If merchants are to pay credit card fees, networks and issuing banks should set them competitively.

March 29, 2021

Visa and Mastercard set the swipe fee rates followed by virtually all of the hundreds of banks that issue their cards. Rather than competing to offer the lowest fees and therefore hold down costs for merchants and prices for consumers, the two card giants compete to set the highest fees. Doing so means more revenue for the banks and encourages them to issue cards from whichever of the two card networks has the higher fees. This upside-down version of competition lines banks’ pockets at the expense of merchants and consumers and should be ended. Rather than following Visa and Mastercard in lockstep, banks should set fees independently and should compete to offer the lowest fees.