Groundbreaking legislation introduced in the Senate would bring relief to excessive credit card swipe fees. The Credit Card Competition Act (S. 4674) was introduced by Senators Richard Durbin (D-IL) and Roger Marshall (R-KS). The legislation gives retailers the ability to choose which network to route a credit card transaction, creating competition that will have real benefits for retailers and their customers. Here is what the legislation could mean for convenience stores.

WHAT IS TRANSACTION ROUTING?

Whenever customers pay with their credit card, information is exchanged over a network (such as Visa or Mastercard) that allows the transaction to be settled. A helpful way to think of this process is that it is in many ways analogous to the way a phone call is routed through a carrier. A business chooses which phone carrier to use, whether it be AT&T, Verizon or another provider, based on a number of factors from reliability to cost. Having that choice is crucial to ensuring competition. But today, retailers have no choice of network when it comes to credit card transactions. They must use the only one that is enabled on that particular credit card.

WHY IS ROUTING COMPETITION IMPORTANT?

There are nearly a dozen independent networks that are equipped to route transactions, but Visa and Mastercard have prevented them from competing in the credit space. We know that these smaller networks are typically cheaper, have less fraud and run just as fast as the dominant global players. However, in their operating rules, Visa and Mastercard prohibit the banks that issue their credit cards from putting a second network on those cards. Nearly 10 years ago, Congress passed the Durbin Amendment, which required the banks to have at least two networks on debit cards, and businesses and consumers have benefited.

Retailers in the U.S. paid $138 billion in swipe fees in 2021, and the convenience store channel paid $13 billion."

WHAT WILL THE CREDIT CARD COMPETITION ACT DO?

The legislation requires that the largest banks issuing credit cards must enable a second, smaller network on a credit card. They can no longer just put Visa on their card or just Mastercard. That will make all the networks on cards compete to be the retailer’s preferred choice when routing transactions, and their pricing will reflect that new competitive landscape.

COULD VISA AND MASTERCARD BE THE TWO NETWORKS ON THE CARD?

No. The legislation ensures that when selecting the two networks on a card, banks could not choose both Visa and Mastercard and would have to choose at least one smaller network. Visa and Mastercard centrally set the swipe fees of their issuing banks, and instead of competing with each other and negotiating those fees with merchants, the banks charge the same fees. Retailers in the U.S. paid $138 billion in swipe fees in 2021, and the convenience store channel paid $13 billion.

It’s estimated that the legislation will save American businesses $11 billion annually."

WILL THIS SAVE RETAILERS AND THEIR CUSTOMERS MONEY?

It’s estimated that the legislation will save American businesses $11 billion annually. For the convenience channel specifically, that means $1 billion, or $7,000 a store, each year. Just as swipe fees inflate the prices customers pay, savings from this legislation will benefit customers given the retail industry’s highly competitive nature.

WHAT WOULD BE OTHER BENEFITS FROM THE LEGISLATION?

A competitive market drives innovation, and other savings will be seen from new technologies that don’t exist in the Visa/Mastercard monopolized market today. For instance, when dual routing on debit cards was implemented, the smaller debit networks developed PIN-less capabilities to compete for debit transactions that weren’t associated with a PIN, and they started offering security features like end-to-end encryption of payments data.

WHAT MAKES THIS ISSUE ESPECIALLY RELEVANT TODAY?

Swipe fees are out of control. Inflation, an uptick in card usage and increased fees have combined to create the perfect storm. For merchants across the nation, card fees were up 25% in 2021. Through the first half of 2022, convenience industry swipe fees were up 38%. That can’t continue. And, with the inflationary environment, members of Congress are looking for opportunities to bring relief to Americans.

The credit card industry may have more resources, but the convenience industry has always outpaced them in passionate people."

Swipe fees, of course, serve as inflation multipliers because they are a percentage of the transaction amount. The industry’s pretax profit in 2021 was 2.47%, and the average credit card fee is 2.25%. That shows retailers have no choice but to pass the cost of swipe fees onto their customers. The result is that American households paid $900 a year in swipe fees in 2021, and we know that number will be higher this year given inflation. This legislation is one way to bring a measure of relief to Americans.

WHAT IS THE PATH FORWARD FOR THE LEGISLATION?

NACS is aggressively advocating for its passage and is meeting with every member of Congress to ask them to support the legislation. We are working with the Merchants Payments Coalition, a broad coalition NACS helped found that spans the retail sector. Our hope is that we can coalesce enough support for the legislation that the Senate considers it for a vote this fall. However, the credit card industry is fighting the legislation with all of its might, spending millions on paid advertising to blanket the airwaves with mistruths about the bill.

The only way the convenience industry will succeed in passing the Credit Card Competition Act is if every c-store retailer contacts their members of Congress. The credit card industry may have more resources, but the convenience industry has always outpaced them in passionate people. Use your voice today, and ask Congress to support credit card competition.