Retailers Speak Out on Anticompetitive Credit Card Market
During a Nov. 19 hearing held by the U.S. Senate Judiciary Committee and Chairman Dick Durbin, D-Ill., a sponsor of the Credit Card Competition Act (CCCA) along with Sen Roger Marshall, R-Kan., food retailers testified how the “duopoly” of Visa and Mastercard raises costs for grocers and their shoppers.
In FMI – The Food Industry Association’s statement for the hearing record, the trade organization observed that the grocery industry is among the most competitive sectors in the U.S. economy, but that there’s no competition on how credit card transactions are routed and how the fees for these transactions are set and levied on retailers. With Visa and Mastercard controlling more than 80% of the U.S. card market, they have the power to set both the network fee paid to them by the retailer and the interchange fee paid to the issuing bank by the retailer, FMI pointed out.
“Every time a credit card is used for a purchase, a merchant is charged on average 2%-4% of the transaction price by the credit card networks and nation’s largest banks for swipe fees,” noted Christine Pollack, VP, government relations at Arlington, Va.-based FMI. “With the average margin in the grocery industry of 1.6% in 2023, this means that the card networks and banks issuing cards make more of a profit off a grocery purchase than the store does, causing consumers to have to pay more of these fees.”
“Most consumers are not aware of these fees or the effect they have on the cost of goods and services and the U.S. economy, but the effects are dramatic,” said Merchants Payment Coalition (MPC) executive committee member and National Association of Convenience Stores General Counsel Doug Kantor, in his testimony at the hearing on behalf of both organizations. “For merchants, these excessive and ever-increasing fees are a constant source of stress and financial difficulty, and for consumers they contribute significantly to inflation. In fact, swipe fees reduce efficiency across the economy.”
Kantor added that Visa and Mastercard “wield market power in ways that harm competition” by each centrally setting swipe fee rates charged by banks that issue cards under their brands, and by blocking transactions from being processed over other networks that could do it for a lower fee and with better security. Each has an “honor all cards” rule requiring retailers that accept any of their cards to accept all of their cards, removing “almost all bargaining power” retailers might otherwise have to negotiate with banks, he noted. Additionally, according to Kantor, the recent Department of Justice antitrust lawsuit against Visa showed the network “actively holding back innovation in the market through payoffs and manipulative fee practices.”
Last year, retailers’ credit and debit card fees came to $172.05 billion, a 7.1% rise from the previous year. Of this total, $100.7 billion in fees were assessed on retailers to accept Visa and Mastercard-branded credit cards, the Nilson Report found. These hidden fees amount to an average cost of more than $1,100 per U.S. household, according to the MPC, regardless of whether cash or a credit card is used to make a purchase.
“Americans have had enough,” said Austen Jensen, EVP, government affairs, at the Washington, D.C.-based Retail Industry Leaders Association. “Inflation and higher costs are hurting families while Wall Street banks and credit card networks are raking in astounding profits. It’s time for Congress to act and help merchants and consumers by passing the Credit Card Competition Act.”
Added Pollack: “FMI and our members strongly support the enactment of the bipartisan Credit Card Competition Act to bring common-sense competition to our credit card system. Under the legislation, the nation’s largest banks that issue credit cards are simply required to enable a second, secure network on which to route transactions – fostering both competition and security, bringing down the cost of swipe fees, increasing transparency of terms, and encouraging innovative services and fraud protection.” She and Jensen urged Congress to pass the legislation before the end of the year “to provide routing choice for food retailers and relief for grocery customers,” as Pollack put it.
The CCCA has broad support, having been endorsed by a wide range of consumer and labor groups, including the International Brotherhood of Teamsters, the Service Employees International Union, Americans for Financial Reform, the American Economic Liberties Project, Accountable.US, U.S. PIRG and the National Community Reinvestment Coalition.
