At a hearing titled “Breaking the Visa-Mastercard Duopoly: Bringing Competition and Lower Fees to the Credit Card System” on November 19, 2024, the Senate expressed concerns about card interchange fees, commonly called swipe fees. They argued that these fees financially strain consumers and businesses, increasing prices for goods and services. The hearing focused on Visa and Mastercard’s market control and highlighted how swipe fees affect merchants and customers.

As consumers increasingly use credit and debit cards over cash, and as the volume of purchases requiring payment networks grows, swipe fees have become more significant for retailers. These fees are a percentage of each transaction taken by the payment networks, impacting the cost of doing business.

Key Takeaway

• Market Dominance and Fee Concerns: Visa and Mastercard control approximately 80% of the U.S. credit card market, significantly influencing interchange fees. Senators criticized this “duopoly” for imposing high costs on merchants, often passed on to consumers through higher prices.
• Impact on Small Businesses: Small business owners highlighted the financial burden of swipe fees, one of their largest expenses. Senators emphasized that these fees strain businesses and reduce their competitiveness.
• Legislative Proposals for Competition: The bipartisan CCCA seeks to lessen Visa and Mastercard’s market dominance by mandating that banks with assets exceeding $100 billion offer alternative payment networks. Critics caution about possible unforeseen consequences, while supporters contend that this would reduce prices for retailers and customers.
• Defenses and Counterarguments from Visa and Mastercard: Company representatives defended the fees necessary to maintain payment system security and infrastructure. They argued that reducing fees or imposing alternatives could harm competition, limit consumer choice, and increase operational costs.

Senate Examines Interchange Fees and Visa-Mastercard’s Market Dominance

Interchange fees are costs merchants incur each time a customer uses a credit or debit card to purchase. Card networks like Visa and Mastercard in the United States determine these fees, which typically range from 1% to 3% of the transaction amount. By contrast, European regulations limit these fees to 0.3% for credit card transactions.

Last month, the Senate Judiciary Committee held a hearing to discuss concerns over Visa and Mastercard’s dominant market position, often called a “duopoly.” Members of the committee, spanning both Republican and Democratic parties, pointed out that this market dominance leaves retailers and small businesses with little power to negotiate these fees.

Senator Dick Durbin of Illinois, the committee chair, highlighted the unusual consensus across the political spectrum, noting that both very conservative and very liberal members agree on the need to address this issue.

Visa and Mastercard hold about 83% (over $1 trillion) of the general-purpose credit card market in the U.S., with nearly 576 million cards issued. This dominant position allows them to set interchange fees with little competition, increasing merchant costs. These costs are frequently passed on to consumers as higher prices for goods and services.

In 2023, Visa and Mastercard assessed merchants more than $100 billion in fees, primarily interchange fees, according to research presented to the committee by Senator Dick Durbin.

During the hearing, South Carolina Republican Senator Lindsey Graham expressed uncertainty about her stance, stating that she remains unconvinced that the fees are set with consumer interests in mind.

Senator John Kennedy from Louisiana questioned Visa’s senior advisor, Bill Sheedy, on why CEO Ryan McInerney did not personally attend the hearing. Kennedy emphasized the need for dialogue, warning that Congress might intervene if the issues are not resolved. He expressed concern over how high prices are affecting Americans.

Senator Peter Welch from Vermont criticized the interchange fees as excessively high and pointed out that the CEOs of Visa and Mastercard each earn over $20 million a year. He stated that these practices are detrimental to small businesses in the U.S.

Senator Josh Hawley characterized Visa and Mastercard’s behavior as monopolistic and collusive, noting that they control approximately 80% of the market. He stressed that such dominance is unsustainable.

The hearing also included statements from small business owners and executives at Visa and Mastercard.

Small business representatives shared their experiences with the financial challenges caused by high interchange fees. Chris Callahan, co-owner of Battenkill Books in Cambridge, New York, highlighted that swipe fees represent one of the largest expenses for small retailers, significantly affecting their financial health.

Senator Durbin and Senator Roger Marshall from Kansas introduced the bipartisan Credit Card Competition Act (CCCA) to address this conflict. The bill proposes that banks with assets over $100 billion must include an alternative payment network in addition to Visa and Mastercard on their cards.

Senator Durbin explained that this legislation would give small businesses the necessary options to manage costs better. They could continue using Visa or Mastercard and absorb the high interchange fees, which are often one of their largest expenses, or they could opt for a more affordable alternative.

During the Senate hearing, representatives from Visa and Mastercard defended their fee structures, emphasizing that interchange fees fund essential infrastructure and security measures that benefit merchants and consumers.

Bill Sheedy, senior advisor to Visa’s CEO, explained that interchange fees are primarily bank-to-bank payments for credit and debit transactions, with the direction of the fee varying in certain cases, like ATM transactions. He stressed that Visa aims to maintain these fees at reasonable levels to ensure the smooth functioning of transactions, which is crucial for its business. Over the past five years, Visa has invested $11 billion in enhancing cybersecurity and has prevented $40 billion in fraudulent transactions.

Meanwhile, Linda Kirkpatrick, Mastercard’s President of the Americas, argued in her testimony that the proposed CCCA would actually reduce competition by imposing unnecessary controls on a functioning system. She asserted that the legislation could disadvantage Mastercard in favor of American Express, reduce consumer choices, and not necessarily benefit merchants.

She referenced the 2010 legislation capping debit card fees, which did not result in lower prices for consumers as intended. Kirkpatrick also highlighted the emergence of companies like PayPal, which offer consumers and merchants more options and encourage competitive ecosystems. She cautioned that the proposed bill would necessitate reissuing hundreds of millions of cards and developing new infrastructure to accommodate different merchant routing options, incurring billions in costs.

In 2010, the Durbin Amendment, part of the Dodd-Frank Act, was enacted to cap debit card interchange fees for banks holding over $10 billion in assets, aiming to reduce costs for merchants accepting debit cards. Despite this, credit card interchange fees have not been similarly regulated, leading to continued discussions and proposals for comparable regulations in the credit card industry.

High interchange fees indirectly affect consumers as merchants typically offset these costs by charging higher prices for goods and services. Additionally, the limited competition in the credit card network market can inhibit innovation and reduce options available to consumers. Supporters of the Credit Card Competition Act believe that pumping more competition would help decrease fees, potentially lowering consumer prices and offering choices in payment processing methods.

In March, Visa and Mastercard agreed to a $30 billion settlement designed to decrease their swipe fees by four basis points over three years. However, this settlement was overturned by a federal judge in June, who stated that they (Visa and Mastercard) could afford to offer better reductions. Additionally, Visa is currently toiled in a legal battle with the Justice Department, which filed a lawsuit against them in September. The lawsuit accuses Visa of unlawfully monopolizing the debit card payment networks.

Conclusion

The Senate hearing underscored bipartisan concerns about the impact of high interchange fees and Visa and Mastercard’s concentrated market power. Lawmakers, small business owners, and legal experts highlighted the financial burden these fees place on merchants and consumers. While Visa and Mastercard defended their fee structures as necessary for maintaining security and infrastructure, critics argued for increased competition to reduce costs.

The introduction of the Credit Card Competition Act represents a potential legislative step toward addressing these concerns, but its broader implications on the industry remain a subject of debate. This issue will likely continue to garner attention as stakeholders push for a balance between innovation, affordability, and fair competition.