Swipe fees and security threats

While the new year begins, Visa and Mastercard have yet to back down from their fight to defeat legislation known as the Credit Card Competition Act (CCCA), which would finally force them to compete with other networks in the credit card industry.

While the free market has long been a hallmark of our economy, both corporations have spent big on misinformation regarding the CCCA, which would challenge their anti-competitive practices, reduce swipe fees, and bolster payment security.

Controlling over 80% of the market share, Visa and Mastercard haven’t had trouble sidelining their competitors and hiking swipe fees in an unsustainable manner. These fees are charged as a percentage of the total transaction amount every time a consumer uses a credit card to pay. Depending on the card, these fees average between 1.5% to 3.5%, and while seemingly small, merchants in 2022 paid more than $126 billion in processing fees. Compared to the year prior, these fees grew by more than 20%, a pattern of growth many businesses can’t sustain. These fee increases have also left American companies paying the highest swipe fees in the industrialized world.

Visa and Mastercard maintain a set schedule of swipe fee rates that dictate what fees banks charge local businesses, and with all the nation’s banks acting together in concert, they can charge the same prices without concern that they will ever be undercut on price. There’s no incentive to have lower fees because there is no competition. So, Visa and Mastercard continue increasing their use despite processing costs becoming cheaper. That leaves merchants to either absorb the swipe fees (which can be impossible for businesses with tight profit margins), pass the cost on to consumers, or close their doors.

Fortunately, a bipartisan effort spearheaded by U.S. Sen. Roger Marshall, R-Kan., has led to the introduction of the CCCA that would inject much-needed competition by allowing merchants to choose from a secondary routing network. Rather than being forced to incur swipe fee charges from Visa or Mastercard, business owners could choose from at least one other alternative network.

As we’ve seen in other competitive markets, new competition helps drive down prices and enhance new services and technology offerings as companies try to maintain their edge.

While major financial institutions have poured large sums of their excess profits into fear-mongering the end of secure payments, it’s not true. Mainly due to complacency due to not facing fair competition, Visa and Mastercard experience rates of fraud eight times that of similar networks serving customers in the debit space.

Even more concerning is the threat from foreign influence, as Visa and Mastercard have welcomed China UnionPay, a state-owned financial services corporation, into our payment system with little hesitation. In 2013, EMVCo, a security standard-setting organization primarily controlled by Visa and Mastercard, made China UnionPay a member of its governing body. In 2017, UnionPay also joined the Payment Card Industry Security Standards Council.

Testifying to Congress last March 2023, U.S. intelligence leaders called China the “most consequential threat” to national security. The threat China poses is no secret, yet China UnionPay is deciding how our security works while attempting to enter the American market.

The CCCA is the only piece of legislation proposed to tackle this challenge directly. If passed, it would block networks that pose a threat to national security, barring China UnionPay and others like it, to protect Americans from further foreign influence.

Arkansas’ federal delegation must act swiftly in the new year to pass the CCCA, help reduce swipe fees for American businesses, and safeguard our payments system from security threats abroad. U.S. Sens. John Boozman, R-Ark., and Tom Cotton, R-Ark., have always stood for strong, conservative, free-market principles and have taken the threat posed by China seriously and supporting the CCCA would be a great way to continue these efforts to the benefit of businesses and consumers across the state.

Editor’s note: Aryn Merritt graduated from the University of Arkansas with a bachelor’s degree in apparel merchandising and product development. She owns Leaning Willow, a women’s boutique in Russellville. The opinions expressed are those of the author.