Big-box banks: Congress’ plan to lower credit-card swipe fees pits retailers against banks

Legislation to give small businesses relief from credit-card swipe fees has sparked fears it will also let big retailers such as Walmart, Target and Amazon muscle into the banking industry.

Critics warn it would also spell the end of popular rewards programs for consumers.

The debate over the bill comes as a Walmart-backed financial technology company, ONE, is offering 5% interest on savings accounts of up to $100,000 — roughly 12 times the national average.

The Credit Card Competition Act of 2023, which has been re-introduced with bipartisan support in the Senate and House, “is nothing more than a windfall for the nation’s largest and most ‘woke’ retailers,” former Rep. Mike Pappas of New Jersey wrote in an op-ed in The Washington Times.

Mr. Pappas, a Republican who served on the House Small Business Committee, said the measure should be called the “Big Box bill.”

He said the legislation would leave consumers with “fewer rewards and less access to credit as financial institutions — left with less revenue — will no longer be able to offer the variety of credit cards Americans have today.”

The bipartisan bill was introduced by unlikely partners — Sens. Richard Durbin, Illinois Democrat; Roger Marshall, Kansas Republican; and J.D. Vance, Ohio Republican, and independent Peter Welch of Vermont. It would direct the Federal Reserve to require credit-card issuing banks to offer a minimum of two networks for merchants processing electronic card transactions.

The measure would prohibit those two networks from being Visa and Mastercard, which currently have the largest market share of cards.

The proposal didn’t advance last year.

The money at stake is significant. Credit-card processing fees, paid by businesses each time a customer uses a credit card to make a purchase, amounted to about $160 billion last year. The National Retail Federation says swipe fees totaled about $20 billion in 2001, when the group began tracking them.

Consumer Bankers Association President and CEO Lindsey Johnson said the bill would establish an “unnecessary and unsafe federally-mandated payment network” at the expense of fraud prevention and security measures.

“The Credit Card Competition Act will dramatically hinder the most competitive credit card marketplace in the world, and hardworking families will pay the price while big-box retailers reap the rewards,” she said. “This legislation will increase the cost of owning a credit card and threaten popular rewards programs millions of consumers and small businesses value. Security and data privacy safeguards will take second place to profits on the newly created network operated by merchants.”

She said, “This is not the safe, effective, and competitive financial framework consumers have depended on banks to deliver for decades, and it should not be the financial framework policymakers impose on their constituents by supporting this deeply flawed proposal.”

But the legislation has the support of small business groups such as the National Federation of Independent Business. NFIB President Brad Close said swipe fees have more than doubled since 2012, and small business owners do not have the market power to negotiate with large credit card companies on the fees.

“By allowing owners to choose between multiple credit card network options, it would allow them to choose the option that is best for their business,” he said.

Among the lawmakers speaking in favor of the bill at a National Retail Federation event this month was Rep. Jeff Van Drew, New Jersey Republican.

“When people and the public understand this, they are going to know it’s the right thing to do,” he said.

The Senate sponsors of the bill say it would reduce swipe fees and lower costs for both merchants and customers. But critics say an unintended consequence would likely be reducing credit-card rewards, especially those offered by banks, airline and hotel programs, due to declining revenue.

Tyler M. Bender Sr., president of the Missouri Independent Bankers Association, said the measure is bad for consumers.

“The only ones that benefit from it are the mega-corporations like Amazon and Walmart,” he tweeted. “This legislation would threaten all the popular credit card rewards programs, including your @SouthwestAir credit cards and your cash back cards!”

Mr. Pappas pointed to Walmart’s backing of the fintech firm as an ominous development for traditional banks that would be worsened by the legislation.

“By offering astronomical interest rates, the Walmart-backed platform can muscle other financial institutions out of the way and choke off the competition,” he said. “When the sugar high wears off and the benefits disappear for new customers, consumers will have fewer choices. It’s the Walmart way, and every lawmaker on the Small Business Committee (on which I served while in Congress) knows it.”

Walmart, Amazon and Target joined hundreds of other retailers in writing a letter to Congress last month supporting the bill, saying Visa and Mastercard control 83% of the U.S. credit card market.

“It will bring much-needed competition into the United States credit card market, which has been dominated by only two players for far too long,” the companies wrote. “As members of the retail community and champions of the free market, we typically do not support government intervention except in cases where a market is not functioning. That is the case with the credit card marketplace in the United States.

They said Visa and Mastercard “bar their competitors from even having a shot at business with banks that issue their cards. This blocking of competition drives up prices for merchants and consumers, harms security and strangles innovation.”

“In fact, swipe fees for credit cards are higher in the United States than anywhere else in the industrialized world – more than seven times as high as Europe,” they said.

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