Merchants Welcome Fed Paper on Digital Currency, Say Proposal Opens ‘Long-Needed Conversation’ on Payments

Contact: J. Craig Shearman
(202) 257-3678

WASHINGTON, January 21, 2022 – The Merchants Payments Coalition today welcomed the Federal Reserve’s new white paper on the potential creation of a central bank digital currency, saying a CBDC could help address the tens of billions of dollars a year in credit and debit card “swipe” fees that drive up prices for consumers.

“A safe, reliable digital currency is one of the innovations merchants have long believed could ease the card industry’s growing dominance of the consumer economy,” MPC Executive Committee member and National Retail Federation Vice President for Government Relations, Banking and Financial Services Leon Buck said. “The Fed states in its report that a CBDC could reduce the cost of payments, and that would be welcomed by merchants and consumers alike. We appreciate that the Fed is looking at future innovations and has opened a long-needed conversation on how to solve the problems with our nation’s payment system. In the meantime, we need to deal with the here-and-now of bringing swipe fees under control and not allow the long-term potential of digital currency to be an excuse for not fixing a broken system. U.S. swipe fees are the highest in the industrialized world and that cannot be allowed to continue.”

The Fed cautioned that its long-awaited paper was not “intended to signal that the Federal Reserve will make any imminent decisions” about a CBDC, but said a “wave” of technological advances including digital wallets and mobile payments have led central banks around the world to consider the benefits and risks of issuing digital currency. The agency noted that the use of cash has fallen from 40 percent of U.S. transactions in 2012 to 19 percent in 2020 as the use of credit and debit cards and other electronic payments have grown.

“A CBDC could potentially serve as a new foundation for the payment system,” the paper said. It could be used “to make basic purchases of goods and services or pay bills,” could “support faster and cheaper payments” and “could lower transaction costs.” In combination with instant-payment initiatives like the FedNow service scheduled to debut next year it “could reduce the costs and fees associated with certain types of payments.” The digital currency could also be loaded into digital wallets as is currently done with credit and debit cards, the paper said.

The Fed paper comes as the swipe fees card networks and banks charge merchants to process transactions continue to grow.

For Visa and Mastercard credit cards – which account for nearly 80 percent of the U.S. credit card market – swipe fees averaged 2.22 percent of the purchase price and totaled $61.6 billion in 2020, up 137 percent over the previous decade, according to the Nilson Report. When all types and brands of cards are included, the fees totaled $110.3 billion in 2020, up 70 percent over 10 years. The fees drive up prices merchants must charge and, according to payments consulting firm CMSPI, equate to an estimated $724 a year for the average U.S. family.

Congress and federal regulators have been taking a close look at the fees. Visa and Mastercard last year postponed $1.2 billion in fee increases following concern from Congress but said the increases would take effect this April. The Fed has proposed regulations clarifying that banks must enable all debit card transactions to be processed over at least two unaffiliated networks – including at least one competing network such as NYCE, Star or Shazam – rather than just Visa or Mastercard’s networks. And both the Department of Justice and the Federal Trade Commission are investigating practices that often block merchants’ right to choose which network processes online debit transactions.

About MPC
Merchants Payments Coalition represents retailers, supermarkets, convenience stores, gasoline stations, online merchants and others fighting for a more competitive and transparent card system that is fair to consumers and merchants.