Card companies and merchants both want a bigger slice of transactions

Two companies Visa (NYSE:V) and Mastercard (NYSE:MA) dominate the global credit card (CC) industry. So when they change their fee structure (which they did in April), everyone has to go along with it. No competition, no options.

At the mercy of credit card networks

Banks and credit card networks force merchants to pay a portion of each CC transaction (i.e., interchange and network fees).

The changed fee structure was expected to increase fees on businesses. But it could also affect consumers, as higher fees can be passed onto customers in the form of higher prices.

This caught the attention of regulators. In July, lawmakers introduced a bill that would allow merchants to direct credit payments through networks other than Visa or Mastercard.

In September, Walmart, Target and 1,600+ merchants called on Congress to pass the legislation.

The group sent a letter sent to Congress saying:

• U.S. swipe fees were higher than “anywhere else in the industrialized world” — 7x more than Europe.
• “In 2021 alone, U.S. merchants and consumers paid nearly $138 billion in card fees.”

Billions are on the line…

The changes could reduce swipe fees by $11B annually. Those receiving these fees are doing everything they can to block the legislation. And merchants are rallying to pass the legislation.

Merchant supporters are arguing:

• There’s no competition in the market, and merchants should be able to choose networks with lower fees.
• Merchants pass fees onto consumers with higher prices.

Credit card and network supporters are counter-arguing:

• The rules are bad for consumers as interchange fees pay for cash back, airline and CC rewards.
• The bill could lead to “less secure, less innovative, and higher-risk transactions.”

Investors: Pressure on $V and $MA

Last week, lawmakers backing the bill pushed to include it in the defense-spending bill — which is being considered on Oct. 11. But analysts don’t expect the bill to be passed this year.

Still, the changes would have big implications for Visa and Mastercard, which would:

• Evaporate billions in fees collected.
• Reduce the profitability of these companies.

Like any bill introduced in the White House, it could take years to pass — or like most of the time, not pass at all.