Let's Pass the Credit Card Competition Act!

My op-ed first appeared in the San Francisco Examiner, January 24, 2023

Like many other retailers across California, I wasn’t allowed to open my doors to customers during the early days of the COVD-19 pandemic. As I struggled to save my business, I immediately started reducing my costs and overhead. I let go of my staff, I stopped the weekly garbage collection, and I changed the phone plans.

But as I tried to reduce my third-largest expense — the credit card “swipe” fees big banks and card networks charge merchants to process transactions — I found that I couldn’t. There was no way to negotiate with my merchant services provider, who contracts with a single payment processor. But even if they offered more options, the card industry refuses to negotiate over these fees, which take 2.6% of every credit card sale I make.

Credit and debit card swipe fees add up quickly and increased 25% in 2021 alone to a record $138 billion nationwide. Swipe fees are charged not just on the price of products consumers buy but on the sales tax that merchants collect as well.

Swipe fees are out of control and the reason is lack of competition. San Francisco-based Visa and New York’s Mastercard, which control 80% of the market between them, set the fees charged by banks that issue their cards — the same banks that refuse to negotiate when merchants ask for a break during challenging times. They also block competition by restricting processing to their own networks. It’s no wonder swipe fees have more than doubled in the past decade.

We need to create a fair and competitive market to reduce these fees for the benefit of small businesses and consumers alike. Swipe fees are far too much for merchants to absorb and must be included in retail pricing, costing the average California family an estimated $900 a year, according to the Merchants Payments Coalition.

These high fees and their impact on small businesses, consumers and the economy are why the bipartisan Credit Card Competition Act was introduced in Congress last year by Senators Richard Durbin, D-Ill., and Roger Marshall, R-Kan., and Representatives Peter Welch, D-Vt., and Lance Gooden, R-Texas. Support is quickly growing, and passage could come this year.

This landmark pro-consumer legislation would require that the nation’s largest banks enable the credit cards they issue to be processed over at least two unaffiliated networks — Visa or Mastercard plus an independent network like NYCE, Star or Shazam, or even competitors like American Express and Discover. The banks would decide which two networks to enable but merchants would decide which to use.

The legislation would end Visa and Mastercard’s monopoly and require networks to finally compete over fees, service and security. Payments consulting firm CMSPI says merchants would save at least $11 billion a year, which would help them hold down prices paid by their customers.

In addition to having lower fees, the Federal Reserve says independent networks like NYCE, Star and Shazam have about one-fifth as much fraud as Visa and Mastercard, further benefiting consumers. The bill would also close a gaping security flaw by barring networks controlled by foreign governments like China’s UnionPay from entering the U.S. processing market. Currently, banks are free to outsource processing to China, exposing consumers’ private financial information.

California shoppers have been forced to pay more these last few years because of the driving costs of tariffs, higher shipping and overtime for understaffed businesses. If we can create a competitive market in credit card processing, we can help consumers and the economy by starting to get prices under control. It’s time to pass the Credit Card Competition Act.

Tara Riceberg is the owner of Tesoro, a luxury gift shop.