(IntegrityPress.org) – Proposed governmental regulations will most likely negatively alter the landscape of credit card payment processing, impacting the fees that financial institutions can levy on merchants for payment transactions.
Credit card payments are currently funneled through payment networks, predominantly dominated by Visa and Mastercard. Under this proposed regulation, merchants would gain the choice to route transactions through other, more cost-effective networks. Supporters of the bill contend that it will benefit the American populace. They claim that “excessive” fees from the processing of credit cards increase the cost of consumer goods.
The 2023 Credit Card Competition Act, dubbed “Durbin 2.0” in reference to its co-sponsor, Senator Dick Durbin is renowned for introducing debit card regulations following the enactment of the Dodd-Frank Act in 2010. It introduces a mandate for every credit card transaction to have two enabled networks, with one of them being neither Visa nor Mastercard, for routing transactions.
Durbin’s initial modification to the Dodd-Frank Act reduced the interchange fees that banks could impose on merchants. It was presented to the American public as a benefit to them, with the expectation that merchants would pass on the savings. However, this expectation remained unfulfilled.
Several studies, including ones from the Federal Reserve Bank, unveiled that big stores, notably Amazon, Target, and Walmart, channeled the savings from the Durbin Amendment to augment their profits, which gave more money to billionaires such as Bezos and the Walton family. While the bill’s proponents paint a picture of enhanced competition by granting merchants the liberty to opt for payment networks other than Visa and Mastercard, the true impact could be quite the opposite.
The government is effectively fostering a scenario of boosted competition in one sector which is likely to lead to reduced competition in another. Although in practice it seems these proposed financial regulations, championed by sponsors advocating for the fragmentation of large financial institutions, may inadvertently contribute to their enlargement.
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