I'm sure that if this passes and another payments processor who only charges 2% starts being used that us consumers will see a 3% drop in prices at Walmart if they swap to the cheaper processor....
I'm sure that if this passes and another payments processor who only charges 2% starts being used that us consumers will see a 3% drop in prices at Walmart if they swap to the cheaper processor. /s
This whole thing seems a bit silly, and disingenuous to say it's all for the consumer. I don't care whose logo is on my debit or credit card as long as I have access to my money or line of credit when I swipe/tap.
And heck, there already are alternatives to the Mastercard/Visa payment processors at some point of sales - Home Depot has PayPal as an option.
Agreed. It’s weird. It’s like both sides are lying about what the bill will do. The opponents are saying that it will reduce access to credit, but I cannot possibly imagine that being the case. If...
Agreed.
It’s weird. It’s like both sides are lying about what the bill will do. The opponents are saying that it will reduce access to credit, but I cannot possibly imagine that being the case. If there are more viable creditors, doesn’t it stand to reason that access to credit will increase?
There wouldn't be more creditors, though. There'd be the same amount of creditors, those creditors would just go through more rails. Basically, this would hypothetically lower interchange rates...
There wouldn't be more creditors, though. There'd be the same amount of creditors, those creditors would just go through more rails.
Basically, this would hypothetically lower interchange rates because Discover and Amex would compete more with V/MC (although, Amex has the highest interchange by far). The recipients of the interchange are the acquiring bank and the card rail, if they get less interchange, they have less incentive to offer credit and to offer credit at lower rates.
I don't think that's a great argument at large, arguing for less competition isn't a great look, but the reasoning that it would lead to less credit makes sense.
From the article: … … Reward cards are effectively discount cards. The customer gets to buy something for less if they use a high-reward card. Using an alternative processing network might be a...
From the article:
The Credit Card Competition Act was reintroduced last month in both the House and the Senate, after not being brought up for a vote in either chamber during the previous Congress.
The measure aims to bolster competition for credit card processing networks by requiring big banks to allow at least one network that isn't Visa or Mastercard to be used for their cards. This would give merchants who pay interchange fees a choice they otherwise rarely get.
…
Bipartisan support for the bill has surged since it was introduced last year. As of now, there is no vote scheduled on the measure in either chamber of Congress, but there are indications a vote could come by year-end.
…
Larger platforms and retailers like Amazon, Shopify and Walmart, as well as payment processors like Capital One, Discover and Visa, are funding efforts to pass or block this bill. In total, 26 organizations have mentioned the Credit Card Competition Act by name in their 2023 first-quarter lobbying reports, which were filed before the legislation was reintroduced last month, according to data from Open Secrets, a nonprofit group tracking campaign finance and lobbying data.
The Electronic Payments Coalition, a group representing big banks, credit unions, community banks and payment card networks said the legislation "would add billions of dollars to the bottom lines of mega-retailers every year while eliminating almost all the funding that goes towards popular credit cards rewards programs, weakening cybersecurity protections, and reducing access to credit," in a June 9 post on its website.
Reward cards are effectively discount cards. The customer gets to buy something for less if they use a high-reward card. Using an alternative processing network might be a way for a retailer to give less of a discount?
Retailers are competitive and it seems unlikely that they’d effectively just discontinue the discounts and keep prices the same. There are always other ways to give customers discounts, if they choose. Hopefully they would be more transparent? For example, some hotels have AAA discounts and it’s clearer to the consumer what’s happening because the purchase price is less. (But of course hotels have other ways to tack on fees.)
This bill would change the competitive landscape for payment systems in some way that seems hard to predict. A lot would depend on what the third interchange network would do that’s different from before. I guess it’s worth a try, though?
Meanwhile, retailers can raise prices by raising prices or reducing quantities, as we’ve seen with recent inflation.
Without being able to predict what happens with any confidence, I think it’s hard to say whether the result would be better or worse for consumers. It will likely be better for some and worse for others, and more likely worse for people with high-rewards cards, but maybe the result will be more fair?
Whether the bill passes or not, we may never know whether it was a good idea. There will be studies, sure.
I'm really confused by all of this, and it seems like it just requires retailers to accept either Discover or Amex? I don't understand what it's trying to solve or what issues it could create.
I'm really confused by all of this, and it seems like it just requires retailers to accept either Discover or Amex? I don't understand what it's trying to solve or what issues it could create.
For example, someone might have a Visa card that comes from a big bank. I believe the bill would require the card to support an additional network besides Visa or Mastercard. What network would...
For example, someone might have a Visa card that comes from a big bank. I believe the bill would require the card to support an additional network besides Visa or Mastercard. What network would that be? Hard to say in advance.
You see this with ATM cards that support a bunch of networks that consumers don’t really pay attention to, as long as the card works.
The "discount" that the customer gets isn't funded by the company that issues the card, though. Those cards have higher processing fees, and as such it's the vendor who's ultimately paying for...
The "discount" that the customer gets isn't funded by the company that issues the card, though. Those cards have higher processing fees, and as such it's the vendor who's ultimately paying for that customer's rewards. Fees on normal credit cards are around 3%, and reward cards are more like 5%. Those fees are charged wherever the customer uses that card, not just at the company they got the card from. A processing network that had absolutely zero rewards cards and/or offered a lower processing fee could easily sway cost-conscious vendors.
Yes, the discount comes from the retailer. This plays into which cards retailers will accept. Is the increased business worth giving a discount? Sometimes, no.
Yes, the discount comes from the retailer. This plays into which cards retailers will accept. Is the increased business worth giving a discount? Sometimes, no.
US bank transfers don't have the same fraud protections as credit cards, so I wouldn't want to use FedNow directly for transactions with random vendors. It might be useful plumbing for a payment...
US bank transfers don't have the same fraud protections as credit cards, so I wouldn't want to use FedNow directly for transactions with random vendors. It might be useful plumbing for a payment system, though.
India's payment system is apparently better designed for this sort of thing, because you confirm any transactions using your phone, and then the terminal confirms to the vendor that it went through. (I think it's still the equivalent of a cash payment, though.)
I'm sure that if this passes and another payments processor who only charges 2% starts being used that us consumers will see a 3% drop in prices at Walmart if they swap to the cheaper processor. /s
This whole thing seems a bit silly, and disingenuous to say it's all for the consumer. I don't care whose logo is on my debit or credit card as long as I have access to my money or line of credit when I swipe/tap.
And heck, there already are alternatives to the Mastercard/Visa payment processors at some point of sales - Home Depot has PayPal as an option.
Agreed.
It’s weird. It’s like both sides are lying about what the bill will do. The opponents are saying that it will reduce access to credit, but I cannot possibly imagine that being the case. If there are more viable creditors, doesn’t it stand to reason that access to credit will increase?
There wouldn't be more creditors, though. There'd be the same amount of creditors, those creditors would just go through more rails.
Basically, this would hypothetically lower interchange rates because Discover and Amex would compete more with V/MC (although, Amex has the highest interchange by far). The recipients of the interchange are the acquiring bank and the card rail, if they get less interchange, they have less incentive to offer credit and to offer credit at lower rates.
I don't think that's a great argument at large, arguing for less competition isn't a great look, but the reasoning that it would lead to less credit makes sense.
From the article:
…
…
Reward cards are effectively discount cards. The customer gets to buy something for less if they use a high-reward card. Using an alternative processing network might be a way for a retailer to give less of a discount?
Retailers are competitive and it seems unlikely that they’d effectively just discontinue the discounts and keep prices the same. There are always other ways to give customers discounts, if they choose. Hopefully they would be more transparent? For example, some hotels have AAA discounts and it’s clearer to the consumer what’s happening because the purchase price is less. (But of course hotels have other ways to tack on fees.)
This bill would change the competitive landscape for payment systems in some way that seems hard to predict. A lot would depend on what the third interchange network would do that’s different from before. I guess it’s worth a try, though?
Meanwhile, retailers can raise prices by raising prices or reducing quantities, as we’ve seen with recent inflation.
Without being able to predict what happens with any confidence, I think it’s hard to say whether the result would be better or worse for consumers. It will likely be better for some and worse for others, and more likely worse for people with high-rewards cards, but maybe the result will be more fair?
Whether the bill passes or not, we may never know whether it was a good idea. There will be studies, sure.
I'm really confused by all of this, and it seems like it just requires retailers to accept either Discover or Amex? I don't understand what it's trying to solve or what issues it could create.
For example, someone might have a Visa card that comes from a big bank. I believe the bill would require the card to support an additional network besides Visa or Mastercard. What network would that be? Hard to say in advance.
You see this with ATM cards that support a bunch of networks that consumers don’t really pay attention to, as long as the card works.
The "discount" that the customer gets isn't funded by the company that issues the card, though. Those cards have higher processing fees, and as such it's the vendor who's ultimately paying for that customer's rewards. Fees on normal credit cards are around 3%, and reward cards are more like 5%. Those fees are charged wherever the customer uses that card, not just at the company they got the card from. A processing network that had absolutely zero rewards cards and/or offered a lower processing fee could easily sway cost-conscious vendors.
Yes, the discount comes from the retailer. This plays into which cards retailers will accept. Is the increased business worth giving a discount? Sometimes, no.
It’d be nice if this could just be integrated into POS terminals
US bank transfers don't have the same fraud protections as credit cards, so I wouldn't want to use FedNow directly for transactions with random vendors. It might be useful plumbing for a payment system, though.
India's payment system is apparently better designed for this sort of thing, because you confirm any transactions using your phone, and then the terminal confirms to the vendor that it went through. (I think it's still the equivalent of a cash payment, though.)