The policy of “merchant choice” for debit routing has been generally fulfilled for card-present transactions, purchases that occur in store when a customer uses a physical card, but the dominant card networks and the largest issuing banks have purposely avoided the law for card-not-present transactions which in nonpayment terms means everything purchased online. This means the banks and card networks have effectively stifled competition, harming local businesses and consumers.
RILA has been highlighting this flagrant violation of the law for the past several years. This week the Federal Reserve took action, clarifying that this type of anticompetitive behavior will not be tolerated and specifically stated that it violates the law.
The finalized rule regarding card-not-present transactions specified, “that debit card issuers should enable at least two payment card networks to process all debit card transactions, including "card-not-present" transactions, such as online payments.” The lack of merchant routing choice in these transactions during the past eleven years has enriched the dominant networks and Wall Street at the expense of merchants and their consumers, in direct contravention of the competition-based regime that the debit reforms initiated. There are estimates, that if merchants did not have their routing rights inhibited, the industry could have been saving thee billion dollars per year—instead banks such as Wells Fargo were able to line their pockets with extra fees.
RILA and the broader merchant community applaud the Federal Reserve for their action to follow the full Congressional intent behind the law, as well as the Federal Trade Commission and Department of Justice for their support in addressing this anticompetitive behavior. The debit reforms were an inflection point for the payment ecosystem and consumers and merchants will continue to benefit from these policies into the future—especially when they fully adopted and implemented.
Building off the debit lane, it is now time for Congress to address the lack of competition in the credit card market. In 2021, U.S. retailers paid an astounding $138 billion to accept electronic payments, a significant increase from 2015 when merchants paid $83 billion, and this past year’s number is more than double what the retail community paid in 2011, $64 billion. It is clear the market is broken, and Congress needs to act. We have seen reforms in the EU, Australia and other Western countries in the credit card market leading to enhanced security and bringing more competition to the payment ecosystem and benefiting consumers.
Main Street businesses and American consumers will also share in these benefits and RILA encourages members of Congress to support the Credit Card Competition Act, introduced by Sens. Durbin (D-IL) and Marshall (R-KS) and Reps. Welch (D-VT) and Gooden (R-TX) that will lead to greater competition in the credit card market and finally challenge the duopoly of Visa and Mastercard in this arena.
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