File – Credit card options are shown on a store’s door on Nov. 29, 2018 in Philadelphia. Noticeable pockets of Americans are quickly running up their credit card balances and increasing numbers are now falling behind on their debts. (AP Photo/Matt Rourke, File)
Modern America is built on free market competition. It’s a catalyst for financial prosperity and entrepreneurship that helps bridge political, racial, and economic divides. That’s why U.S. policymakers have historically worked to keep this symbiotic relationship intact. Today, Congress has the opportunity to extend this approach to the credit card market to benefit small businesses. The industry is in dire need of a free market correction.
High school history books are riddled with examples of the U.S. government acting to promote competition within industries. The relaxing of Standard Oil Company’s ironclad grip on the energy sector and deregulation of the telecommunications industry are prime instances in which policymakers helped open the door to increased competition.
Similarly, passage of the Airline Deregulation Act in the 1970s helped usher in a new era for Americans hitting the skies. Government took their hands off the proverbial yoke, allowing airlines to better compete when it came to ticket prices, amenities, and routes. Fast forward to today and, after adjusting for inflation, the cost of a round trip ticket has fallen dramatically with travelers having access to more destinations.
Now, policymakers have an opportunity to follow a similar playbook for another industry—a move that will lower prices and promote innovation. Co-sponsored by Sens. Roger Marshall (R-KS), J.D. Vance (R-OH), Peter Welch (D-VT), and Dick Durbin (D-IL), the bipartisan Credit Card Competition Act would accomplish exactly what the name suggests: increase competition within the payments arena.
The current credit card landscape is severely lacking free market mechanisms, which would ordinarily keep costs at a level that consumers, small businesses, and credit card companies could tolerate. Instead, two credit card giants—Visa and Mastercard—dominate the space. The status quo gives them license to raise “swipe fees”—or what businesses are forced to pay every time a customer uses a credit card—without fear of backlash.
The resulting damage is jaw dropping. Businesses paid roughly $130 billion in credit card “swipe fees” in 2022, which is 20 percent more than they paid the year before. The inflationary pressures powered by the Visa-Mastercard duopoly will only continue to push costs up if lawmakers fail to act.
The proposed legislation would loosen the death grip Visa and Mastercard have on the credit card market by opening the door for other companies to compete. The bill requires big banks with more than $100 billion in assets to offer small businesses more options on how to process a customer credit card transaction. If credit network “A,” for example, has lower swipe fee rates than credit network “B,” businesses have the option to choose the former. Small businesses currently have scant alternatives.
The changes would have measurably positive impacts. Experts estimate the increased competition could save businesses—and in turn consumers—roughly $15 billion a year. For small businesses operating on razor thin budget margins, the financial savings would be a game changer.
The legislation also includes another small business-friendly feature, which closely aligns with the Job Creators Network’s American Small Business Prosperity Plan.
If enacted, the law would exempt community banks from additional compliance costs associated with the changes. The element would help these institutions to compete with their larger counterparts. Community banks are the arteries that finance growth within the small business community and need all the help they can get.
The U.S. has a rich history of leveraging free market competition to foster economic prosperity—progress that is powered by small businesses. The current credit card market landscape is dramatically tilted towards two corporate giants at the expense of Main Street. Congress has an opportunity to help correct the situation via the Credit Card Competition Act.
Elaine Parker is President of the Job Creators Network Foundation.