Last year, Texas merchants paid more than $8.6 billion in credit card swipe fees, second only to California. This revenue went straight to Wall Street, filling the coffers of mega banks and credit card companies at the expense of Main Street businesses, who pay an average of 1.5-3.5 percent of every credit card transaction in swipe fees. Fortunately, the Credit Card Competition Act (CCCA) was introduced to correct the market failure that has allowed unchecked, ever-rising swipe fees.
Currently, Visa and Mastercard wield more than 80 percent of the credit card market share, allowing them to dictate and steadily increase swipe fees that major banks implement. Reassured by a universal swipe fee rate, major banks are happy to use Visa and Mastercard’s processing services with excessive rates because widespread acceptance means the banks don’t have to compete with each other. But when these massive financial institutions fix prices from the outset, merchants get no chance to negotiate a more reasonable fee.
This market failure has made it so American businesses pay the highest credit card swipe fees in the industrialized world. Because of this, many business owners aren’t able to absorb the full cost of swipe fees that often make up their second-highest operating expense. Consequently, they’re forced to pass these fees on to consumers through increased prices, resulting in an average of $1,000 a year in additional swipe fee-related costs for the everyday American.
With the median rent for a studio or one-bedroom apartment hovering around the same price point in Texas, the impact of swipe fees on consumers cannot be understated. More than half of Texans are “highly stressed” about inflation and inaction on credit card swipe fees is making this situation worse.
Limited competition has also left the major credit card companies largely complacent with critical services like security protections. The Federal Reserve now says rates of fraud for Visa and Mastercard are eight times higher than those of comparable networks in the debit space.
Both companies have also welcomed China UnionPay, a state-owned financial services corporation, into the American market and the security standard-setting organizations that govern the payments sector. Currently, banks have the option to use UnionPay to process transactions if they choose, and even more concerning is their membership to security organizations like EMVCo and the Payment Card Industry (PCI) Security Standards Council.
That’s why the CCCA is a much-needed solution to help protect Americans’ financial security and drive credit card swipe fees down. This bill would restore competition to the credit card industry by giving merchants a choice between two different payment networks when processing transactions. With access to alternative networks, business owners could choose one with similar, or even better, services for less cost. Real competition would motivate Visa and Mastercard to bolster their own services and security protections and reduce costs to a more reasonable rate in order to contend. The CCCA would also block networks that pose a threat to national security, rejecting China UnionPay from the domestic market and safeguarding American payments.
No state embodies the competitive free market like the Lone Star State, and I hope Sens. Ted Cruz and John Cornyn will empower the principles that make our economy great by passing the CCCA. Both merchants and consumers would reap the benefits of reduced credit card swipe fees and accelerated advancements in payments technology. It’s time to buck Wall Street and pass the CCCA.
Bill Kent is CEO of Midland-based The Kent Cos., which operates a growing chain of service stations and convenience stores in Texas, Oklahoma, New Mexico, Tennessee, South Carolina, North Carolina, Florida and Alabama.
