When consumers use a credit card to pay for a transaction, retailers are charged an interchange fee. Calculated as a flat rate plus a percentage of the sales total, these fees are set by card networks and increase annually.

Subject to the highest swipe fees in the industrialized world, U.S. retailers were charged nearly $138 billion in fees in 2021. However, a new bill introduced by Senators Dick Durbin (D-IL) and Roger Marshall (R-KS) could open the payment processing market and save retailers billions in annual fees.

Titled the “Credit Card Competition Act of 2022” (US S4674), the proposed legislation would enable retailers and other merchants a choice of which companies process credit card transactions. Building off debit card competition reforms enacted by Congress in 2010, the bill would direct the Federal Reserve to ensure the largest credit card-issuing banks offer a choice of at least two networks over which an electronic credit transaction may be processed.

While there are currently four U.S. credit card networks – Visa, Mastercard, American Express, and Discover – Visa and Mastercard account for 83% (576 million) of general-purpose credit cards and were responsible for $77.5 billion in merchant fees last year.

“For far too long Visa and Mastercard, along with the largest Wall Street banks, have been fleecing American consumers and main street businesses with interchange fees,” said Retail Industry Leaders Association (RILA) EVP of Government Affairs, Austen Jensen.

Known as “four-party” networks, because there are four entities in the payment process, Visa and Mastercard mandate fees and terms banks receive from merchants for each transaction, giving the card networks enormous power over retailers who can’t risk losing access to their customers. Under the Act, regulations would ensure banks in four-party card systems with assets over $100 billion provide at least two providers for credit transactions, one of which must be outside Visa and MasterCard’s networks.

Injecting competition into the credit card market, retailers could choose which service provider to handle a transaction, opening the door for new market entrants or existing debit-only networks, encouraging innovation and enhanced security, creating backup options in case of network crashes, exerting competitive constraints on Visa and Mastercard, and savings retailers an estimated $11 billion in annual swipe fees.

“This legislation…would give small businesses a meaningful choice when it comes to card networks. Bringing real competition to credit card networks will help reduce swipe fees and hold down costs for main street merchants and their customers,” said Sen. Durbin in a press statement.

Introduced on July 28, 2022, the bill is currently in the Senate awaiting further action.

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