US Credit Card Competition Act Would Harm Consumers, Says Mastercard

September 26, 2023
In a letter addressed to several members of the US Congress, Mastercard has argued that new credit card legislation, if adopted, would put consumers at risk.

In a letter addressed to several members of the US Congress, Mastercard has argued that new credit card legislation, if adopted, would put consumers at risk.

“Today’s payments ecosystem enables consumers to make purchases safely and securely while gaining access to credit and valuable benefits like zero liability,” the card giant said. “These benefits are under attack.”

Mastercard sent the letter to Senators (D-IL) Richard Durbin and (R-KS) Roger Marshall, and other supporters of the bill, after lawmakers urged the CEOs of Visa and Mastercard to halt planned price increases.

In August, as covered by Vixio, the Wall Street Journal (WSJ) reported that the card giants are planning to further increase their credit card fees this autumn.

A Mastercard spokesperson, however, told Vixio that the WSJ’s report was incorrect and that there are no planned changes to Mastercard’s interchange rates.

Still, on September 13, seven members of Congress wrote to the card networks, urging them not to proceed with what they believe are planned increases.

According to the lawmakers, merchants paid 20 percent more on credit card “swipe fees” in 2022 than in 2021, resulting in a total of $93.2bn in such fees.

However, this increase in fees is proportional to overall growth of the credit card market in the US, according to Vixio analysis. To be precise, Visa and Mastercard's combined US credit card payments value increased by 19 percent in 2022.

Citing merchant payment consultants from CMPSI, they estimated that Mastercard’s Authorization Optimizer service, which is designed to reduce the likelihood that subscription and recurring payments are declined, will add a further $500m to these costs.

The lawmakers warned that should Visa and Mastercard go ahead with fee increases, it would provide “further evidence of a broken market that is desperately in need of more competition”, and would necessitate the passing of the Credit Card Competition Act.

In its letter, Mastercard argued that the Credit Card Competition Act will “thwart the competition [the lawmakers] seek to protect”. 

The card giant added that the legislation will “remove consumer choice, erode security, eliminate rewards and dramatically prevent small businesses from investing in their future”.

“Competition is threatened when policy is made in the absence of facts,” it said.

Mastercard fights back

Going forward, Mastercard insisted that it is not planning to raise interchange rates this autumn and “never had plans to do so”.

“Despite incorrect accusations, interchange rates are not skyrocketing. They are remarkably flat,” the card network wrote.

Based on data from the Nilson Report, Mastercard’s merchant processing costs per transaction have actually decreased since 2018.

In 2018, the Nilson Report estimated that merchants paid $107.78bn in processing fees on $6.96trn of sales on cards, while in 2022, they paid $160.7bn to accept $10.6trn in payments from credit, debit and prepaid cards. 

This means that the per transaction fee has declined from 1.55 percent to 1.52 percent during that time.

According to Mastercard, the rise in gas and grocery prices is not related to the interchange fee and “any insinuation” otherwise “is patently false”.

“Grocers have long had among the lowest interchange rates in the industry. And interchange for fuel purchases has been capped for 16 years. This eliminates interchange on the portion of the transaction that exceeds about $48.”

Mastercard has also clarified that its network fees are “distinctly different” from interchange, which are not associated with transaction processing, and are either optional or pertain to value-added services for banks.

“It is surprising you would highlight the Authorization Optimizer service as it protects consumers and merchants from declined transactions and cancelled subscriptions,” Mastercard wrote.

Mastercard also said it has no plans to increase its network fees.

Reaction to the Credit Card Competition Act

For the first time, Mastercard has provided some insights into its position regarding the fiercely debated Credit Card Competition Act.

Although merchants and banks have been heavily invested in campaigning for and against the bill, the card networks have for the most part abstained from the debate until now.

Mastercard said the bill “stands to put consumer benefits at risk”, including access to credit for essential purchases, benefit from float, zero liability, reward points and protections against fraud.

It argued that there are lessons to be learned from other markets where consumers lost access to credit and rewards after interchange had been regulated.

Mastercard also raised that small businesses particularly benefit from accepting card payments as it can increase their sales and operational savings, and they can receive guaranteed payments even when consumers do not pay their bills.

In setting its policies, the card network said it pays close attention to the needs of small businesses.

For example, Mastercard said that last year it lowered rates for small-ticket purchases, alongside other categories such as hotels, rental car companies, casual dining and daycare facilities.

This means that the credit interchange rate for a cup of coffee is now lower than a regulated debit transaction, according to the letter.

At the same time, Mastercard criticised the bill for being targeted only at itself and Visa.

“It’s incomprehensible that the second largest credit card issuer in the US, American Express (Amex), would be excluded from the Credit Card Competition Act,” it said.

Amex’s rates are considered to be the highest among the main card brands. Visa, Mastercard and Discover are generally estimated to charge between 1.5 and 2.5 percent per transaction, while Amex fees range from 2.3 to 3.5 percent.

According to Mastercard, all four card brands are “fierce competitors”, which makes the exclusion of Amex from “a bill that is intended to drive competition puzzling”.

Evolution of the bill

In July last year, Durbin and a group of bicameral bipartisan legislators introduced the Credit Card Competition Act, after Visa and Mastercard decided to go ahead with planned interchange fee increases that they had halted during the COVID-19 pandemic.

Despite various attempts to attach the bill to must-pass legislation, the last Congress ended without voting on the proposal.

Durbin re-introduced the bill this June, which has reignited the debate on who would benefit from the proposed legislation and what its impact would be on consumers.

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