Reprinted from DC Magazine
Politicians and a coalition of powerful retail giants even pushing bills designed to cap the fees businesses pay when a customer buys things with a credit or debit card.
Bipartisan Senate Amendment 6201 require cards to allow businesses to route payments through networks unrelated to Visa or Mastercard, the country’s two largest card issuers, and force issuers to make all payment networks available to retailers to route transactions, no matter which one the customer wants.
Supporters of the amendment argue that it would undermine Visa and Mastercard’s position in the card sector, where they collectively hold 80 percent of the market share, while at the same time providing some inflation relief for consumers by lowering the transaction costs that companies typically pass on to them.
But the reality is darker. The amendment does not mention consumers and there is no guarantee that we will experience lower prices in store or online. Instead, consumers may lose out due to fewer choices, less access to credit, less secure transactions, and the disappearance of rewards programs and other benefits.
Card exchange fees typically range from 1 to 3 percent of the final price, even if they are passed on to consumers. Previous restrictions, such as the debit card exchange fee cap in 2010, didn’t even drive to save money for most businesses. Small businesses have often seen their costs rise. Only a small number of large retailers have experienced lower costs. And 22 percent of retailers have increased the prices they charge to consumers, and 1 percent have reduced prices.
The lack of significant perceived benefits for most retailers may partly explain why Australia, where financial institutions have allowed merchants to choose the lowest cost payment networks to route customer transactions since 2018, has seen slow receive rate for this functionality.
In addition, interbank fees help pay for a variety of services, including rewards programs, interest-free periods, and payment guarantees, so merchants don’t have to worry about a customer’s credit history, security protocols, and other banking services. Forcing card issuers to lower the fees they can charge means curtailing those benefits and programs—reducing consumer choice and curbing fraud protection. and innovation in cybersecurity.
It’s not just the rich who rely on these benefits. Eighty-six percent of credit card holders have active bonus cards, including 77 percent with household income. less than $50,000.
2003 Australian interchange fee restrictions Led to fewer services, fewer benefits, and higher annual fees. Americans may soon feel similar pain.
Cardholders are also likely to incur at least some of the supposed cost $5 billion the technical infrastructure necessary for issuers to comply with the amendment. Banks have also reacted to previous restrictions on exchange fees. fee increasethat Americans are charged fees to open and use checking accounts, while fewer banks offer commission-free accounts.
Limited access to credit could seriously affect low-income Americans. Credit unions that serve the underprivileged are already expressing concern about politics. Credit unions and public banks also rely more on exchange fees to stay afloat than larger banks, which are more dependent on interest rates. Lower exchange fees may force these institutions to raise interest rates on credit cards. although they serve a higher proportion of cardholders who are out of balance or not paying fines.
Congress can ensure long-term inflation and lower the cost of living by repealing costly and counterproductive regulations that benefit special interests at the expense of ordinary Americans’ money.
This makes more sense than misguided payment system regulation that limits choice, benefits and payment security for cardholders while putting pressure on banks and credit unions to raise interest rates and fees.