Sen. Marshall: Fight Wall Street banks with credit card fee competition
(Washington, D.C., August 5, 2022) –U.S. Senator Roger Marshall, M.D. today penned an op-ed for the Kansas City Star and Wichita Eagle about bipartisan legislation he recently introduced alongside Senator Dick Durbin (D-IL). The Credit Card Competition Act of 2022 would enhance competition and choice in the credit card network market, which is currently dominated by the Visa-Mastercard duopoly. Building off of debit card competition reforms enacted by Congress in 2010, the bill would direct the Federal Reserve to ensure that giant credit card-issuing banks offer a choice of at least two networks over which an electronic credit transaction may be processed, with certain exceptions. While you may click HERE or scroll below to read Senator Marshall’s op-ed in its entirety, he said in part,
“…Most people don’t think about what happens when they swipe their credit card at the grocery store — but they should. Because every swipe comes with it a fee, an ever increasing fee, invisible to most, but increasingly crushing our merchants and rising costs for consumers across the board. Just like a sales tax, Wall Street banks levy a 2-4% fee on every purchase you make with your credit card, and the retailer has to absorb or pass on this cost to consumers. I hope no one feels sorry for Wall Street, because I’m fighting for more competition… Over the next few weeks and months — maybe even for years to come — you will see the woke Wall Street banks continue to attack me. They will do what they always do when someone threatens their position at the top of the financial world: Toss around their endless wealth, litter the airwaves with their myths and come after me personally… I hope you will support local retailers and local community banks, which keep money in our home communities rather than sending it to Wall Street.”
Teddy Roosevelt was praised for his leadership as a trust buster and is credited for breaking up railroads, meat packers, Standard Oil, American tobacco, and U. S. Steel. Many of us can still recall “Ma Bell” being broken up, and the fearmongering surrounding that event. The competition that’s prevailed since ending these monopolies has led to lower costs and increased innovation.
Similarly to the era of Teddy Roosevelt, today two credit card companies and four woke Wall Street banks dominate and control the nearly $5 trillion annual credit card business. With Kansans suffering from President Joe Biden’s gas, grocery and rent hikes, the last thing we needed was another credit card fee hike this past spring.
Most people don’t think about what happens when they swipe their credit card at the grocery store — but they should. Because every swipe comes with it a fee, an ever increasing fee, invisible to most, but increasingly crushing our merchants and rising costs for consumers across the board. Just like a sales tax, Wall Street banks levy a 2-4% fee on every purchase you make with your credit card, and the retailer has to absorb or pass on this cost to consumers.
I hope no one feels sorry for Wall Street, because I’m fighting for more competition. As the fee is a percentage of the total purchase, the credit card industry benefits probably more than any other industry from inflation. Indeed, Visa’s profits are up 32% from last year, showing a profit of $3.4 billion in the most recent quarter, while MasterCard showed a profit of $2.3 billion for the most recent quarter. What’s more, is these two behemoths dominate 84% of the market — a clear duopoly.
For many of the Kansas merchants I have spoken with, their monthly swipe fees are their second-highest business expense after labor, and of course those costs trickle down to the consumer in the form of higher prices. It’s these same local merchants, who are being squeezed by more than 11% wholesale inflation, who have asked our office to fight for Main Street against Wall Street — to fight for the hardworking Kansans who are most impacted by inflation.
This is why many local Kansas retailers asked me to join forces with Democratic Sen. Dick Durbin of Illinois to introduce the bipartisan Credit Card Competition Act to help fix a clearly broken system. This legislation would make cards issued by the biggest banks have more than one processing network on them, allowing the merchant to choose which of those networks to use at the point of sale.
In doing so, our bill would create a normal, healthy competitive market where both sides have the ability to compete. Kansas community banks, the financial backbone of every local economy, would not be impacted. This bill as written would not affect any bank with assets under $100 billion. As no Kansas bank comes close to this threshold, no Kansas bank would be bound by this legislation. Our hope is that this will enable community banks to get in the credit card game at a more significant level.
Additionally, continuing to be tough on China, our bill explicitly prohibits China’s UnionPay, or any other network sponsored by a foreign government, from being on American cards so they cannot encroach on the American financial system.
Our bill is a good compromise, and since the Wall Street big banks are more used to getting their own way than they are to compromise, they of course hate it. Over the next few weeks and months — maybe even for years to come — you will see the woke Wall Street banks continue to attack me. They will do what they always do when someone threatens their position at the top of the financial world: Toss around their endless wealth, litter the airwaves with their myths and come after me personally.
And that’s why I’m asking you to join me in this fight. I hope you will support local retailers and local community banks, which keep money in our home communities rather than sending it to Wall Street.
Roger Marshall represents Kansas in the U.S. Senate.
There are currently four U.S. credit card networks: Visa, Mastercard, American Express, and Discover. Visa and Mastercard are known as “four-party” networks; they act as agents for thousands of card-issuing banks and mandate the fees and terms that the banks receive from merchants for each transaction. Merchants have effectively no leverage to negotiate fee rates and terms in four-party network systems, because they cannot risk losing access to all the consumers served by Visa’s and Mastercard’s member banks.
Visa and Mastercard wield enormous market power in credit cards; according to the Federal Reserve, they account for nearly 576 million cards, or about 83 percent of general-purpose credit cards. Approximately $3.49 trillion was transacted on Visa and Mastercard credit cards in the U.S. in 2021. Visa’s and Mastercard’s market power and network structure have enabled them to impose fees on U.S. merchants that are among the world’s highest, charging a total of $77.48 billion in U.S. merchant credit card fees in 2021. These fees include interchange or swipe fees which Visa and Mastercard require merchants to pay to issuing banks, as well as network fees that Visa and Mastercard require merchants to pay directly to them. Consumers ultimately pay for all of these fees in the price of the goods and services they buy.
Under the Credit Card Competition Act, the Federal Reserve would issue regulations, within one year, ensuring that banks in four-party card systems that have assets of over $100 billion cannot restrict the number of networks on which an electronic credit transaction may be processed to less than two unaffiliated networks, at least one of which must be outside of the top two largest networks. This would inject real competition into the credit card market—opening the door for new market entrants such as current debit-only networks, encouraging innovation and enhanced security, creating backup options if a network crashes, and exerting competitive constraints on Visa and Mastercard’s fee rates.
In April, Durbin, Marshall, and U.S. Representatives Peter Welch (D-VT) and Beth Van Duyne (R-TX) sent a bipartisan, bicameral letter to the CEOs of Visa and Mastercard urging the companies not to proceed with plans to raise their interchange fee rates. Visa and Mastercard nonetheless proceeded to raise fee rates, prompting Durbin to hold a Senate Judiciary Committee hearing in May on excessive swipe fees and barriers to competition in the credit card system.