Breaking the “Duopoly”: Visa and Mastercard Under Congressional Scrutiny

Breaking the “Duopoly”: Visa and Mastercard Under Congressional Scrutiny

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Did you know that the average American spends more on “swipe” fees each year than on coffee or alcohol?

U.S. Senate Judiciary Committee members pressed Visa and Mastercard executives Tuesday about the credit card giants alleged anticompetitive practices and fees that have enabled the pair to corner 80% of the market.

In this newsletter, we will explore the industry’s most pressing development, intensifying scrutiny of Visa-Mastercard over alleged "duopoly" and anti-competitive practices. We’ll unpack the controversy, its implications, and what it means for the future of payments. Please check out Our Expert’s Take for a deeper understanding.

But first, here is a quick roundup of big news that made headlines in the FinTech industry.

News Roundup!

  1. Budget deficit swells in November, pushing fiscal 2025 shortfall 64% higher than a year ago

  2. CME Micro E-mini Equity Index Futures Surpass 3bn Contracts

  3. Assets in US ETFs Reach Record $10.6tr 

  4. Cybersecurity specialist Gen Digital acquires MoneyLion in $1bn deal

  5. Klarna Bank hit with $46m fine for anti-money laundering failures

Key Takeaways from the Senate Judiciary Hearing

1. The Case Against the "Duopoly"

  • Visa and Mastercard collectively control 80% of the U.S. credit card market.

  • In 2023 alone, merchants paid over $100 billion in swipe fees, which are among the highest globally, ranging from 1-3% in the U.S. compared to the 0.3% cap in Europe.

2. The Bipartisan Push for Change

  • The Credit Card Competition Act (CCCA), co-sponsored by Senator Dick Durbin (D-IL) and Senator Roger Marshall (R-KS), seeks to require large banks to offer merchants access to at least two payment networks.

  • Lawmakers argue that the legislation would increase competition, lower swipe fees, and reduce inflationary pressure on retailers and consumers alike.

3. Industry Concerns and Counterarguments

  • Visa and Mastercard executives defended swipe fees as necessary to fund innovations in security and consumer protections, including fraud prevention and zero liability guarantees.

  • Critics, however, accused the networks of monopolistic behavior, highlighting the $1,100 annual cost in swipe fees per average American consumer and its ripple effect on inflation.

Implications for Retailers, Banks, and Consumers

1. Retailers:

  • Swipe fees are often the second-largest operational expense, especially for small businesses. Proponents of the CCCA argue that reducing these fees could significantly enhance profit margins and encourage price reductions for consumers.

2. Banks:

  • Smaller financial institutions have expressed concerns about potential disruptions to their revenue streams. The American Bankers Association (ABA) warned that the CCCA could harm community banks and credit unions, which rely heavily on interchange fee revenue.

3. Consumers:

  • While lower swipe fees could result in reduced prices, Visa and Mastercard argue that such measures could lead to reduced reward programs, a key benefit for many cardholders.

The Global Perspective

Countries with stricter regulations, such as South Korea and France, have successfully capped swipe fees, leading to lower costs for merchants and consumers. However, as seen in Europe, caps can also diminish cardholder benefits like reward programs. The U.S. faces the challenge of balancing these trade-offs.

What’s Next?

The Senate Judiciary Committee hearing is a critical moment in the ongoing debate over the dominance of Visa and Mastercard. While the Credit Card Competition Act has yet to gather enough momentum for passage, the growing bipartisan support signals a shift in the conversation. Lawmakers are sending a clear message: If the industry doesn’t self-regulate, Congress will step in.

For fintech professionals, this is a pivotal time to assess the ripple effects of regulatory shifts. Whether it’s identifying opportunities in alternative payment networks, reevaluating merchant partnerships, or preparing for evolving consumer expectations, the stakes are high.

Actionable Insights: How You Can Leverage This Trend

  • For Payment Solution Providers: Develop or partner with emerging payment networks that offer lower fees and greater flexibility for merchants.

  • For Retailers: Advocate for regulatory changes that align with your business interests while exploring ways to integrate diverse payment options.

  • For Fintech Innovators: This moment presents a chance to design competitive, consumer-friendly solutions that can challenge entrenched market leaders.

Our Expert's Take

As an American, it’s so easy for anyone to get a new credit card, in fact, last year 726 MILLION Visa and Mastercard cards were issued – more than 2 per American! Some cards have really high interest, but swipe fees are not readily disclosed. I see some small businesses have a minimum purchase for CC partially because of this, but consumer impacts are largely hidden.

Sen. Josh Hawley asked questions, bringing up the profit margin for both Visa and Mastercard and they BOTH MAKE OVER 50% PROFIT!! These are huge numbers!

But even if this duopoly is proven to exist, what is anyone going to do about it? Is it even possible to stop? Is the answer Cryptocurrency? Maybe a new form of debit cards, perhaps even tied to crypto? Is it new players in the market?

With the economy hurting, the hope is that something will change to make the payment system fairer for everyone. As we navigate these changes, it’ll be interesting to see which new technologies or competitors rise to the occasion and how they’ll reshape the way we handle our money.

That's a wrap on this edition

We understand there's ample time before the T+1 transition in the UK and EU, but early preparation is essential. We successfully helped U.S. firms navigate their T+1 transition and are looking to assist UK and EU firms next.

If you need a technology partner to help navigate this significant change, we're here to help! Reach out to us at [email protected]

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