The Senate Judiciary Committee held a session on Tuesday, focusing on the supposed duopoly of Visa and Mastercard. Members from both major parties claim that this control leaves small businesses and retailers with no room to negotiate transaction fees on credit card payments.
Democratic Senator Dick Durbin, the committee chair, commented on the unusual agreement between the most conservative and liberal members that action needs to be taken. Interchange fees, often referred to as swipe fees, are percentage-based fees that merchants must pay to credit card companies whenever customers use their cards for purchases. Visa and Mastercard, with a combined market cap of over $1 trillion, hold 80% of the market share.
Durbin revealed that in 2023, Visa and Mastercard charged more than $100 billion in credit card fees, most of which were interchange fees. Durbin, together with Republican Senator Roger Marshall, has proposed the bipartisan Credit Card Competition Act. This legislation targets Visa and Mastercard’s market dominance, obligating banks with assets over $100 billion to provide at least one additional payment network on their cards, apart from Visa and Mastercard.
Durbin stated that this would provide small businesses with a genuine alternative: they could either continue to pay the often exorbitant interchange fees on the Visa or Mastercard networks or opt for a more affordable option.
Despite this, Visa and Mastercard defend their swipe fees, with Bill Sheedy, senior advisor to Visa CEO Ryan McInerney, referring to them as incentives. He argued that adopting new technology that reduces risk and fraud and enhances processing efficiency could qualify for lower interchange rates.
However, the Credit Card Competition Act has been met with resistance from the executives, who argue that it would limit consumer control over their payment choices, reduce competition, impose technology sharing mandates, and favor certain competitors.
The National Retail Federation, however, argues that the high swipe fees currently imposed on retailers ultimately result in higher prices for consumers. In a letter to the committee, they stated that the Credit Card Competition Act would bring fairness and transparency to the payment system, benefiting both businesses and consumers.
Roger Alford, a law professor at Notre Dame University, pointed out that credit card swipe fees account for a surprisingly large part of consumer spending. He noted that last year, the average American spent more on swipe fees than on pets, coffee, or alcohol.
Visa and Mastercard had agreed to a $30 billion settlement in March, aiming to reduce their swipe fees by four basis points for three years. However, a federal judge dismissed this settlement in June, arguing that they could afford to pay more. Visa is also currently facing a lawsuit from the Justice Department, accusing it of maintaining an illegal monopoly over debit card payment networks, which, according to Attorney General Merrick Garland, has influenced the price of almost everything.
Correction: This article has been updated to correctly define interchange fees.
