November 08, 2023
WASHINGTON – An increase in fraud rates on Visa and Mastercard’s networks shows the need to pass the Credit Card Competition Act to provide merchants with more secure options for routing consumer transactions, the Merchants Payments Coalition said today.
“The competing networks that would finally be given a chance under this legislation are far more secure than Visa and Mastercard and are getting more secure while Visa and Mastercard fall behind,” MPC Executive Committee member and National Grocers Association Senior Vice President of Government Relations Christopher Jones said. “These are not new, upstart companies as claimed by opponents. They are well-established, highly secure networks that the banks themselves have trusted to safely and efficiently process billions of dollars in debit card and ATM transactions for decades. They do the job better and they do it for less. It’s time for their expertise to be applied to credit card transactions to better protect consumers’ sensitive financial data.”
Fraud as a share of purchase transactions rose to 0.13 percent on “dual message” networks like those run by Visa and Mastercard in 2021, up from 0.11 percent in 2019, according to the Federal Reserve. Meanwhile, fraud on “single message” networks such as NYCE, Star and Shazam fell to 0.016 percent from 0.02 percent.
Those numbers mean the fraud rate on Visa and Mastercard’s networks is now more than eight times the rate on competing networks, up from more than five times. The data, which was released October 25, is the latest available.
Visa and Mastercard – which control over 80 percent of the market – currently restrict processing to their own networks, barring competition from others that have better security and lower fees. Under the CCCA, banks with at least $100 billion in assets would be required to enable credit cards they issue to be routed over at least one unaffiliated competing network in addition to Visa or Mastercard. The second network could be American Express, Discover or one of about a dozen networks than currently handle debit card and ATM transactions.
Banks would pick which networks to enable but merchants would then choose which to use, resulting in competition that is expected to save merchants and consumers at least $15 billion a year. Competition has also historically led to improvements in security: The U.S. card industry finally rolled out long-delayed EMV chip cards and measures like tokenization after legislation was passed in 2010 requiring similar routing options on debit cards.
In addition to providing a more secure routing option, the legislation would close a glaring security gap by barring banks from choosing networks supported by foreign governments like China UnionPay or Russia’s Mir network as the second network. Under current law, nothing prohibits banks from exposing consumers’ financial data to foreign governments by routing U.S. credit card transactions over foreign networks.
First proposed last year, the CCCA was reintroduced in June by Senators Richard Durbin, D-Ill.; Roger Marshall, R-Kan.; Peter Welch, D-Vt., and J.D. Vance, R-Ohio, along with Representatives Lance Gooden, R-Texas; Zoe Lofgren, D-Calif.; Thomas Tiffany, R-Wis., and Jefferson Van Drew, R-N.J.
The bill is aimed at credit card swipe fees, which average 2.24 percent of the transaction but can be as high as 4 percent. Credit and debit card swipe fees have more than doubled over the past decade and have increased 50 percent since the pandemic alone, hitting a record $160.7 billion last year. They are most merchants’ highest operating cost after labor, driving up prices over $1,000 a year for the average family.
Credit card rewards would not be affected by the legislation, nothing would change about which cards consumers use or how they use them, and community banks and small credit unions would be exempt.
The 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. Follow MPC on Twitter, Facebook or LinkedIn for the latest on swipe fees.