OPINION:
Four senators just introduced legislation that could make everyday purchases riskier for American consumers while padding the bottom lines of the country’s largest retailers.
The misnamed Credit Card Competition Act would regulate the nominal fees merchants pay each time they accept a credit card. These interchange and network fees are set by the networks that process transactions — think Visa or Mastercard. They underwrite the infrastructure that handles hundreds of billions of credit card transactions each year.
Retailers would, of course, prefer not to pay this cost of doing business. And they’ve found a sympathetic ear in the Senate.
The bill establishes government mandates on payment network options where merchants, not consumers, have priority.
Merchants are likely to pick a network with the lowest fees — even if it’s not the most secure. After all, they’re not liable if criminals steal their customers’ financial information.
That’s right. If hackers compromise a merchant’s computer systems and use the credit card information they steal for fraudulent purposes, the banks or credit unions that issue those cards are responsible for making their customers whole.
Let me repeat: Merchants are not required to protect consumers’ data, even if the fraud took place with them. In fact, merchants have already shown they will chase the routing system that costs the least, without regard for consumer access.
The costs associated with policing fraud are rising. For example, Visa employs 600 cybersecurity experts and has invested more than $500 million in artificial intelligence, data infrastructure and technology to help prevent fraud in the last five years.
Despite these efforts, credit card fraud is growing. In 2021, cyber thieves and dark web data merchants stole nearly 400 million credit card records nationwide. That year, $12 billion was lost to credit card fraud.
By 2031, losses are expected to rise to $19 billion — about 10 cents for every $100 in purchases, according to a new report from Cornerstone Advisors.
Interchange fees help shield customers from those costs. If the Senate gives retailers the right to opt for low-cost, insecure payment networks, then fraud could become even more prevalent. Consumers could end up paying significantly more for all kinds of financial services, from credit cards to checking accounts.
The bill would abet fraud in another way. Right now, one network processes every swipe made with a consumer’s credit card. So financial institutions and payment networks have just one data set to examine to determine whether there’s a pattern of fraudulent activity on a card.
When each retailer can use a different payment processing network, it becomes much more difficult for card issuers and the payment networks themselves to flag potentially fraudulent activity.
Retailers’ war on interchange and network fees is shortsighted. The fees typically amount to just 2% of a purchase. That’s a drop in the bucket compared with the benefits retailers receive when they accept credit cards.
Credit cards drive profits for merchants. Studies suggest consumers spend more when using a credit card instead of cash. In 2021, consumers spent more than $4.5 trillion using credit cards.
Credit cards also eliminate some of the time and expense it takes to handle cash. Accepting and holding cash is not costless to retailers. They have to spend time counting and tracking it. They have to monitor for theft, whether by outsiders or employees. They have to make trips to the bank to deposit it. In some instances, the costs associated with handling cash can reach 15% of the actual cash value.
That’s partly why nearly 11 million retailers accept at least one major credit card —Visa, Mastercard, American Express and Discover.
In other words, retailers are more than happy to accept the business and benefits credit cards provide them. But they’ve grown increasingly opposed to paying the cost of doing that business — and are lobbying legislators to do something about it.
Interchange and network fees are critical features of our credit card payment infrastructure. By effectively capping them, Congress would put big retailers’ profits before Americans’ financial security.
• Caroline Willard is president and CEO of the Cornerstone Credit Union League. She serves as chair of the Credit Union National Association Advocacy Committee and vice chair of the committee’s board.
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