Credit Card Competition Act Benefits for Merchants and Consumers
Point: The Credit Card Competition Act (CCCA) has been introduced as a legislative effort to reshape the way credit card transactions are processed in the United States. Supporters of the bill argue that it would inject greater competition into a market currently dominated by a small number of payment networks, most notably Visa and Mastercard. By requiring large card-issuing banks to enable at least two unaffiliated networks on their credit cards, the Act aims to alter transaction routing dynamics in ways that proponents believe would benefit both merchants and consumers. Six key benefits are most often cited.
Counter Point: While I do not dispute the stated goals of the CCCA, I am concerned that the potential benefits would be substantially limited to only the very largest merchants. Only those merchants large enough to effectively negotiate with Visa and Mastercard would likely gain much from the Act. Most merchants do not negotiate with the duopoly. Instead, they are forced to accept the pricing dictated to them by their acquirer or ISO. Typically, this results in very little if any benefits trickling down to the merchants.
1. Lower Processing Costs for Merchants
Point: One of the central arguments in favor of the CCCA is that it would reduce the processing, or “swipe,” fees merchants pay to accept credit cards. Under the current system, most credit cards are tied to a single dominant network, limiting a merchant’s ability to choose a lower-cost option. The proposed legislation would allow merchants to route transactions over competing networks, encouraging those networks to compete on price. Proponents contend that this competition could significantly reduce interchange fees, saving merchants billions of dollars annually, particularly small and mid-sized businesses that may operate on thin margins.
Counter Point: While in theory this argument makes sense, the potential advantages associated with merchants gaining an opportunity to choose how their transactions are routed have greatly diminished as the once ubiquitous alternative networks have been acquired or merged out of existence. Most of the surviving networks lack the independence that many of the old networks enjoyed. The new paradigm is one dominated by the duopoly as well as a few giant acquirers who hold the keys to the few large competing national network brands. Unfortunately, the giant acquirers are just as greedy as the duopoly so they charge excessive rates that defy most of their merchant customers’ efforts to provide real competition to the duopoly.
2. Increased Choice and Control in Transaction Routing
Point: Closely related to lower costs is the benefit of greater control. Today, routing decisions are largely determined by card issuers and networks, not merchants. The CCCA would give merchants the ability to decide which enabled network should process a transaction. Supporters argue this flexibility would allow businesses to prioritize networks that offer lower fees, better customer service, or enhanced fraud protection. By providing choice to merchants, the Act seeks to rebalance negotiating power in the payments ecosystem.
Counter Point: For the same reasons stipulated in my counter to point 1., I submit that very few merchants would be able to determine routing. For all but the largest merchants, routing is decided exclusively by the merchants’ acquirers. Many acquirers either own or are contractually beholden to route transactions through their own networks. Individual merchants lack the expertise and the negotiating strength to challenge their acquirers.
3. Greater Competitive Pressure on Payment Networks
Point: Advocates of the CCCA argue that Visa and Mastercard’s dominance has created a duopoly and insulated them from meaningful competitive pressure. By mandating the availability of alternative networks, the bill aims to weaken the duopoly and force networks to compete on scale as well as value to the merchant. Supporters believe that increased competition would incentivize networks to improve efficiency, customer service, pricing transparency, and technological capabilities. Over time, this competitive environment could reshape how electronic payments are priced and delivered.
Counter Point: Passage of the bill might very well expose the duopoly to competitive pressure, however, the benefits would likely be limited to only the biggest merchants and the biggest banks since the latter determine which two brands and associated routes are available on the cards they issue.
4. Potential for Lower Prices for Consumers
Point: Although the Act does not require merchants to pass on savings, supporters argue that reduced processing costs could translate into lower prices for consumers. Swipe fees are a cost of doing business and are embedded in the price of goods and services. If merchants pay less to accept credit cards, proponents believe competitive pressures, especially in price-sensitive markets, could encourage businesses to pass at least some of those savings along to customers. Even modest reductions, spread across millions of transactions, could have a meaningful cumulative impact on consumer spending.
Counter Point: Agree. While the networks and the banks fall back on the argument that merchants will not pass along potential savings, they reek of hypocrisy. For example, why have banks failed to lower the rates on their cards when the banks’ cost-of-funds is dramatically less over the last decade? If actual competition existed in the consumer market for cards, why don’t we see more bank marketing of cards with lower fees and interest? By contrast, merchants compete vigorously with one another on price and services.
5. Preservation of Consumer Card Use and Convenience
Point: Proponents emphasize that the CCCA would not change how consumers use their credit cards. Shoppers would continue to pay with the same cards, at the same terminals, with no additional steps required. The bill focuses on backend transaction routing rather than consumer-facing behavior. Supporters argue this is a key strength of the proposal, as it seeks to reform market structure without disrupting the convenience, speed, and reliability that consumers have come to expect from electronic payments.
Counter Point: Agree
6. Incentives for Innovation and Security Improvements
Point: Finally, supporters suggest that increased competition among payment networks could spur innovation. When networks must compete for transaction volume, they may invest more heavily in security features, fraud prevention tools, and new technologies to distinguish themselves. Proponents argue that this dynamic could benefit both merchants and consumers by improving transaction safety and system resilience. Rather than relying on market dominance, networks would need to demonstrate superior performance to win business.
Counter Point: Innovation among card networks and their banks is a myth. Frankly, networks are dependent to a considerable extent on their bank clients to support innovation. Unfortunately, most banks are notoriously bad at innovations and technology in general. This has resulted in limiting most network innovation to whatever the networks can cram down the throats of merchants with no choice but to take the medicine. Examples include the one-sided EMV conversion and tokenization efforts.
A Reform with Ongoing Debate
While advocates present these six benefits as compelling reasons to support the CCCA, the proposal remains the subject of active debate. Critics question whether savings would truly reach consumers and warn of possible unintended consequences, such as changes to rewards programs or bank pricing models. Nevertheless, supporters maintain that the current system lacks sufficient competition and that the Act represents a measured attempt to address long-standing concerns in the credit card market.
In summary, the Credit Card Competition Act is framed by its backers as a pro-competition reform designed to lower costs, increase choice, and improve the efficiency of the payments ecosystem. Whether these benefits ultimately materialize would depend on how the market responds, but the proposed advantages for merchants and consumers form the core of the argument in favor of the legislation. Whether these benefits ultimately materialize would depend on how the market responds, but they represent the central case supporters make for the legislation.Yet another view suggests a different approach: “Litigation and legislation just hasn’t helped merchants or consumers in the short, much less the long, run. Rather than focus time, treasure, and talent on yet another piece of legislation which V and MC will either ignore or circumvent, why not spend these resources on ways to CIRCUMVENT the duopoly entirely? PbB and crypto are two long-range options to avoid the outdated (all my cards still have mag stripes; yours?) V and MC card schemes. Sure; not cheap and not tomorrow but at least in a direction away from the “iron dome” instead of straight at it.”
By: Mark Horwedel, John MacAllister, and PR Staff