Today’s WSJ scooped the story on a U.S. Senate bill that “Takes Aim at Visa, Mastercard Credit Card fees.” In this brief article, the Journal notes that the bill would give merchants the power to process branded cards through different card networks to reduce costs. It may be introduced next week.
- The bill, which could be introduced as soon as this week, aims to create more competition among U.S. credit-card networks, a sector where Visa and Mastercard have long dominated.
- Sen. Dick Durbin, an Illinois Democrat, and Sen. Roger Marshall, a Kansas Republican, are expected to introduce the bill.
The article brings a subtle potential change to credit card acceptance which would affect large issuers more than smaller lenders, such as community banks and credit cards.
- The bill would mandate that merchants in many cases have the right to route payments through an unaffiliated network. This would apply on Visa or Mastercard credit cards that are issued by banks with more than $100 billion in assets.
The implications to the use of credit cards in the United States is particularly significant at a time when credit card issuers are building their loan loss reserves in anticipation. As we noted, bank revenue was strong in 2Q22, but many reduced their net income by preparing for a much-anticipated storm. Consumers are wary about inflation, and prudent credit card issuers are preparing for an upcoming recession. How will this affect credit card fees?
Hopefully, legislators will consider the broad range of risk that both consumers and credit card issuers face in the coming environment. Will banks need to tighten lending and reduce exposure? Will credit card issuers need to be less inclusive in their lending strategies as mandated price controls come into play? And will investors in credit, both for those funding bank operations, or assuming interest in asset-backed securitization, be willing to accept the risk that regulated price controls would bring?
And, when (not if) the country goes into recession, will tighter credit slow down economic recovery? There is much more to the credit card model and credit card fees than just the merchants. It includes lending banks, investors, and most importantly, the credit-dependent consumer.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group