Why Banks Say Sellers Are Unlikely To Pass Savings From the CCCA on to Consumers

Despite some claims to the contrary, the odds are long that merchants would pass on any potential savings to consumers from the Credit Card Competition Act, payments experts say.

One argument for this is that merchants price products on a line-item basis, which means the savings on a single product could be a fraction of a cent, says Glenn Grossman, director of research for Cornerstone Advisors, a Scottsdale, Ariz.-based consultancy to banks.

To make his point, Grossman cites gas prices. While gas stations sell products other than fuel, gasoline is priced at a tenth of a cent. Adjusting the price per gallon by a tenth of a cent is not necessarily enough to make a noticeable difference to consumers, who typically look for savings of several cents per gallon, he argues.

“On a cumulative level, the savings from being able to route transactions over a lower-cost network may provide noticeable savings to merchants, but on a line-item basis, those savings would not be noticeable enough to consumers,” Grossman says. “Merchants are more apt to keep the cumulative savings and plow them back into their business.” 

Also, card issuers are unlikely to choose a network that costs merchants less to use, as issuers look to protect their interchange revenue, says Don Apgar, director for merchant payments at Javelin Strategy and Research. “If the CCCA passes, issuers are going to choose an alternative network that keeps their interchange revenues up. They aren’t going to take less in interchange revenue,” says Apgar.

The CCCA would require financial institutions with $100 billion or more in assets to enable at least one network other than Visa or Mastercard for credit card processing. There is no provision in the CCCA requiring merchants to pass along savings to consumers incurred from the legislation, payments experts add.

Two alternative networks likely to maintain issuers’ margins on interchange are American Express and Discover, Apgar says.

The Electronic Payments Coalition, which opposes the CCCA, has repeatedly argued that merchants will not pass any CCCA savings on to consumers. The primary piece of evidence cited by the EPC to support its claim is a study by the Federal Reserve Bank of Richmond, which indicates merchants did not adjust prices downward after the passage of the Durbin Amendment. The amendment capped debit interchange fees more than a decade ago. 

“Don’t take my word for it. History, the independent Congressional Research Service, and Richmond Fed have all said consumers will not see any benefit from these new government mandates,” an EPC spokesperson says by email. “And, according to the University of Miami, these mandates will not even help small businesses on Main Street.”

Representatives of the MPC were not available for comment at press time.

Earlier this month, efforts by CCCA co-sponsor Sen. Roger Marshall (R-Kan.) to attach the CCCA to the Federal Aviation Administration reauthorization bill failed by a vote of 85-12.