In a major headline this week, the Wall Street Journal provided the payments and financial technology sectors a heaping portion of Dodd-Frank redux, with a generous side of Durbin Amendment. Dickie-boy (Democratic Senator Dick Durbin that is) is at it again, co-sponsoring a bill with Republican Senator Roger Marshall of Kansas, seeking to legislate greater protections for merchants against what they perceive to be the anti-competitive, oligopolistic price setting of credit card transaction costs – aka interchange – by the two major card-networks, Mastercard and Visa. For those not familiar with the intricate mechanics of credit card payments transactions, the costs the card networks charge for using their interbank networks are assessed to merchants when consumers initiate payments. What makes this development this week’s most interesting is the way the two Senators are going about addressing this perceived injustice. By framing the proposed bill as a means to protect merchants from unchecked price setting is ostensibly a winning formula, at least politically. But what they’re really doing is forcing greater competition in the marketplace where Visa and Mastercard operate. Rightly or wrongly, it’s a pure powerplay where the government is telegraphing to Visa, Mastercard, and their bank participants “no mas” – you will no longer have the power to exert the price controls you have implemented to date; we’re going to force open the market to allow greater competition. Ironically, though, and practically speaking, in order to bring about greater competition, the government will need to find other interbank service providers who have existing, or aim to build-out alternative, interbank credit rails. This leaves me to ask, “who else do you have in mind”? The bottom line? The government is attempting to back-door greater control over the de facto Visa/Mastercard oligopoly in credit card transaction processing.
Senate Bill Takes Aim at Visa, Mastercard Credit-Card Fees