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For all the new payments services on the market, many Americans still use credit cards running on the Visa and Mastercard networks, and lawmakers are making a fresh push to break up the "duopoly".

The Credit Card Competition Act (CCCA) would require banks to give merchants a choice of at least two card networks to process payments, rather than being forced to use the network linked to the card. This, its proponents say, would improve competition and thereby lower the fees that merchants pay to the card networks.

The bill has been stuck for two years. Its co-sponsor, Senator Roger Marshall (R-KS), failed last week to package it into the Federal Aviation Administration Reauthorization Bill, an urgent piece of legislation that passed on Friday (May 10).

Nonetheless, his fresh attempt has reignited a polarised debate, with proponents of the bill claiming that the two networks act like a “cartel” and opponents saying they are a bulwark against fraud and subject to the same market forces as any other successful companies.

“For too long, the Visa-Mastercard duopoly has used money and influence in Washington to turn politicians’ eyes away from predatory swipe fees,” Marshall said on the floor. “Right now, the Visa-Mastercard duopoly and foreign mega banks are robbing our American small businesses at the highest rate in the world.”

Many American businesses and their industry groups support the legislation, and have banded together to form the Merchants Payments Coalition (MPC), a pressure group. The card networks and many of the large banks that issue credit cards are opposed to it.

“The regulation is necessary and long overdue: we have this huge problem with credit cards that most people don’t see or understand,” said Doug Kantor, general counsel at the National Association of Convenience Stores, a member of the MPC.

“That totally undercuts market forces,” he told Congress. “In most markets businesses or consumers can shop around for the best quality and the best price; with credit cards merchants are presented with two dominant groupings, Visa and Mastercard.” 

Dylan Jeon, a lobbyist at the National Retail Federation, suggested that the current system allows major banks to lock in consumers and merchants alike to the Mastercard and Visa networks at the expense of competition, leading to increased interchange fees and higher prices for consumers. 

“You have the nation's largest financial institutions that probably give out about 85 to 90 percent of the nation's credit cards, and they are only badged with Visa and Mastercard, which allows these networks to centrally set the interchange rates that are charged by the banks,” he said. “Credit card processing fees are now most retailers’ second-highest cost after labour — more than utilities, rent or business expenses.” 

The devil you know

But Brian Riley, co-head of payments at Javelin Strategy & Research, said the legislation’s impact on Visa and Mastercard would be less direct than intended because they make most of their revenues from access to their members, not from interchange fees.

Moreover, he warned that forcing banks to use other networks could have harmful side effects; for example, by facilitating fraud.

“You are talking about processing $4trn a year. You have to consider what Mastercard and Visa do for fraud,” he told 91����ԭ��. “If you use a low-budget network there are huge risks for internet transactions or when people use their card numbers but don’t have their card present.”

Jeon from the National Retail Federation contested this point, saying that more competition would encourage innovation, including in fraud prevention. He also gave statistics suggesting that Mastercard and Visa suffer higher levels of fraud than rivals, especially the debit card networks that are most likely to enter the sector if the CCCA passes.

Market forces

Other opponents of the legislation said that the market is acting as it should and that Visa and Mastercard are subject to competition.

Julian Morris, a scholar at the International Center for Law and Economics, said that the market has successfully been self-regulating for several decades and does not need a prescriptive regulation like the CCCA to realign competition. 

“The breakup of the duopoly is happening anyway,” he said to 91����ԭ��, suggesting that the proposed merger of bank holding company Capital One, a major player in the US credit card space, and Discover, the fourth-largest payments network in the sector with around a 3 percent market share, is likely to increase competition regardless of regulatory intervention. 

“Capital One intends to create competition whether or not the CCCA occurs: they are going to convert people over. The merger may mitigate the harm for consumers because they will be able to able to use a three-party network,” he said. 

He said that the current card ecosystem — with American Express serving the high end, Discover the budget segment, and Visa and Mastercard the broad mid-market — offers good options for households of all incomes. 

“I don’t think there is much good in the proposed legislation,” said Morris. “There are better things that can be done to promote more competition in payments in the US, like legalising crypto more widely, for example. That would have a more dramatic effect than going after the credit card networks.”