The Credit Card Competition Act Will Help Support a Stronger, More Competitive Free Market

If you’ve ever wondered why a local small business has a piece of cardboard taped to the register that says, “no credit cards under $10,” the reason is what’s called a “swipe fee.” For every credit card transaction, the merchant pays 2–3 percent to the network like Visa or Mastercard that handles the processing. That may not sound like much, but these fees add up to over $137 billion yearly—the single biggest cost for retailers after wages.

Visa and Mastercard dominate this market, comprising a duopoly that can name their price. Merchants from bodega owners to dry cleaners must pay up or lose sales, and either take the hit or pass the cost on to consumers through higher prices.

Other nations do not demand this tribute from retailers to banks. America has the highest swipe fees in the world by an order of magnitude — in Europe, the typical swipe fee is 0.2 percent for debit cards and 0.3 percent for credit cards. The industry suggests these high fees are invested in improved security; in reality, the U.S. has the highest rates of credit card fraud in the world. 

As one small business owner told The Economist, “You know you’re going to get screwed, the only question is how to get screwed the least.” Meanwhile, in 2022 Visa and Mastercard reported net profit margins of 51 percent and 46 percent, respectively, and their executives openly celebrate how much their business benefits from inflation. 

Congress is considering action to inject some much-needed competition into this broken market. Sen. Roger Marshall (R-Kan.) and Rep. Lance Gooden (R-Texas), along with a bipartisan group of colleagues, have introduced the Credit Card Competition Act, which would prohibit major banks from continuing their anti-competitive practice of issuing cards that can be processed on only one network. Instead, they would have to allow at least one additional network, other than the duopoly, to always compete for merchants’ business. Whereas Europe’s approach is to simply cap fees, this bill takes a market-friendly approach by creating choice in processing credit card transactions and relying on competition to drive down cost and improve service.