Foreword
In order to increase competition between card processing networks, congress aims to pass the Credit Card Competition Act. If passed, this bill will force the largest banks to give merchants a choice of two or more unaffiliated networks to process cards. In theory, the bill will result in decreased credit card fees for businesses. While supporters of the bill believe the CCCA could lower retail prices for consumers, there is no guarantee that prices will drop. Furthermore, this bill could result in larger credit card fees for consumers, and a decrease in security.
How the Bill Works
The largest credit card processing networks are Visa and Mastercard. These companies account for over 80 percent of the U.S. credit card network market. When you use a card from these networks, a merchant must pay an interchange fee to the bank that issued the card.
Since these two entities hold a duopoly over the industry, they set the interchange fees. Merchants must cover the fees, regardless of cost. Otherwise, they risk losing access to all of the cards issued by banks on these networks. This lack of competition has resulted in large fees for businesses, and resultantly, higher prices on a variety of common goods. If the CCCA passes congress, merchants will have multiple options when selecting a network to process transactions. On paper, this will incentivize networks to limit the price of merchant fees. This should also benefit small businesses who have historically struggled to afford these fees. If you need a low-fee credit card, this site can help you get approved regardless of credit history.
Possible Downsides
The Credit Card Competition Act might raise some security concerns for credit card users. Because retailers will be granted a choice on their network, they may opt to choose a cheaper, less secure option. The large credit networks have long-established security protocols that protect your financial information. A smaller network with less capital is not likely to have the same level of security.
Another potential drawback is a loss of rewards. Interchange fees account for billions of dollars in revenue each year. If the major credit card networks lose a large portion of this revenue, the burden will likely be transferred to consumers, in the form of increased fees and decreased rewards. Countries that have implemented limits on interchange fees in the past have seen a significant decrease in the magnitude of credit card rewards programs.