Credit Card Competition Act: How Network Choice Affects You

When Senator Dick Durbin and Roger Marshall introduced the Credit Card Competition Act in 2023, they reignited a debate that touches nearly every American’s wallet. The bill aims to break up what critics call a duopoly-Visa and Mastercard’s combined 80% control of the credit card network market.

But what does “network competition” actually mean for cardholders? And would this legislation help or hurt consumers?

Understanding the Current Payment Network Structure

Every time someone swipes a credit card, a complex chain of fees gets triggered. The card network (Visa, Mastercard, American Express, or Discover) charges an assessment fee. The issuing bank charges an interchange fee. These combined costs, often called “swipe fees,” typically run between 1. 5% and 3 - 5% of each transaction.

Merchants paid approximately $160. 7 billion in card processing fees during 2022, according to the Nilson Report. That’s a 16. 7% increase from the previous year.

but: merchants can’t negotiate these fees. Visa and Mastercard set interchange rates that all participating banks must follow. A small bookstore in Kansas City pays the same percentage as Walmart-though volume discounts exist for the largest retailers.

The Credit Card Competition Act would require banks with over $100 billion in assets to enable at least two unaffiliated networks on their credit cards. One network would need to be something other than Visa or Mastercard.

How the Legislation Would Change Card Processing

Under current rules, banks choose which network appears on their cards. Most select Visa or Mastercard because these networks offer the highest interchange revenue sharing. The proposed law would give merchants the ability to route transactions through whichever enabled network offers lower fees.

A similar approach already exists for debit cards. The Durbin Amendment, passed in 2010, mandated multiple network options for debit transactions. Research from the Federal Reserve Bank of Richmond found that debit interchange rates dropped roughly 50% following use.

Would credit cards follow the same pattern?

Proponents argue yes. They point to Australia’s experience with interchange regulation, where fees fell from an average of 0. 95% to 0 - 50% between 2003 and 2020. Merchants there saved billions annually.

Opponents counter that debit and credit markets differ fundamentally. Credit cards involve lending risk, fraud protection, and rewards programs that debit cards don’t typically offer. Cutting interchange revenue, they argue, would force banks to recoup costs elsewhere.

The Rewards Program Question

This is where consumers get nervous. And honestly - the concerns aren’t unfounded.

Credit card rewards-cashback, travel points, hotel status-are funded primarily through interchange fees. Banks share a portion of the 2% to 3% they collect from merchants with cardholders through reward programs.

The American Bankers Association commissioned a study estimating that the Credit Card Competition Act could cost consumers $40 billion annually in reduced rewards and higher fees. The National Retail Federation disputes these figures, arguing that competition would lower prices across the board.

Looking at international examples provides mixed signals:

• Australia: After interchange caps, many banks reduced rewards programs significantly. Some eliminated points entirely on basic cards. - European Union: Post-regulation, premium rewards cards became harder to obtain. Annual fees increased on cards that maintained strong benefits. - Canada: Without interchange regulation, Canadian rewards programs remain among the world’s most generous.

The pattern suggests that reduced interchange typically means reduced rewards. But correlation isn’t causation. Other factors-market maturity, banking competition, consumer preferences-influence outcomes.

What Merchants Actually Want

Retailers have pushed for interchange reform for decades. Their argument centers on fairness: they can negotiate prices with every supplier except card networks.

Doug Kantor, general counsel for the National Association of Convenience Stores, testified before Congress that swipe fees represent the second-highest operating cost for his members after labor. For many small businesses, card fees exceed their profit margins.

But merchants aren’t purely altruistic here. Critics question whether fee savings would actually reach consumers. After the Durbin Amendment reduced debit interchange, research from the Federal Reserve Bank of Richmond found that only 30% of merchants lowered prices. The rest kept the savings.

Supporters of the current bill argue that competitive markets eventually force price reductions, even if individual merchants don’t immediately pass through savings.

Network Security and Innovation Concerns

Visa and Mastercard have invested heavily in fraud prevention technology. Their networks process billions of transactions with fraud rates under 0. 1%. Would smaller networks maintain these standards?

The Electronic Payments Coalition argues that routing transactions through less-established networks increases security risks. They cite that Visa alone invested $10 billion in technology over five years, including AI-powered fraud detection systems.

Counter-arguments note that the bill doesn’t eliminate Visa or Mastercard-it simply adds options. Networks would compete on security as well as price. And debit card fraud didn’t spike after the Durbin Amendment enabled network choice.

Practical Implications for Different Cardholders

Premium cardholders (those with high-fee travel cards offering substantial rewards): Most likely to see changes. If interchange drops significantly, expect annual fee increases, reduced earning rates, or elimination of benefits like airport lounge access.

Cashback card users: Moderate risk. Flat-rate cashback cards could see rates drop from 2% to 1% or 1. 5%. Some issuers might maintain current rates to attract customers.

Basic cardholders (those who don’t carry rewards cards): Potential beneficiaries. If merchants lower prices, these consumers gain without losing rewards they weren’t receiving anyway.

Small business owners: Mixed outcomes. Lower card acceptance costs versus potentially reduced access to credit card borrowing if banks tighten lending standards.

The Political and Legislative Outlook

The Credit Card Competition Act has bipartisan support, with Republican and Democratic co-sponsors in both chambers. But it faces intense lobbying opposition. The financial services industry spent over $700 million on lobbying in 2022, according to OpenSecrets.

Previous attempts at similar legislation failed. The bill was introduced in 2022 but didn’t advance to a vote. Its 2023 reintroduction included modifications addressing some criticism, particularly around fraud liability.

Passage remains uncertain. Banking committee dynamics, election-year politics, and the relative strength of retail versus financial industry lobbying will determine its fate.

Preparing for Potential Changes

Regardless of whether this specific bill passes, pressure on interchange fees continues building. Consumers should consider:

1. Evaluating card benefits honestly: Calculate actual value received from rewards programs. Many cardholders overestimate their returns.

2. Diversifying payment methods: Don’t rely solely on a single premium card for all purchases.

3. Watching for fee changes: If legislation passes, monitor annual fee adjustments and benefit modifications.

4. Considering credit union cards: Smaller issuers under $100 billion in assets would be exempt from the proposed rules, potentially maintaining current reward structures.

The debate over credit card network competition reflects broader questions about market concentration in American finance. Whether increased competition benefits consumers depends on details that won’t become clear until after use-if that ever occurs.

What’s certain is that the current system generates significant profits for networks and banks while costing merchants billions annually. How those costs affect consumers-through higher retail prices or lower rewards-remains the central dispute.