Will the Credit Card Competition Act of 2022 produce any relief for merchants paying high processing fees? The bill requires every bank with assets greater than $100B to provide a processing option in addition to 'Visa' or 'Mastercard'. This law would require at least one new card network to be formed. Unlike the earlier Durbin Amendment, this legislation doesn’t cap interchange fees. Rather it relies on competition to break the duopoly and reduce credit card costs.
For a long time, the banks have pressed their advantage and increased fees, even while volumes of transactions are also increasing. This is in defiance of any economies of scale expected in supply chains that aren’t plagued by scarce resources. In the last few years buyers have increased their card usage, but merchants have seen the most significant fee increases in the previous decade. Business cards rates increased by .25%, ecommerce transaction costs have increased by over 4%. and most other cards increased slightly. Credit card issuing continues to be a very lucrative business and if competition were allowed to flourish innovation and savings would be a highly probable result.
This legislation has now been submitted for consideration in both House and Senate, however it will not succeed without an unprecedented grass-roots campaign. It is highly unlikely that the bills will be taken up in the last few months of this current term. Banks and the associated card networks have very strong lobbies on the Hill and are taking this assault on their business seriously. For these and other reasons don’t expect merchants to find near-term relief from a legislative solution.
However, as hydraulic civilization theory suggests, this duopoly may be broken by an outside force. A new competitor that pushes on the weaknesses of the current system and topples the existing regime. 'Visa' & 'Mastercard' charge a percent of the transaction based on the value created; In opposition to RuPay and other systems that charge a lower, flat-rate fee based on the cost of processing transactions. The US currently pays the highest interchange fees, 6x more than other developed nations. And yes, 'Visa' & 'Mastercard' operate profitably in those regions at 30 basis points rather than 180+. The seeds of change are sown into the fabric of the association’s interchange tables. New payment methods are targeting these weaknesses and this is a more likely change agent than congressionally mandated legal remedies.
At HighRadius we believe that Credit Cards have their place in almost every well-thought-out corporate payment strategy. Some lines of business couldn’t exist without the speed and surety of a card transaction. But there is a balance that merchants should strive for in a comprehensive Order-to-Cash solution. If you too are frustrated by the rising costs of credit card fees, please reach out. Our payment experts can discuss real world solutions to address your specific business needs and industry trends that can be applied today.
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