FACT: DEBIT SWIPE FEE REFORM INCREASES

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FACT: DEBIT SWIPE FEE REFORM INCREASES COMPETITION Rep. Hensarling has proposed repealing debit swipe fee reform which has resulted in consumer savings of nearly $6 billion per year and supported more than 37,000 jobs per year. Debit swipe fee reform increases competition in swipe fees and network routing services. Repealing it would simply increase price-fixing and return to a broken market. •

Prior to swipe fee reform, the card networks fixed all of the fees that issuers charge merchants without any limitation on that price-fixing.

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Prior to reform, all Visa banks (and, separately, all MasterCard banks) charged exactly the same schedule of fees for debit card transactions even though those banks compete on every other aspect of their businesses.

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This price-fixing by Visa and MasterCard resulted in highly inefficient and unreasonable fees as networks raised prices in an effort to win bank business. According to the trade publication, Digital Transactions: “To attract issuers, networks have been raising interchange rates for years to gain fee-generating transaction volume from more cards with their marks.”

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Debit swipe fee reform limits that price-fixing to a reasonable level for the largest of the large banks – those with more than $10 billion in assets.

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Debit swipe fee reform does not limit pricing for any bank that wants to set its own swipe fees rather than follow the Visa/MC fixed rates.

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Swipe fee reform thereby created incentives for banks to set their own fees and compete. They just haven’t because they make too much money even with the regulatory limits. That means banks make more than the market would bear. Otherwise, the banks would set their own fees and compete.

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Swipe fee reform ensures that networks compete on their own fees too.

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Before reform, Visa and MC blocked competition in the largest banks by paying them to sign exclusivity deals where they would be the only networks enabled on any debit cards issued by the banks. J.P. Morgan analysts estimated that Visa and MasterCard had exclusive deals with 40 to 50% of the entire debit card market, and 79% of Visa’s volume from just it’s top 10 issuers was part of an exclusive arrangement.

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The result: The once robust domestic debit market shrunk from over 150 debit networks to 20 between the 1970’s and 2000’s despite more competitive pricing and lower fraud rates.

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Reform ended these market-killing exclusivity practices so customers of network services could have a competitive choice.

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Repeal of swipe fee reform would end the incentives and guardrails that foster competition – completely the opposite of what those favoring repeal say they want.

The facts are clear, Rep. Hensarling’s proposal would only benefit the largest of the large banks and card brands hurting the American consumer and Main Street businesses.

The Merchants Payments Coalition (http://www.unfaircreditcardfees.com/) represents 2.7 million stores, including restaurants, supermarkets, drug stores, convenience stores, gas stations, on-line merchants and others, with 50 million employees, fighting unfair credit-card fees and working for a competitive and transparent system for merchants and consumers.