On behalf of their thousands of card-issuing members, the American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Credit Union National Association, and National Association of Federally-Insured Credit Unions appreciate the opportunity to submit a statement for the record for the hearing titled “Excessive Swipe Fees and Barriers to Competition in the Credit and Debit Card Systems.”
This hearing is about the following moment of everyday life: a customer approaches a merchant with a payment card and the merchant accepts it as payment. Right then, the customer and merchant access a vast, sophisticated, and costly messaging apparatus, data flows through protected channels, money moves instantly, and the customer is assured that their purchase is protected if there is a problem. The merchant is paid faster and more easily than by check or cash, and the customer has access to myriad benefits and protections they would not get through those older methods.
And the question becomes: who pays for all of this?
We believe that the consumer should always pay last and that the two commercial parties to the transaction — the financial institution and the merchant — will cover the vast majority of transaction costs in a market-driven card ecosystem. Unfortunately, some large merchants seek to use political pressure to increase their margins. For them, the answer to the question of who should pay is simple: anyone and everyone, except them.
Interchange regulation, both rate caps and routing requirements, is about creating a world where transaction costs are disproportionately borne by the non-merchant parties to the card-based payment transactions, notwithstanding the fact the merchant receives the most value from card-based payments. The Durbin Amendment, as implemented by Regulation II, imposes rate caps on non-exempt debit card issuers, prohibits all issuers and networks from restricting the number of networks over which debit transactions may be processed to less than two unaffiliated networks, and prohibits all issuers and networks from inhibiting a merchant’s ability to direct the routing of a debit transaction over any network that the issuer has enabled to process it. The Durbin Amendment shifted the burden of merchants’ normal contributions onto debit card customers and their banks. While presented as “fairness,” the law has made payments more regressive and expensive for consumers, many small businesses, and community banks, while ensuring big merchants pay as little as possible. Merchants promised Congress they would lower prices after the Durbin Amendment passed, but did not. Having misled Congress and the American people once, merchants again promise that they will lower prices if Congress intervenes on credit card
interchange. The reality is that they won’t — and they have already acknowledged as much publicly on earnings calls and in other forums.
Our statement will be brief because our argument is simple: interchange is a fair and normal way to ensure that consumers pay as little as possible for payment services. On the other hand, the Durbin Amendment forces consumers to pay for costs merchants would otherwise cover. It should be repealed, not expanded.
The Card Payment System Benefits Merchants by Design
The card system was created as a merchant payment system. Before the card system was created, merchants faced delayed payment associated with check processing and were at risk of having the payment returned as fraudulent or without sufficient funds to cover the transaction. Even with respect to cash-based transactions, merchants had to pay the processing, sorting, and additional safety costs associated with those transactions, which required far more time and presented a higher risk of fraud borne by the merchant. The card system was created as a system that was geared towards one principal and primary goal – giving merchants a fast and reliable form of payment that sought to protect them against the risks associated with each of the other types of payments. During a card transaction, money moves in one direction: to the merchant. This may seem obvious, but large retailers have painted financial institutions as the sole beneficiary of card transactions. If you follow the money, this assertion does not sync with the facts.
When a consumer pays with a debit card, the consumer gives up some of their money to the merchant and the merchant receives it. The consumer can no longer spend or invest those funds. In the same moment, the financial institution loses access to those deposits and takes on a wide range of regulatory and customer service responsibilities related to the transaction. When a consumer pays with a credit card, the financial institution transfers its own funds to a merchant and the consumer becomes responsible for repaying a loan; many times outstanding balances will be repaid in full during the statement cycle and therefore will not accrue interest, and other times the loans will not be repaid, in full or in part (historically, 3–4 percent of these loans are not repaid). In the case of both debit and credit cards transactions, the card system facilitated removal of funds from a customer’s financial institution and its transfer to the merchant. While everyone participating in a card transaction benefits from it, it is the merchant who always ends up with more funds and without further obligations. For the merchant’s convenience, they contribute to the system in the form of a fee at the moment of a transaction, while financial institutions have paid into the system before a card is swiped and will continue to incur costs after. These costs include account maintenance, security, consumer rewards, fraud prevention/reimbursement, customer service, and other actions essential to ensuring that the merchant’s customer has a safe and seamless payment experience.
The card system is designed to make being paid as easy as possible, and our members would like it no other way: America’s banks and credit unions are proud to support the economic success of merchants. The benefits to merchants are substantial, including higher transaction values; reducing costs associated with cash handling, bounced checks, and counterfeiting; access to prompt and guaranteed payments; a speedier checkout process; and e-commerce facilitation. In short, accepting cards makes a business stronger and more efficient.
To read the full statement, click here or click on the download button below.
 Board of Governors of the Federal Reserve, Charge-Off Rates for Credit Cards, 2022.