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Dustin White of Mars Hills is a former member of the Maine House of Representatives. He is currently a risk management and compliance specialist at MMG Insurance and owner of White Horse Stables.
As the Federal Reserve continues to push interest rates higher to help curb inflation, Mainers continue to suffer from the high cost of living. Many businesses are still on the slow path to recovery after the COVID-19 pandemic and its related supply chain issues increased the cost of everything from fuel to food and housing. Fortunately, the Credit Card Competition Act (CCCA) is a solution currently working its way through Congress that could help drive down costs for both business owners, and consumers.
This bill would bring competition to the payments marketplace and break the stranglehold massive credit card companies like Visa and Mastercard have used to block out competition, and raise swipe fees. While these fees are hidden from consumers when they check out, it doesn’t erase the impact they have on inflating the price of goods and services.
Swipe fees are charged to merchants on every credit card transaction, averaging around 1.5 percent to 3.5 percent of the total transaction amount. With an average retail profit margin of about 2 percent, these fees can easily make or break a business, especially as Visa and Mastercard continue to raise them.
Just last year, merchants paid more than $160 billion in transaction fees, and credit card swipe fees are up an astronomical 60 percent since the pandemic began. When credit card swipe fees increase, it forces business owners to make tough decisions. In Maine, surcharges on credit card purchases are illegal to avoid putting the burden on consumers, but when swipe fees prove too much to absorb, business owners may have to raise prices across the board on what they sell to avoid shuttering their doors forever.
Meanwhile, major credit card companies and big banks continue to rake in profits, despite the cost of processing transactions getting cheaper. Boasting large profits during some of the worst inflationary periods of late, Mastercard continues to enjoy a nearly 45 percent net profit margin while Visa sits at about 50 percent. What’s worse, these swipe fees pull local dollars from small coffee shops and locally owned hardware stores and sends them straight to the bottom line of large and highly profitable national financial institutions
Unfortunately, this system is unlikely to change on its own given major banks get a cut of the fees when they implement the swipe fee rates set and raised by Visa and Mastercard. This leaves merchants with no ability to negotiate lower rates, and they are stuck either paying the high fees, or rejecting credit card payments altogether. Considering more than 84 percent of Americans are credit card holders, the latter is simply not an option as credit card usage continues to grow.
By passing the CCCA, Congress can help break up the Visa/Mastercard duopoly and ensure fair competition for payment networks. Giving the opportunity for other networks like Pulse and SHAZAM to process transactions would boost innovation and improve payment security as we’ve seen free market competition do in other industries.
The CCCA would also take measures to protect our payments system from foreign influence, particularly as it relates to China. At present, banks have the option to route transactions through China UnionPay, a Chinese state-owned financial services corporation. This puts at risk the financial data of millions of Americans, but the CCCA would take swift action to block foreign networks that pose a threat to national security.
I hope that now that U.S. Sens. Susan Collins and Angus King have returned to Capitol Hill, they’ll fight for the Main Street businesses that truly are the lifeblood of our state’s economy. Consumers and business owners need relief from massive financial institutions that continue to hammer them with high credit card swipe fees. It’s time to pass the CCCA now.