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American Banker Op-ed: Merchants shouldn’t count on the CCCA to meaningfully lower their costs

| American Banker

Last month, backers of the Credit Card Competition Act (CCCA) indicated that they anticipate a vote before the end of the year. This seems even more likely following Senator Dick Durbin’s most recent statement, urging that his bill be brought forward for a vote, ultimately to fight against what he calls the Visa-Mastercard “duopoly.”

This piece of legislation has been talked about at length, with a seemingly equal amount of support and dissent from voices across the industries. Proponents believe it will help businesses save on costly interchange fees and, potentially, save consumers money in the long run. Opponents argue it doesn’t guarantee any consumer savings and could actually reduce card protections in the long run.

When the bill proposal came out, I thought, “Here we go again,” another bill that will supposedly help reduce the cost of accepting credit cards and pass on savings in the form of reduced prices for the business owner. In an ideal world, this would in turn fight inflation by lowering consumer prices. Unfortunately, I am not buying that. Don’t get me wrong — the cost of accepting payment via credit cards is a pain point and needs to be addressed. At this point, however, I do not think this bill will help reduce the costs of products for the consumer.

Let’s look at the main idea of the bill — it will force the large banks to have additional payment networks on their cards, including one not owned by Visa or Mastercard. This will allow a merchant to choose the best network to use, lowering costs. The belief here is that this will create more competition in the payment space and thus reduce the costs of acceptance, but there are a few points of concern that deserve greater scrutiny.

First and foremost, the bill states that the merchant can now choose a network. Really? The big box stores may have the ability to use technology to help make a proper choice of networks at the point of sale and automate the process, but will the small mom and pop stores really be able to do this? Small-business owners, which make up 99% of the businesses in the U.S., are focused on staying in business and making sales. If they must make the choice, this will never work for the small-business owner. The real winner, in my opinion, will be the big box and enterprise organizations. Contrary to the popular narrative, Visa did in fact reduce the cost of acceptance for small businesses; in other words, small businesses are not at as much of a disadvantage as it may seem.

Should a business choose a cheaper network, there are a few more issues that may arise off the back of that. For example, will a cheaper network have the same fraud protection? This is a big, outstanding question and could lead to issues down the line. If a merchant chooses a network with less fraud protection, then who is responsible for the fraud? Will the cheaper network pass the responsibility to the business owner, therefore potentially costing the business more in the long run due to losses and increased work? All these questions go unanswered as the bill stands right now.

Finally, if a less expensive network is used, will the card user be given fewer rewards or no rewards at all because the bank will be receiving less revenue from the transaction? If a consumer uses a rewards card and realizes rewards are diminished or nonexistent, that business will potentially lose customers in the long term, counteracting any savings they may see as a result of choosing a cheaper network.

If a business owner actually decreases the cost of accepting credit cards by using a new network, it is hard to believe they will then lower the cost of their products or services; on the contrary, most will experience an increase in profit. Think about it this way — when a business owner cuts expenses in any other category, do they decrease the price of what they are selling? Most businesses today are focused on cutting costs and increasing profit margin — not decreasing their bottom line.

It is understandable that business owners see accepting credit cards as a pain point. However, in most cases, the cost to accept these cards has increased proportionally to the volume increases. Not only are consumers spending more, but they are spending more on credit cards. Merchants who are not seeing increased volume probably have a processor with large markups and hidden fees, or could be penalized for not understanding interchange rules. Once the business owner gets everything streamlined in place, the cost of accepting cards will cause less pain.

There is no doubt that the cost of accepting payments should be addressed, but this can be done by understanding the landscape or having an expert audit accounts every month. Most businesses use accountants for their books, and lawyers for their legal opinion, but they are not using an expert to protect their most valuable resource, their income stream.

Regardless of an impending vote, I do not anticipate the CCCA will fully resolve credit card processing-related issues plaguing businesses today. While legislation may help drive awareness and move the needle on these issues slightly, the main priority for businesses in the coming months and years should be to understand what additional steps they can take independently to reduce their processing fees in the future.

Eric Cohen, Founder & CEO, Merchant Advocate

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