Sideswiped: The Hidden Motive behind the Big Bank Push to Repeal Swipe Fee Reform

By Senator Dick Durbin and Representative Peter Welch

It’s been more than six years since Congress enacted swipe fee reform legislation and more than five years since Congress rejected an effort to block the reform from taking effect. The swipe fee reform law has brought transparency and competition to a debit card system that had been completely rigged by Visa, MasterCard and big banks. Main Street businesses and consumers have benefitted as a result.

The big banks and card networks have never accepted this fundamental reform. In recent weeks their lobbyists have launched a new campaign to repeal these critical consumer protections.

We believe this lobbying effort will fail. Repealing swipe fee reform would reduce competition and make Americans pay billions more in debit card fees to banks like Wells Fargo. American businesses and consumers are prepared to fight that outcome.

But we suspect there is actually another motive behind this lobbying campaign, one that we want to expose. We believe the push to re-fight the swipe fee wars of the last decade is really an effort to distract and deter Congress from scrutinizing new electronic payments schemes that are underway right now. Main Street cannot afford for Congress to ignore these schemes.

In the next few years, the electronic payments system will experience three massive transitions: transactions will be routinely tokenized for security, plastic cards will give way to mobile devices, and current forms of authentication will be improved by using biometrics and other advanced ways to identify accountholders. Visa, MasterCard and the big banks know that if they can shape the rules and technology standards for these transitions, they can rig the system to entrench their own market dominance and generate untold billions for themselves in new fees.

We have seen what happens when we let the card networks and their big bank allies set the rules. Just look at the botched transition to EMV chip card technology- a transition that was dictated by Visa, MasterCard and their proxy organizations EMVCo and the PCI Security Standards Council.

Have you ever noticed how your card with the chip takes longer to process, and then you still have to sign the receipt the old fashioned way? Well, the rest of the world uses a chip-and-PIN system that is faster and more secure. But the EMV transition in the U.S. was designed to stifle chip-and-PIN technology because Visa, MasterCard and their big bank issuers make more money when PINs are not used. And little attention was paid to making sure merchants could install the new chip readers quickly and cost-effectively. The result has been long waits at the checkout counter and enormous frustration throughout America, which was foreseeable and could have been avoided if other stakeholders had a meaningful vote in how this transition was governed.

Congress and regulators need to wake up and recognize that the same card networks and big banks that controlled the chip card transition are seeking to dictate the rules governing tokenization, mobile payments and biometric authentication. Congress and regulators must ensure that all stakeholders in our economy — consumers, merchants, fintech providers, small banks and smaller card networks — have a meaningful voice in setting the rules and technology standards on tokenized, mobile and biometric payments. This is essential so that competition and reasonable fees can be preserved. The stakes in this debate are enormous.

Make no mistake — Visa, MasterCard and the big banks want to scare Congress and regulators away from exerting oversight over the transitions to tokenized, mobile and biometric payments. They don’t want interference with their efforts to shape these transitions in ways that entrench their own dominant market position — even if competition, security and the consumer experience suffer as a result. Part of their strategy involves arguing that the 2010 swipe fee reform law has failed. They think that by discrediting Congressional efforts to rein in their rigged schemes in the past, they will enhance their ability to get away with rigged schemes in the future.

We are wise to their game. We have seen that the big banks and dominant card networks profit enormously when they are able to control the rules and inhibit normal market competition in the electronic payments system. That’s what they did by setting up the swipe fee system originally, with Visa and MasterCard price-fixing fees on behalf of thousands of banks so the banks wouldn’t have to compete with each other on fee rates. But Main Street America deserves an electronic payments system with competition and transparency.

We have been proud to stand beside Main Street businesses and consumers in the swipe fee wars, and we will do it again in the fight to ensure competition and transparency during the transitions to tokenization, mobile payments and biometric authentication. We will make sure Congress and regulators know what is at stake and remain focused on the future. Main Street American consumers and businesses deserve nothing less.

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