Op-ed: Credit card reform will help small businesses and consumers

A recent op-ed opposing the Credit Card Competition Act (CCCA) is misguided in several key aspects. The CCCA is designed to benefit small businesses, consumers and the broader economy, contrary to the claims made by Mr. Gomez.

The current payments arena suffers from a suffocating lack of competition. Visa and Mastercard, which together control 80% of the credit card market, have created a playground where they dictate exorbitant “swipe fees” — fees that merchants pay banks every time a customer uses a credit card. The result is those banks don’t have to compete with each other on prices at all. The fees are centrally fixed.

In 2023, Visa and Mastercard credit card swipe fees alone totaled $100.77 billion, nearly quadruple the $26 billion they cost in 2010. Despite technological advancements that lower transaction processing costs, the “transaction tax” has continued to rise.

Small businesses feel the brunt of these excessive fees. More than 30 small business associations from the Small Business Rising coalition have called on Congress to make the Credit Card Competition Act a top priority and pass the legislation now. Visa and Mastercard both dictate swipe fees that are much higher for small businesses than for larger ones.

There is no justification for these higher prices on small businesses, particularly because small businesses pay the cost of all the equipment in their stores necessary to accept these payments. And, every dollar lost to a swipe fee is a dollar that can’t be used to improve customer experience, hire staff, raise wages or keep prices down. It creates a vicious cycle with rising fees eating into revenue, forcing businesses to make difficult decisions that ultimately impact customers.

Consequently, small businesses are often forced to pass these costs on to consumers through higher prices or surcharges. It’s a domino effect that touches every American family, with U.S. households estimated to have shouldered a staggering $1,102 in credit and debit card swipe fees in 2023 alone.

By introducing competition into the credit card market, the Credit Card Competition Act would bring some competitive pricing to the market which would lead to lower rates. Small businesses could work together to negotiate lower rates, much like they do in purchasing goods and services in functioning markets today. This would translate to significant savings — a lifeline for small businesses, allowing them to create jobs, invest in operations and offer competitive prices to customers.

Furthermore, the argument that the CCCA would eliminate credit card rewards programs is unfounded. It targets transaction routing, not reward programs. Banks, not networks, determine rewards. Rewards are a marketing tool used to attract customers, and banks will continue to offer them. The credit card industry scare tactics on rewards have been fact-checked as completely false.

For instance, a decade after swipe fee reform in Australia, the Reserve Bank of Australia found banks still offered “significant credit card rewards” despite Visa and Mastercard claims that rewards would disappear. Australian banks even lowered interest rates, offering a more tangible benefit to consumers than credit card rewards.

Additionally, the legislation is carefully targeted to apply only to the biggest financial institutions dominating the credit card market — those with at least $100 billion in assets. This means community banks, credit unions and even large institutions like American Express and Discover, which don’t rely on Visa or Mastercard networks, wouldn’t be affected. According to the Federal Reserve, only 32 banks in the entire country meet this threshold, and just one credit union — Navy Federal.

The Credit Card Competition Act is not about dismantling a system, it’s about creating a fairer one. By fostering competition, it empowers small businesses and protects consumers. It’s a win-win for everyone. Lawmakers should champion this act and pave the way for a more competitive and secure financial landscape.

Sue Warfield is president of the American Specialty Toy Retailing Association and co-chair of the Small Business Rising coalition. Lauren Gellatly is senior advocacy and campaigns manager at the Institute for Local Self-Reliance and coalition coordinator for Small Business Rising.