WASHINGTON (TNND) -- Credit card giants Visa and Mastercard are on defense against accusations that the fees they charge retailers for processing credit cards are running up costs for businesses and consumers in an industry that is mostly dominated by two companies.
Swipe fees have become a more prominent issue for retailers as consumers have shifted away from cash to debit and credit cards and racked up more purchases that require use of payment networks that take a cut of every sale.
Amid pressure from voters to do something to address higher prices, lawmakers are trying to figure out how they can cut costs for households. Much of the hearing was focused on the Credit Card Competition Act, sponsored by Sens. Dick Durbin, D-Ill., and Roger Marshall, R-Kan.
The bill would require credit card companies to allow stores other choices in payment networks besides Visa and Mastercard, which has been met with adamant opposition from banks, arguing that the savings would not be passed onto consumers.
"When the opponents of this bill have spent over $80 million attacking myself and the chairman on this bill -- that's over twice what was spent against me in a Senate race -- you know that you're over the target," Marshall said at Tuesday's hearing. "Let's be clear, whether it's inflation or sales taxes, or in this case, swipe fees -- when those go up, consumers ultimately pay the price. The retailers pass those expenses on to consumers. It's that simple."
Visa and Mastercard executives said at the hearing that implementing the legislation would threaten the security of the financial payment system and reduce competition.
"Visa has no incentive to send interchange fees high or low. Without sales, we have no transactions to process. Visa faces unprecedented competition, including from new entrants and technologies, from FinTech, Big Tech and foreign players, consumers and merchants can choose from an expanding list of alternatives that do not rely on payment networks like visa to process transactions," said Bill Sheedy, senior adviser to CEO at Visa.
Mastercard Americas president Linda Kirkpatrick and Sheedy said that the payment marketplace is a vastly competitive industry with the proliferation of online payment methods, pay-as-you-go platforms, and emerging financial technologies. But Visa and Mastercard account for some 80% of the payments network used in the U.S., and many of the newer platforms do not account for enough transactions to pose a true challenge to their dominance in the marketplace.
Several lawmakers and witnesses noted that the swipe fees are higher in the U.S. than other places around the world like Europe and Canda that have enacted regulations.
"You're having a hard time convincing me that the fees are set to the advantage of the consumer," said Sen. Lindsey Graham, R-S.C.
Sen. Peter Welch, D-Vt., got into a heated exchange over Visa and Mastercard's CEO compensation and said the interchange fees were hurting local businesses.
"You are killing small business in the United States of America," Welch said.
The Department of Justice has filed an antitrust lawsuit against Visa over its card payment network, claiming the company has taken multiple steps over the years to stomp out competition to keep its massive market share on swipe fees that are utilized in trillions of dollars in transactions every year.
The lawsuit threatens to shake up the payment networks and infrastructure that powers them, which the department says Visa controls some 60% of the marketplace for and earns it $7 billion a year in fees. Visa's share of the marketplace dwarfs that of other rivals like Mastercard, American Express and Discover, which has frustrated merchants for years that feel stuck using it and forcing them to decide whether to pass the costs back onto consumers.
"When business is fair and the market is free, Connie and I can hold our own. But that is not how it is for credit card fees," said Chris Callahan, who co-owns a bookstore in New York. "Arbitrarily high swipe fees are preventing me from growing my business and better serving my customers while inflating prices we pay for the goods we sell and the prices we charge our customers."
Industry groups have also fiercely advocated against the swipe fees as ramping up costs for both sides of the transaction to line the pockets of the credit card companies. The National Retail Federation said in a letter to the committee that Congress needs to intervene to curtail the practice, which is adding inflationary pressures to the economy and preventing retailers from growing their business.
"The current credit card system has been designed by the Visa-Mastercard duopoly to maximize profits for the networks and the nation's largest credit card issuers while forcing merchants and their customers to pay excessive fees without any recourse to help bring these costs under control," NRF senior vice president for government relations David French said. "This market failure requires action by Congress."
The Electronic Payments Coalition, which represents the banking and credit card industry, sent a letter to the committee ahead of the hearing defending payment networks and arguing that the CCCA would raise costs for consumers.
"The payment card system is convenient, secure, and hassle-free. It protects consumers against fraud, guarantees businesses receive timely payments, funds reward programs like cash back and powers the American economy, from brick-and-mortar establishments to innovative e-commerce platforms 24 hours a day, seven days a week, 365 days a year. The Durbin-Marshall bill, and any other legislation that intervenes in the credit card market, puts all that in jeopardy," the group's letter says.