Credit union executives argue that a proposal to reduce Visa and Mastercard’s influence over credit card interchange fees would potentially reduce the revenue needed to manage costs and protect transactions.
“Interchange revenue covers things like physical cards, processing fees, systems that process payments. It’s not just the networks themselves, but all the systems associated with them,” said Todd Mason, President and CEO. of the Maine Credit Union League. The Credit Card Competition Act of 2022, introduced by Sen. Dick Durbin, D-Ill., and Sen. Roger Marshall, R-Kan., on July 28, aims to reduce trade-ins by requiring more options to process payments.
The bill does not directly apply to credit unions or banks with less than $100 billion in assets, but credit union lobby groups say a forced reduction in interchange fees also exerts indirect pressure on other Community financial institutions. The criticism is similar to the rejection of a debit routing provision in the Dodd-Frank Act that was passed after the 2008 economic crisis. This provision, part of what is known as the Durbin Amendment, required more of choice for merchants when routing debit card payments.
“The idea of ’the Credit Card Competition Act of 2022′ is that it gives merchants choice, it promotes competition and tries to break up what is seen as a duopoly held by Visa and Mastercard, which are the two biggest networks in terms of transactions,” said Zilvinas Bareisis, head of retail banking for Boston consulting firm Celent. “Certainly for credit cards, they have the lion’s share of transactions, so the idea is to introduce more competition.”
Visa and Mastercard did not respond to requests for comment by the deadline.
New Durbin/Marshall bill would direct the Federal Reserve to create regulations that would require financial institutions with more than $100 billion in assets to support at least two networks for processing card-based loopback transactions open, one of which is not from the two main companies. .
The bill was first discussed at a hearing called by the Senate Judiciary Committee in May.
“Convenience stores, gas stations and other small businesses…are being operated by Visa and Mastercard on behalf of New York’s big banks at a time when they, and the communities they serve, are grappling with crippling inflation and watching the barrel of an impending recession,” Marshall said in a press release. “Competition is the heart of capitalism and that’s what our bill will create, competition.”
Despite small financial institutions’ pushback, experts from the National Association of Convenience Stores and the Merchants Payments Coalition point to the bill’s focus on large organizations and the possible benefits for store owners. .
Doug Kantor, general counsel for the convenience store group and a member of the payments coalition, explained that costs can be reduced by fostering competition between card networks and large financial institutions.
“Our view is always that a competitive market is better for everyone, where smaller institutions like credit unions are already at a disadvantage in the market. … I think [credit unions] could welcome a more competitive market that would potentially give them a better opportunity to compete when large emitters have requirements that they don’t have,” Kantor said.
A February 2022 survey of industry groups, research organizations, and financial institutions by the U.S. Governmental Accountability Office found that the 2008 Durbin Amendment had a profound impact on how custodians offered basic banking services over the past 10 years. Additional research cited by the GAO and conducted by the Fed found that some banks liable under the bill increased monthly service charges on checking accounts.
The National Association of Federally-Insured Credit Unions, the Credit Union National Association and other trade groups are expressing similar concerns about the effect that new restrictions on exchanges could have on financial institutions below the $100 billion threshold. dollars of assets.
The Credit Card Competition Act shares many similarities with the Durbin Amendment and as such could see the same outcome move from the debit realm to the credit market, said Greg Mesack, senior vice president of the government affairs for NAFCU.
Card networks argue that interchange covers costs related to fraud prevention and other card payment processing factors. Reducing interchange fees does not reduce this burden.
“The impact for credit unions is going to be lower interchange revenue, plain and simple. … In many ways it’s a repeat of what we saw with the ‘Durbin Amendment –’ you’re going to see lower interchange revenue, but you’ve still got all the fraud protection, security, card issuance, and customer service obligations,” Mesack said. further shape the way credit unions provide low-cost and sometimes free services to their members.”
Additionally, credit unions with smaller economies of scale that place more emphasis on revenue from consumer credit transactions may have to offset declining interchange revenue elsewhere.
“The biggest credit card companies in the country are banks, but [credit unions] are part of this payment processing ecosystem, and an impact in one area affects us all. … Although we are not for profit, we still have expenses to keep institutions open,” said Jason Stverak, deputy director of advocacy for federal government affairs at CUNA. “In many cases, this could come down to reducing hours or providing additional services. .”
The new bill continues the long-running battle between merchants and financial institutions over interchange fees around the world.