The card brands and Wall Street banks continue their stranglehold on the payment market because Congress and the key regulators have either failed to enact or enforce laws that provide the necessary guardrails to protect consumers, Main Street businesses and leading retailers.
Visa’s recent decision to raise interchange rates on credit card transactions, specifically e-commerce purchases, exemplifies the problem. The failure to act gives Visa the unchecked ability to increase its profits and ensure its dominant market position on the backs of store owners. But its greatest strength—control—is also its weakness.
Over a decade ago, a bipartisan group of lawmakers came together to break up the dominant card networks’ anti-competitive stranglehold on the debit payments market by injecting much needed competition and transparency in what had always been a black box. Under the statutory authority granted by Congress, the Federal Reserve instituted regulations that allowed for dual routing and a ceiling on the swipe fees the largest banks in the country could charge all retailers.
Unfortunately, the Federal Reserve has ignored this authority and has failed to update the regulations as the market has evolved. This inaction has hurt the businesses that are at the heart of our economy by keeping interchange rates unfairly high. Since 2009, the largest financial institutions have seen their costs reduced by 52%, from 7 cents to 3 cents, to handle debit transactions. But because the Federal Reserve has not addressed this drastic disparity, Wall Street banks are still allowed to charge merchants up to 21 cents per transaction—receiving a roughly 600%
Once again, the lack of action has allowed Goliath to continue to dominate this market, while America’s retailers pay exorbitant rates on every transaction.
To make matters worse, the Federal Reserve has prioritized revising regulations for Wall Street banks and ignored the concerns of Main Street merchants. It has addressed the Volcker Rule, liquidity issues and stress tests that were put in place to prevent another financial crisis like what the country battled over the past several years. Yet the Fed is silent and avoids addressing one of the single largest costs for every merchant—swipe fees.
Visa and Wall Street banks are Goliaths of the payments ecosystem, simply because regulators have allowed them to grow into these monopolistic titans, despite having the tools to rein them in and correct this market disparity. It is long past time for the Federal Reserve to use its authority to bring transparency and competition to the debit market. The numbers are undeniable. Failure to act allows the giant to perpetually bully retailers and their millions of customers. Congress shouldn’t enable this behavior any longer. It’s time they step up and require the Fed to do their job.
