Hotel Payment Processing Series: A Hot Take on the Credit Card Competition Act

In 2022, U.S. Senator Dick Durbin (D-IL) and U.S. Senator Roger Marshall (R-KS) introduced the bipartisan Credit Card Competition Act. The legislation, which was reintroduced on June 7, 2023, would elicit competition and choice in credit card networks, currently dominated by the Visa/Mastercard duopoly.

The ultimate goal: capping what banks can charge for credit card fees to reduce prices for consumers.

Per Durbin, “Credit card swipe fees inflate the prices that consumers pay for groceries and gas. Bringing real competition to credit card networks will help reduce swipe fees and hold down costs for Main Street merchants and their customers.”

How It’s Supposed to Work

Think back to the days when debit cards and ATM machines ruled consumerism. You’d walk up to an ATM machine and see various card networks posted on the machine (Star, NYCE, Pulse), so you’d know if your debit card worked there. If your card had multiple logos on it, the owner of the ATM (the merchant, if you will) had a choice of where to route that transaction. Networks would compete to gain more volume from that ATM owner lowering costs for cardholders.

Very large merchants with the technical chops to implement it do this today, though it typically only applies to PIN-based debit transactions.

Dorbin’s vision would essentially apply this model to credit card transactions as well. The legislation would force card issuers (banks) to provide two network options: one major network (Visa or Mastercard) and one competing network, including a cheaper unaffiliated network like Star.

The theory is this’ll create higher price competition between Visa and Mastercard and the smaller networks forcing them to lower their costs since the lower-cost option of the two would be selected by the merchant.

How It’d Really Work

When it comes to payment processing costs, the portion that Visa and MasterCard collect is less than 10% of the overall cost of the transaction. Remember that processors are just one piece of the card transaction puzzle, which we laid out at the beginning of our series here.

Visa and Mastercard collect their fees in what are called “assessments,” totaling about .015% per transaction. Meanwhile, the issuer pockets the interchange fees of about 2% for card-present and 3% for card-not-present in the lodging industry. Even if competition cut the network fees to half of what they are today, it doesn't meaningfully change the overall cost to merchants. To do that, you need to hit the issuers directly like Mr. Durbin did so effectively back in 2009.

The legislation also means less benefit to consumers than it implies. Per this pyments.com article, “Merchants, without disclosing to the consumers, can decide to route the transaction over a network that was not built to handle the volumes and types of transactions that now ride the card network rails, potentially putting that transaction at risk. When they make that decision, consumers will likely forgo the rewards they are now used to getting when their cards are processed over existing card rails.”

A more realistic and meaningful way to drive down costs is to better educate merchants on how to properly process and manage cards transactions. An easy way to get started is checking out our recent webinar, How to Reduce Unnecessary Payment Costs, to learn where you might be falling short and paying more to process card payments than you need to. We’re covering MIDs, chargebacks, and more.