mastercard can’t be in the mix, and vice versa (for more on this, see page 6).
We called this a fig leaf of wisdom because it sounds so reasonable. After all, who can object to a proposed law that would set up a more competitive landscape in this market, where merchant costs for credit card processing have risen steeply over the years to $126.4 billion in 2022, according to the Merchants Payments Coalition?
And, after all, the bill isn’t mandating which networks must be used. It’s simply opening the doors wider for such systems as debit card networks to get in the game with better rates for merchants than the Visa/Mastercard duo—and downstream processors—offer. One research firm, Atlanta-based CMS Payments Intelligence Inc.. figures the bill could save merchants $15 billion a year in acceptance costs.
Apparently, with its bipartisan support—eight Senators and Representatives re-introduced the bill last month, including five Republicans—that argument is picking up some momentum. The bill may have flopped last year, but now its chances of passage are looking better.
We said a moment ago the bill is clever because it doesn’t mandate caps, but instead requires more competitors. But real competition doesn’t come from Washington mandates. It comes when rivals see a market where investments clearly yield required payoffs. That kind of market can’t be created by government fiat.
—John Stewart, Editor john@digitaltransactions.net
