Senate Democrats Grill Visa, Mastercard over Swipe Fees

At a U.S. Senate hearing Wednesday (May 4), Visa and Mastercard defended their credit card fees while retailers and consumer groups accused the card networks of behaving like a duopoly.

Sen. Dirk Durbin, D-Illinois, chairman of the Senate Judiciary Committee, opened the hearing with a clear view that card network fees were too high, and they were probably not helping with the current inflation in the country. While Durbin didn´t explicitly suggest Congress should extend the current fee cap established for debit cards to credit cards, he said the cap has benefitted Americans and how other countries like Canada or the European Union have established caps in debit and credit cards.

On the side of card networks, Bill Sheedy, a senior adviser to Visa’s chairman and CEO and Linda Kirkpatrick, president for North America at Mastercard, insisted on the need to charge fees to build and maintain a reliable network that helps consumers and merchants to operate with trust. Regarding the fee levels, both companies explained that they reduced fees during the pandemic while also covering the increasing costs of fighting fraud.

However, Sheedy and Kirkpatrick spent most of the time during the hearing justifying that they are not a duopoly and that in fact, competition in the payment industry is fierce. “In addition to cash, checks and traditional U.S. payment networks, we also compete today with digital wallets, ‘buy now, pay later’ solutions, FinTech and Big Tech, real-time payment systems and cryptocurrency,” Sheedy said. “Regulatory interventions focused exclusively on card networks would shift consumer spending away from networks like Visa, and toward more expensive payment methods with more risk, less reliability and fewer protections and security.”

Retailers and merchants, represented by Laura Shapira, CEO of the grocery store chain Giant Eagle, and Doug Kantor, general counsel for the National Association of Convenience Stores said that “the credit card market is broken.” They argued that Visa and Mastercard have the capacity to fix the prices and set the terms by which every card is accepted. The card companies insulate these fees from any competitive pressure, this is a market failure, Kantor said in his testimony.

See also: How Open Banking-Powered Payments Could Offer U.S. Merchants A Reprieve From Interchange Fees

But it was during the question-and-answer session that senators shed a bit of light on what they may be planning to do. While there was no clear consensus on how or whether Congress should cap interchange fees, some senators hinted at exploring changes in credit card rules to make the market more competitive.

Sen. Mazie Hirono, D-Hawaii, specifically targeted the so-called “honor all card” rules. The rule is a part of many credit card issuers’ contracts with merchants and requires merchants to accept every credit card an issuer offers as well as all products issued under Visa or Mastercard brands. That includes premium rewards cards with higher fees, on which companies like Visa and Mastercard encourage well-heeled consumers to spend more. Hirono suggested Congress should explore whether doing away with this rule would increase competition.

Other senators viewed the issue of regulating fees like moving the needle toward retailers or banks. Senators were more sympathetic to retailers, which operate on very thin profit margins (1.1% according to data mentioned in the hearing) than to banks. Some of the questions addressed to Charles Kim, CEO of Commerce Bancshares, the only bank representative, sought to figure out the impact that a reduction or cap on credit card fees would have on reward programs, free checking accounts and banking services for low-income populations.

Sen. Amy Klobuchar, D-Minnesota, suggested that better antitrust enforcement could also help to fix this issue. Durbin closed the hearing by stating again his views, saying that “there is not competition” in the credit card market.

Read More: May 4 Interchange Fee Hearing: The 5 Things You Need to Know