With the CARD Act of 2009 and Dodd-Frank, it is easy to assume that U.S. presidential candidates hate credit cards, but if you look at how they create small donors for registered candidates, you will see there is a conflict.
In an article titled “How Bernie’s Small Donors Are Making Credit Card Companies Rich,” Politico reported i
- Low-dollar, repeat contributions are a great talking point for campaigns. They’ve also resulted in a massive financial windfall for credit card processors.
- Bernie Sanders and Elizabeth Warren have eschewed big-dollar fundraising events to support their 2020 campaigns, instead turning to their grassroots supporters for small-dollar contributions. It’s central to both candidates’ appeal: the idea that everyday people, not big financial institutions or wealthy and powerful interests, are financing—and benefiting from—their efforts.
- Donors have responded in droves— donating tens, hundreds or even thousands of times, in amounts as small as $1. But what these grassroots supporters may not realize is that, in making small, repeated contributions, they have, in aggregate, delivered a huge payday for the middlemen, often large banks and financial institutions that process those payments.
- A Newsy analysis of Federal Election Commission data found that since the start of the 2008 election cycle, federal political campaigns have paid more than $220 million to credit card-processing companies including American Express, Bank of America and PayPal, among dozens of others.
Hmm. Isn’t this inconsistent with some recent debates on the dark side of the credit card industry?
- Between the 2008 and 2016 election cycles, the amount nearly doubled, from $28.2 million to $51.5 million. The 2020 cycle is on pace to shatter that record: Through October, the 2020 campaigns spent more than $23.8 million in processing fees—more than a year before the election.
- Nearly one-tenth of that money came from Sanders’ presidential campaign, which has paid credit card processors more than $2.3 million—the most of any candidate this cycle. Second is Warren, whose $1.75 million in processing payments narrowly edged out Pete Buttigieg’s $1.73 million.
Politico draws from a Newsy analysis of Federal Election Commission data. It shows Bernie, through his grassroots campaign, paying $2.3 million in credit card process, Ms. Warren at $1.7 million, Kamala Harris at $1.1 million, Joe Biden at $1.1 million, and even President Trump at $1.0 million.
- To illustrate the point, Zucker gave a commercially reasonable rate—similar to Stripe’s or PayPal’s—of 3 percent plus 30 cents per transaction. Imagine a single donor makes a $1,000 contribution to a candidate under that scenario: The campaign would get $969.70, and the processing middlemen (Visa, Wells Fargo, and so on) would take $30.30.
- But that balance changes radically if the campaign has a thousand different supporters make tiny online donations of a $1 apiece. In that case, the existence of per-transaction fees means the credit card processors would take $330, while campaign would get only $670 — even as it would be able to tout a small average donation size.
PaymentsJournal is not a forum for politics but what is interesting is how many politicians attack the credit card industry, but the same industry is a driving force in building grassroots support.
A chicken in every pot, a card in every wallet may be a reprise on Herbert Hoover’s 1928 tagline.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group