There’s never a dull moment in our industry. We have to constantly adapt to new technologies, tastes, and policies. So far, this decade is already bringing us a whole lot of change, with antitrust action shaping up to be the year’s game-changer.
There’s a piece of proposed legislation, making its rounds through Washington, that could have a major impact on payment processing. The Credit Card Competition Act of 2022 wants to shake up the credit card payments space and has strong voices both in favor and against it.
Let’s get to the bottom of how this bill if passed, will impact the industry.
What’s in the Bill?
The main issue at hand is that two payment networks account for over 83% of credit card activity. You might have heard of them: Visa and MasterCard.
These giants share the lion’s share of credit card payment activity between the two of them. When you include American Express and Discover, virtually all activity is concentrated in four networks.
The bipartisan bill, which has support in both the House of Representatives and Congress, would require large banks to allow electronic credit transactions over no less than two unaffiliated networks. In other words, banks would need at least one other payment processor in addition to Visa and MasterCard to route their credit card payments.
That means more competition for routing credit card transactions, and most likely will lead to lower costs for merchants. As one would expect, Visa and MasterCard’s effective duopoly doesn’t put much pressure on them to reduce prices, so a little more competition could help move the needle.
| Credit Card Networks By Purchase Volume (Billions), 2021 | |
| Visa | $ 2,405 |
| MasterCard | $ 1,085 |
| American Express | $ 897 |
| Discover | $ 182 |
Source: WalletHub, SEC Filings
Two Big Fish
Monopolies are never popular. Microsoft in the ‘90s, Walmart in the 2000s, and Amazon over the past decade: all struggled with the perception that they were just too big. Critics said their outsized market power hurt their industries and, ultimately, consumers.
We see the point and agree with the general opinion that this will likely reduce transaction costs. Reducing market power can have other positive side effects as well, like encouraging the big players to innovate to stay competitive, such as through better security or new features.
However, market leaders tend to lead for a reason. If a big company is on top of its game, trying to break them isn’t always best for the industry. This is the argument against sharing the love on payment processing.
Processors and Banks Say No Thanks
The Electronic Payments Coalition, one of the most vocal opponents of the bill, warns that the bill will only make retailers richer, and payments less secure. The lobbying group called it a money grab by major retailers, who want to save money on cheaper, less secure payment processing. They say big companies will just pad their profits with those savings, rather than passing them onto consumers.
A more compelling argument against the bill is data security. Visa and MasterCard are huge companies and have security budgets bigger than most firms’ annual revenue. Stakeholders worry that it may be harmful to route more payments through smaller, potentially less secure networks.
As Jess Tasey, chairman of the EPC said, “The proposed legislation will lead to even more private consumer information being made available to foreign networks in countries like China and Russia.”
It remains to be seen whether this is a valid concern. We should mention that Visa and MasterCard also have an outsized influence on the Electronic Payments Coalition, which is a big part of why the coalition is so against this move.
COCARD: Ahead of the Game
The Credit Card Competition Act of 2022 might make the payments space a bit more complicated by creating new rules for banks in terms of how they process their transactions. It will most likely eat into MasterCard and Visa’s market share, and bring new players into the game.
We can expect lower transaction costs for merchants through increased competition, and potentially (but not necessarily) new security headaches and other frictions as financial data moves through new networks. We’re ready for all of it.
Regardless of whether the legislation passes, COCARD will continue to lead and thrive. We have the most secure, frictionless hardware and software suite in the industry. We already have the best split rates and fee structure in the business, and will always pass on new savings to our merchants.
We also make sure our member-owners are ahead of the game. If the CCCA passes, they’ll be ready on Day 1.
Get in touch today to learn how COCARD leads in the Digital Age.