This Argument Doesn’t Fly

Truth: The Credit Card Competition Act Won’t Eliminate Travel Points/Miles

By Christine Pollack, Vice President, Government Relations, FMI

It’s the height of the summer travel season and millions of Americans are enjoying vacations away, part of which may have been booked through redeeming credit card points and miles.

Simultaneously, grocery retailers and merchants of all sizes around the country have been advocating on Capitol Hill in favor of the bipartisan Credit Card Competition Act (S. 1838/H.R. 3881), legislation to reform how a transaction is routed when a customer uses a credit card.

Why have these two scenarios been tangled together? They shouldn’t be. It makes no sense. The Credit Card Competition Act does not eliminate credit card rewards, travel miles and points. In fact, it has nothing to do with credit card rewards.

Unfortunately, the two dominant card networks, with control of over 80% of the market, and the country’s ten largest banks, which issue over 90% of all consumer credit cards, are twisting the purpose of the Credit Card Competition Act and spreading false narratives. A recent article from Fodor’s Travel discusses this matter.

What exactly is the Credit Card Competition Act addressing? A business-to-business function that happens between Visa and Mastercard and any merchant – grocer, retailer, restaurant, charity, non-profit, doctor’s office, organization, other business, etc. – that accepts credit cards for the purchase of goods and services. A merchant must pay fees every time their customers use a credit card for payment.

Visa and Mastercard set all terms, conditions, and fees levied on a merchant – both the fee for their network routing service and the separate interchange fee to issuing banks. The Credit Card Competition Act simply requires the large national banks that issue consumer credit cards to enable a second network to route data for a credit card transaction.

This same commonsense competition has been required of debit card transactions for a decade – two networks on each card instead of just one. Aside from the benefits of additional competition in the market, the legislation would ensure a second network is in place in case of an outage, keeping commerce flowing.

Why are grocers supporting this legislation? Because merchants of all sizes, even the largest retailers in the country, have no ability to negotiate with Visa and Mastercard on terms, conditions, and fees associated with accepting credit cards. These fees are most grocers’ largest operating expenses behind labor and rent. The fees can cost grocers upwards of 2-4% of each credit card transaction. The grocery industry profit margin on average is about 1-2%.

This means that Visa and Mastercard and the nation’s largest banks are making more of a profit off your weekly trip to the store than the grocer is.

As discussed in this informative and useful Myths-Facts overview on the Credit Card Competition Act, “[r]ewards are determined by banks, not networks, and are used as a marketing tool to convince consumers to choose a Visa or Mastercard card from one bank rather than another bank. Nothing about that will change.”

Rewards have not gone away in countries that have instituted far stricter reforms. The Credit Card Competition Act does not cap credit card fees or set prices and exempts community banks and credit unions. There is no heavy hand of government or price fixing, just the simplest of competition – requiring two networks on which to route financial data instead of one network.

Now is the time to right our nation’s credit card market by enacting the Credit Card Competition and injecting simple competition. Tell Congress to pass S. 1838/H.R. 3881.