Durbin 2.0 - The Battle Continues


Aug 27, 2022


Cindy Grazer


Aug 27, 2022


Cindy Grazer


While the ongoing debate over the Visa-Mastercard duopoly is not new, the stretch of high prices and rising inflation, combined with the recent interchange fee hikes have not only put additional financial pressure on small businesses, but have reignited the attention of Washington, including U.S. Senator Dick Durbin (previously responsible for capping debit interchange fees under the Dodd-Frank Amendment).

With American consumers facing the worst inflation in four decades, the recent move by Visa and Mastercard to increase credit-card swipe fees has triggered backlash from retailers and lawmakers alike. For merchants, swipe fees are the second largest cost base after wages, representing an astounding $138b in fee payouts each year. The recent swipe hikes offer the duopoly a net additional total of $1.2b, adding to the merchant cost burden, which will inevitably be passed down to consumers, and further exacerbate current inflationary pressures.

Globally, countries have moved to regulate cap fees directly. The EU has capped credit card fees at 0.3% of the transaction value, while in China, competition across WeChat and Alipay have lowered prices down to just 0.1% of the transaction value. However, U.S credit card fees are entirely unregulated, sitting between 2-3.5% of the transaction.

In an attempt to shake up the duopoloy’s grip, US regulators have instituted an Act that, if enacted, would give merchants the flexibility to process transactions over alternative credit networks. However, while the threat from Washington seems to loom large, the lack of alternative credit card routing networks (Amex and Discover being the main options, who often charge even higher rates) could limit the intended impact of legislation.

While we may not see a major fee overhaul in the near term, the momentum from lawmakers and retailers could encourage smaller debit network players, who often have lower interchange, to invest in building out new networks for credit. Alternatively, new entrants to the payments market, from upstarts offering cheaper, app-based options, bank transfers to blockchain-based rails, have the potential to set off an even bigger threat to the throne of the giants. Winter is coming for the consumer - will dragons come for the duopoly of Visa and Mastercard?

Durbin 2.0 - The Battle Continues

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