For over a decade, federal law has required debit card processors to carry at least two debit networks, increasing competition in the debit network market and helping to hold down fees. The law reportedly saved merchants $6.5 billion annually in debit fees.

Now, new proposed federal legislation aims to do the same for credit card networks. The Credit Card Competition Act of 2023 would require the country's largest credit card issuing financial institutions, those with over $100 billion, to route card payments over at least one network competing with Mastercard and Visa. Proponents say the legislation would allow merchants to use less expensive networks than Mastercard and Visa. Today, Visa and Mastercard account for 80% of the credit card market, that's 576 million cards.

Ninety-two percent of small businesses support the proposed legislation because the bill would address "swipe" fees averaging over 2 percent of the transaction that banks and card networks like Visa and Mastercard charge merchants to process card transactions. 

Credit card swipe fees have doubled over the past decade, skyrocketing to $160.7 billion. Swipe fees are most merchants' highest operating cost after labor, and it's estimated they drive up consumer prices by $1,024 annually for the average family. According to the bill's sponsors, the competition between networks would incentivize better service and lower costs. 

The National Federation of Independent Business (NFIB), the nation's leading small business advocacy organization, sent letters of support to the U.S. Senate and the U.S. House for the Credit Card Competition Act of 2023. According to Brad Close, NFIB President, "Small business owners do not have the market power to negotiate with large credit card companies. Giving business owners the ability to choose between multiple credit card networks would allow them to pick the option that is best for their business."

Along with the NFIB, the Merchants Payments Coalition (MPC) estimates that the passage of the Credit Card Competition Act would save merchants and their customers at least $15 billion annually. MPC Executive Committee member Doug Kantor says, "We have the highest swipe fees in the industrialized world, and the amount of relief that could be provided to small businesses and consumers by this legislation is enormous. All Congress has to do is tell the card networks and megabanks, 'Enough is enough.'"

In addition to lowering fees, advocates say the bill would improve security. Independent networks have less fraud than Visa and Mastercard's networks, according to the Federal Reserve, and the bill would bar networks controlled by foreign governments, like China's UnionPay, from processing American credit cards.

There are several caveats to the proposed legislation - The vast majority of banks and credit unions in the country—all but the largest 30 or so—would not be subject to the bill's requirement to add a second credit card network.

 Also, cards where the network is itself the card issuer (such as American Express and Discover cards) would not be required to add a second network (though AmEx and Discover could serve as a second network on other banks' cards).

Further, the bill would not force banks to add any particular network to their cards—banks would select which second network to add, as they currently do for debit cards, based on the service, security, and value that networks offer (though the bill would direct the Federal Reserve to identify a list of card networks that could not be added because they pose a national security threat or are owned or operated by foreign state entities).

But by adding a second network to credit cards, advocates claim networks would hold down their merchant fees to incentivize merchants to route transactions over their network instead of the other network on the card.

Features vs. Cost

There is little mention of how consumers will benefit if the new legislation is successful. There are no commitments on the part of those advocating for change that they will make their products less expensive for their customers.

It may be the case that the card networks will cut back on the features coveted by consumers if the cards become less profitable to issue or increases in fraud create more cost and risk to the issuer. Nearly a third of cardholders say rewards and cash-back features matter most.

Since 2005, Quikstone Capital Solutions has been a trusted advisor to thousands of merchants needing working capital for their businesses. A merchant could qualify for up to $250,000 if they accept credit cards. It's a quick and easy process, with approval in 24 hours and cash available in 2-5 business days. Contact us today to schedule a no-cost or obligation qualification with one of our in-house business representatives.