Breaking the Visa-Mastercard Duopoly: Bringing Competition and Lower Fees to the Credit Card System (U.S. Senate Committee on the Judiciary)

Hearing	Breaking the Visa-Mastercard Duopoly: Bringing Competition and Lower Fees to the Credit Card System
Committee	U.S. Senate Committee on the Judiciary
Date	November 19, 2024

 

Hearing Takeaways:

• Credit Card Interchange Fees: The hearing considered whether Congress ought to take action to address credit card interchange fees. Credit card interchange fees are one type of credit card swipe fee and are the fees that the merchant’s bank pays to the customer’s bank as part of a credit card transaction. Credit card networks (such as Visa and Mastercard) set interchange fees and these fees are meant to compensate the customer’s bank for assuming the financial risk of a credit card transaction. Several Committee Members, Sen. Roger Marshall (R-KS), Mr. Callahan, Prof. Alford, and Mr. Kantor raised concerns that Visa and Mastercard are abusing their market power to set excessively high interchange fees. Full Committee Chairman Richard Durbin (D-IL) noted that Visa and Mastercard control 83 percent of credit cards in the U.S. They stated that these higher interchange fees are harming consumers and merchants and are driving higher prices. Mr. Sheedy and Ms. Kirkpatrick argued however that their credit card networks (Visa and Mastercard, respectively) are not abusing their market power to set interchange fees. They also emphasized that Visa and Mastercard do not derive revenue from interchange fees and that their interchange fee setting practices are meant to encourage banks to participate in credit card transactions.
  • Impact of Credit Card Swipe Fees on Merchants and Retailers: Several Committee Members, Sen. Marshall, Mr. Callahan, Prof. Alford, and Mr. Kantor noted how interchange fees generally range between 1 percent and 3 percent of transaction amounts and stated that these fees can impose significant costs on merchants and retailers. They further expressed frustration that smaller businesses are unable to negotiate their interchange fees with credit card processing companies while larger businesses can negotiate these fees. They commented that this inability to negotiate interchange fees puts these small businesses at a disadvantage. Some Committee Republicans, Mr. Sheedy, and Ms. Kirkpatrick stated however that these fees are necessary to support payment security features and to guarantee that payments made on networks will be honored (regardless of whether the buyer defaults after the transaction is made). Mr. Sheedy also contended that it is commercially reasonable for merchants to qualify for lower interchange fee rates if they engage in greater business volume.
  • Payments Market Size: Mr. Sheedy and Ms. Kirkpatrick argued that Visa and Mastercard face significant competition within the payments space. They stated that that consumers and merchants can choose to process transactions through a growing list of alternative platforms that do not rely upon credit card payment networks. These alternative platforms include digital stored value wallets, buy now, pay later (BNPL) platforms, Automated Clearing House (ACH), pay-by-bank solutions, cash, checks, real-time payments, account-to-account (A2A) payments, private label, regional networks, cryptocurrencies, the U.S. Federal Reserve, and mobile payment applications. They also noted how Visa and Mastercard must compete against cash, check, and other payment card networks, as well as several additional credit and debit options. Prof. Alford and Mr. Kantor argued however that these new payment options have not reduced the relative popularity of credit card transactions. Mr. Kantor noted how the U.S. Federal Reserve Bank of San Francisco has found that these mobile payment applications account for less than 1 percent of all payments. Prof. Alford also stated that these new payment innovations have their own problems. He mentioned how the U.S. Department of Justice (DoJ) is suing Apple for monopolistic practices related to the Apple Wallet. He described Apple Wallet’s restrictions as significant and noted how Apple smartphone users must use the Apple Wallet (rather than applications provided by banks) to make transactions via smartphone.
  • Federal Antitrust Actions Against Visa and Mastercard: Several Committee Members, Sen. Marshall, and Mr. Kantor also highlighted how the DoJ and the U.S. Federal Trade Commission (FTC) have pursued antitrust actions against Visa and Mastercard, respectively. They noted how the DoJ had recently filed a complaint against Visa alleging that Visa pays off Apple, PayPal, and Square (which owns Cash App) to not compete with them within the debit card market. They also noted how the FTC has entered into a consent decree with Mastercard. Mr. Sheedy noted how Visa maintains a commercial agreement with Apple and stated that this commercial agreement does not prohibit Apple from competing with Visa. He stated that this commercial agreement pertains to the sharing of sophisticated security technologies that support the functioning of Apple Pay.
  • Setting of Interchange Fees through Algorithms: Sen. Amy Klobuchar (D-MN) expressed concerns that the use of algorithms to set interchange fees could enable price fixing schemes. She elaborated that centralized entities may use data from multiple market participants to set optimal prices that come at the expense of consumers. She mentioned how she had recently introduced the Preventing Algorithmic Collusion Act of 2024 to ensure that middlemen do not use algorithms to circumvent price fixing laws. Mr. Sheedy testified that Visa uses a wide variety of factors to determine interchange fees. He testified that Visa has invested “significantly” in developing sophisticated algorithms and indicated that these investments include artificial intelligence (AI) technology. He remarked that these algorithms are “squarely and wholly” focused on reducing fraud and addressing cyber risk within the payments system.
  • Impact of Visa and Mastercard on Market Competition: Mr. Sheedy contended that Visa’s payment network “levels the playing field” between large and small market participants. He elaborated that this payment network provides all community banks and credit unions (regardless of size) with access to the same payment products and network technologies as the largest financial institutions. Mr. Kantor argued however that smaller financial institutions are currently at a disadvantage because small financial institutions lack the economies of scale of larger financial institutions. He elaborated that Visa and Mastercard’s setting of uniform interchange fees results in smaller financial institutions having lower profit margins. He stated that large financial institutions have taken advantage of this dynamic to dominate the U.S. credit card market.
  • Foreign Credit Card Interchange Fees: Several Committee Members and Sen. Marshall noted how other countries regulate credit card interchange fees, which cause these countries to have significantly lower interchange fees than the U.S. They expressed frustration that U.S. consumers and businesses must pay higher interchange fees than foreign consumers and businesses. They also stated that these lower interchange fees in foreign markets have not deterred Visa and Mastercard from entering these markets. Mr. Sheedy stated however that foreign interchange fee regulation efforts have reduced access to credit card rewards and driven up credit card fees in these markets.
  • The Durbin Amendment’s Cap on Debit Card Interchange Fees: Full Committee Chairman Durbin discussed how Congress had previously capped debit card interchange fees as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) through the Durbin Amendment (which is named after himself). He mentioned how the Durbin Amendment is estimated to have saved consumers billions of dollars in the ensuing years. He also stated that the Durbin Amendment had not caused profit margins for retailers to increase at all and indicated that the grocery industry’s profit margins had decreased following the enactment of the Durbin Amendment. Ms. Kirkpatrick asserted however that the U.S.’s adoption of debit card regulations had caused debit card rewards to be eliminated, debit card fees to increase, access to capital to decrease, and competition to be stifled.
• The Credit Card Competition Act of 2023: Several Committee Members, Sen. Roger Marshall (R-KS), Mr. Callahan, Prof. Alford, and Mr. Kantor expressed support for the Credit Card Competition Act of 2023. This bipartisan legislation would require financial institutions with more than $100 billion in assets to enable two credit card networks on their credit cards. This legislation would mandate that one of these two credit card networks be a company other than Visa or Mastercard and the legislation would allow for the financial institution to choose their second credit card network. They stated that the competition stemming from this legislation would exert downward pressure on interchange fees, which would result in savings for businesses and consumers. Sen. Marshall highlighted how a professional survey had found that 96 percent of respondents had expressed support for the Credit Card Competition Act of 2023. Prof. Alford and Mr. Kantor further commented that the legislation’s approach of using competition to address problems in the credit card processing market is less drastic than a regulatory approach to address such problems. Prof. Alford added that litigation has often proven ineffective at addressing anticompetitive practices within this market. Some Committee Republicans, Mr. Sheedy, and Ms. Kirkpatrick argued however that the Credit Card Competition Act of 2023’s requirements for credit card issuers would impose artificial controls on a well-functioning payments system, remove choice from consumers, erode payment security, and harm community institutions and credit unions. They also warned that these requirements would reduce credit card reward availability. These opponents and Sen. Mazie Hirono (D-HI) further questioned whether businesses would pass along the savings associated with lower interchange fees to consumers.
  • Impact on Payment Security: Mr. Sheedy and Ms. Kirkpatrick both discussed how Visa and Mastercard make significant investments in technology to reduce fraud and enhance cybersecurity on their networks. Mr. Sheedy, Ms. Kirkpatrick, and Sen. Marsha Blackburn (R-TN) also emphasized that merchants using the Visa and Mastercard networks to process payments will always have their transactions honored, regardless of whether the customer defaults on the transaction. They warned that the Credit Card Competition Act of 2023 could threaten these protections. Supporters of the Credit Card Competition Act of 2023 noted however that Visa and Mastercard maintain very high profit margins and that the legislation would not threaten these services. Sen. Marshall also argued that the legislation would improve security for banks and consumers through encouraging banks to choose new credit card processing platforms, which could promote the development of innovative safety features. He added that the legislation would not allow a credit card’s issuing bank to choose a foreign credit card processing platform (such as China UnionPay).
  • Impact on Credit Card Rewards: Mr. Sheedy and Ms. Kirkpatrick raised concerns that the reduced interchange fees that would result from the Credit Card Competition Act of 2023 would lead to fewer credit card rewards being offered to consumers. They noted how previous interchange fee regulations in both the European credit card market and the U.S. debit card market had caused card issuers to reduce or eliminate their reward programs. Ms. Kirkpatrick stated that more than 80 percent of U.S. credit card holders can benefit from credit card reward programs. Supporters of the Credit Card Competition Act of 2023 dismissed these concerns and noted how rewards programs still exist in markets that have regulated interchange fees. Prof. Alford and Mr. Kantor further stated that credit card reward programs are regressive in nature. They referenced studies finding that these programs transfer money from less educated populations to more educated populations, from poorer populations to richer populations, and from higher minority areas to lower minority areas. Mr. Kantor further noted how banks generate significantly more revenue from interest, consumer fees, and interchange fees than they pay out in credit card rewards. He asserted that banks could still afford to pay out credit card rewards at current levels, even if the Credit Card Competition Act of 2023 were to cause a reduction in interchange fees.
  • Non-Applicability of the Legislation to American Express and Discover: Sen. Thom Tillis (R-NC), Mr. Sheedy, and Ms. Kirkpatrick expressed concerns that the Credit Card Competition Act of 2023 would only apply to credit cards that operate within the four-party credit card network system (which include credit cards using the Visa and Mastercard networks). The four-party credit card network system involves a cardholder, the merchant, the acquiring bank (i.e., the merchant’s bank), and the bank issuing the credit card. They noted that the legislation would not apply to credit cards that operate within the three-party credit card network system (which include cards using the American Express and Discover networks). The three-party credit card network system involves the cardholder, the merchant, and the network provider (which serves as both the acquiring bank and the bank issuing the credit card). They argued that the selective application of the legislation to credit card operating under the four-party credit network system would put Visa and Mastercard at an unfair disadvantage to American Express and Discover, even though all of these companies offer similar services to cardholders and merchants.
  • Technological Feasibility Concerns: Sen. Marshall disputed the claim that there does not exist technology to support multiple credit card processing platforms and stated that there exist “dozens” of competitive payment processing networks that routinely process debit card transactions. He mentioned how JPMorgan Chase had recently launched a credit card in France with two processing platforms.
• Other Policy Topics: Committee Members and Sen. Roger Marshall (R-KS) used the hearing to raise other credit card and antitrust-related policy issues for the Committee’s consideration.
  • Credit Card Consumer Debt and Interest Rates: Sen. Marshall and Sen. Josh Hawley (R-MO) raised concerns over the credit card industry’s high interest rates and fees, as well as the U.S.’s high level of credit card debt. Sen. Hawley expressed support for President-elect Trump’s proposal to cap credit card interest rates. Mr. Sheedy and Ms. Kirkpatrick emphasized however that Visa and Mastercard do not issue credit cards to consumers and stated that credit card networks are not responsible for credit card interest rates and fees.
  • The U.S. Supreme Court’s Ohio v. American Express Co. Decision: Sen. Amy Klobuchar (D-MN) expressed interest in how the U.S. Supreme Court’s 2018 Ohio v. American Express Co. decision had created new rules for how antitrust enforcement agencies must evaluate two-sided platform markets. Prof. Alford explained that two-sided platform markets involve simultaneous transactions where the fee impacts both the merchant and the buyer. He remarked that the Ohio v. American Express Co. decision makes it more difficult to determine market definitions for the purposes of antitrust cases. He stated that this decision has made it more difficult for antitrust enforcement agencies to enforce anticompetitive conduct with respect to credit card companies.

Hearing Witnesses:

Panel I:

1. Sen. Roger Marshall (R-KS)

Panel II:

1. Prof. Roger Alford, Professor of Law, University of Notre Dame Law School
2. Mr. Chris Callahan, Co-Owner, Battenkill Books
3. Mr. Doug Kantor, General Counsel, National Association of Convenience Stores
4. Mr. Linda Kirkpatrick, President, Americas, Mastercard
5. Mr. Bill Sheedy, Senior Advisor to CEO, Visa Inc.

Member Opening Statements:

Full Committee Chairman Richard Durbin (D-IL)

• He discussed how Americans have recently suffered through a period of high inflation resulting from the COVID-19 pandemic and asserted that credit card swipe fees have been a “hidden contributor” to this inflation.
  • He explained how swipe fees are taken out of all credit card transactions and how these swipe fees are divided between the credit card network and the bank that issued the credit card.
  • He noted how the largest component of credit card swipe fees are interchange fees, which are set by the credit card networks and paid to the issuing bank of a credit card.
• He remarked that the Visa and Mastercard networks dominate the credit card market and indicated that these companies control 83 percent of credit cards in the U.S.
  • He commented that these networks can set interchange fees at whatever amounts that they wish.
• He stated that retailers, restaurants, and other small businesses have no ability to negotiate credit card interchange fees and indicated that these fees generally range between 1 percent and 3 percent of the total transaction amount.
  • He commented that businesses must either accept Visa or Mastercard brand credit cards and pay the associated interchange fees or entirely refuse to accept the credit cards.
• He showed a video highlighting the impact of interchange fees on small businesses, how the U.S. has some of the highest interchange fees in the world, the impact of the combined market share of Visa and Mastercard on these high interchange fees, and legislation that would require larger banks to offer merchants at least two choices for payment processing networks.
• He mentioned how he had first become aware of the problems associated with credit card interchange fees during a 2006 Committee hearing and noted how U.S. consumers have been charged a “staggering” $1.1 trillion in the ensuing years.
  • He highlighted how $797 billion of these interchange fees had come from credit card purchases and how the remaining $320 billion of these interchange fees had come from debit cards.
• He recounted how the Senate had passed the Durbin Amendment (which is named after himself) as part of Dodd-Frank.
  • He explained that the Durbin Amendment had capped the interchange fees that card networks could set on behalf of large debit card issuing banks.
• He mentioned how the Durbin Amendment is estimated to have saved consumers $6 billion during its first year of implementation.
  • He added that the Durbin Amendment has subsequently saved consumers billions of dollars in the ensuing years.
• He asserted that Visa and Mastercard are engaged in a duopoly and noted how the two companies had charged merchants more than $100 billion in credit card fees in 2023.
  • He indicated that most of these fees came in the form of interchange fees.
• He mentioned how he had originally introduced the Credit Card Competition Act with Sen. Roger Marshall (R-KS) in July 2022.
  • He noted that several Democratic and Republican U.S. Senators (including Vice President-elect JD Vance) are co-sponsors of the current Credit Card Competition Act of 2023.
• He remarked that the Credit Card Competition Act of 2023 would address Visa and Mastercard’s duopoly through requiring the largest banks to enable two credit card networks on their credit cards.
  • He indicated that this legislation would apply to banks with more than $100 billion in assets.
  • He also indicated that this legislation would require that one of these two credit card networks be a company other than Visa or Mastercard.
• He stated that this legislation would provide small businesses with credit card network choices, which would foster competition in this market.
  • He commented that the ensuing downward pressure on interchange fees would result in savings for small businesses, which will enable these businesses to hire more employees, invest in their businesses, or lower prices.

Panel I Opening Statements:

Sen. Roger Marshall (R-KS):

• He described credit card swipe fees as “inflation multipliers” and noted how the average American consumer spends over $1,100 annually on swipe fees.
  • He highlighted how credit card swipe fees in the U.S. are over nine times higher than credit card swipe fees in the European Union (EU), four times higher than credit card swipe fees in China, and two times higher than credit card swipe fees in Canada.
• He noted retailers had paid over $170 billion in credit card swipe fees in 2023 and how credit card swipe fees are the second greatest expense for small businesses (behind labor costs).
  • He emphasized that credit card swipe fees for small businesses often exceed utility costs and employee health care expenses.
• He also discussed how the average credit card interest rate has increased to 24 percent and highlighted how late fees have added another $14 billion in costs for consumers.
  • He indicated that the total cost of credit card fees for retailers and consumers is almost $300 billion annually, which amounts to over $2,200 per family.
• He noted how the DoJ has accused Visa of being a virtual monopoly based on Visa’s work with Mastercard and large banks.
  • He commented that Visa’s activities have provided the company with outsized market share.
• He then disputed the claim that the Credit Card Competition Act of 2023 would impose price caps on transaction fees.
  • He stated that the legislation would instead require the issuing banks of credit cards to offer a second processing platform that is not Visa or Mastercard.
  • He asserted that the legislation would create competition in the credit card market, which will ultimately result in reduced costs for consumers.
• He also disputed the claim that the Credit Card Competition Act of 2023 would compromise security for banks and consumers and contended that the legislation would instead increase security for banks and consumers.
  • He noted how the legislation allows for a credit card’s issuing bank to choose the second credit card processing platform and commented that these banks will choose reliable and secure platforms.
  • He further noted how the legislation would not allow a credit card’s issuing bank to choose a foreign credit card processing platform (such as China UnionPay).
• He remarked that the Credit Card Competition Act of 2023 would enhance security through encouraging the adoption of modern cybersafe systems (including end-to-end encryption).
• He further disputed the claim that the Credit Card Competition Act of 2023 would harm small banks and highlighted how the legislation would exempt lending institutions with assets under $100 billion.
  • He emphasized that the legislation would therefore only apply to the 30 largest financial institutions.
• He then disputed the claim that the Credit Card Competition Act of 2023 would cause credit card rewards to be eliminated and noted that credit card processing platforms do not issue credit card rewards.
  • He explained that banks issue credit card rewards and commented that banks use these rewards programs to attract customers.
  • He added that credit card rewards programs have not been eliminated in other countries that have adopted their own credit card swipe fee reforms.
• He also disputed the claim that there does not exist technology to support multiple credit card processing platforms and stated that there exist “dozens” of competitive payment processing networks that routinely process debit card transactions.
  • He mentioned how JPMorgan Chase had recently launched a credit card in France with two processing platforms.
• He expressed appreciation for the Committee’s consideration of the Credit Card Competition Act of 2023 and lamented how the U.S. Senate Committee on Banking, Housing, and Urban Affairs has not held a hearing on the legislation.
• He highlighted how a professional survey had found that 96 percent of respondents had expressed support for the Credit Card Competition Act of 2023.
  • He also noted how the legislation’s opponents have spent $80 million attacking the legislation and its sponsors (which is more than twice the amount of money spent against him in his U.S. Senate race).
• He remarked that higher credit card swipe fees harm consumers because retailers will pass these expenses onto consumers.
• He further discussed how U.S. credit card debt is currently over $1 trillion and indicated that this amount constitutes an all-time high.
  • He noted how Mastercard enjoys a profit margin of over 44 percent and how Visa enjoys a profit margin of over 55 percent.
• He asserted that Visa and Mastercard maintain monopolies that are siphoning off an increasing amount of money from communities for their own enrichment.

Panel II Opening Statements:

Mr. Chris Callahan (Battenkill Books):

• He discussed how his store, Battenkill Books, is a small business and expressed pride in his store’s involvement in its small town community.
• He mentioned how his store had used local banks to finance renovations and to access a line of credit to weather seasonal cash flow variations and noted that his store accepts credit cards.
  • He stated that his company is not against credit cards or banks and commented that credit cards and banks have enabled his store to be successful.
• He remarked however that credit card swipe fees are a significant burden for all merchants and specifically for small businesses.
  • He noted how small businesses must pay higher credit card swipe fees because of the way that Visa and Mastercard set their credit card swipe fees.
• He stated that while there exist “band aid” solutions to the problem of credit card swipe fees, he asserted that the Credit Card Competition Act of 2023 would address payments system market failures and improve the payments system.
  • He indicated that these “band aid” solutions include consumer surcharges and having product prices include credit card swipe fees.
• He testified that the growth of credit card swipe fees has posed the greatest challenge for his store and stated that small businesses can no longer handle these swipe fees.
• He remarked that Visa and Mastercard are engaged in a duopoly that fixes the interchange fees that credit card issuing banks and credit unions charge small businesses.
  • He commented that small businesses cannot deal effectively with all the banks and credit unions banding together to fix interchange fees.
  • He also noted how Visa and Mastercard will charge network fees on top of these interchange fees and how these network fees are increasing.
• He called on Congress to foster competition within the credit card market so that merchants can better deal with credit card networks and banks.
  • He warned that Congress’s failure to address this issue will harm the continued viability of merchants.
• He testified that his store’s credit card swipe fees have previously averaged about 2.4 percent of each transaction and emphasized that these fees are assessed on the total amount of the transaction before expenses are paid.
  • He noted how he can only take profits from his business as a co-owner after he pays expenses.
• He reiterated that he does not oppose credit cards or “reasonable” fees and stated that many of his store’s customers rely upon credit cards for their convenience.
• He remarked however that high credit card swipe fees are problematic because stores cannot control these costs.
  • He described these swipe fees as a “silent tax” imposed on his store.
• He expressed frustration regarding the growth of credit card swipe fees and testified that his store’s credit card swipe fees are averaging 3.8 percent in 2024.
  • He commented that his store’s experience is consistent with national trends and noted how total Visa and Mastercard credit card fees have increased from $61 billion in 2020 to more than $100 billion in 2023.
• He testified that credit card swipe fees now represent his store’s fourth largest business expense behind rent, payroll, and shipping.
  • He indicated that his store pays $9,000 in credit card swipe fees, which he described as significant for the business.
• He stated that credit card swipe fees pose a unique challenge to his store because his store cannot negotiate these fees in the same way that it can negotiate its other fees.
• He remarked that a reduction in credit card swipe fees would enable his store to reduce prices for customers, provide additional hours for seasonal staff, improve employee benefits, and host more local events (including literacy programs and community art projects).
  • He asserted that “arbitrarily high” credit card swipe fees are preventing his store from growing its business and better serving its customers and are inflating the prices that the store pays for goods and charges its customers.
• He mentioned how his store is part of the American Booksellers Association and noted how this trade association has advocated for credit card swipe fee reforms.
  • He stated that his store’s challenges with credit card swipe fees are not unique and commented that other small businesses in his region face similar challenges.
• He called on Congress to pass the Credit Card Competition Act of 2023 and to provide a competitive marketplace for credit cards.

Mr. Bill Sheedy (Visa Inc.):

• He remarked that his company, Visa, fosters security, innovation, and growth that benefits all its network users (including consumers and small businesses).
• He stated that Visa has enabled consumers and merchants around the world to make and receive payments through its secure transaction processing network.
  • He commented that Visa competes and earns the trust of consumers and merchants every day.
• He remarked that Visa has two main focuses for its operations: delivering “world class” reliability and security and remaining on the “cutting edge” of innovation.
• He asserted that Visa faces unprecedented security threats from bad actors, nation states, and criminals seeking to commit fraud.
  • He testified that Visa has invested more than $11 billion in technology over the previous five years and indicated that these investments have sought to reduce fraud and enhance cybersecurity.
  • He highlighted how Visa had blocked $40 billion in suspected fraud globally in 2023 alone.
• He also noted how Visa cardholders benefit from the company’s zero liability protections if fraud occurs.
  • He explained that these cardholders are not held responsible for unauthorized transactions.
  • He added that merchants that choose to accept Visa credit cards are guaranteed payment on transactions authorized on the Visa network.
• He stated that Visa has helped to develop many “groundbreaking” security features that are now the industry standard for credit card payments (including the development of chip cards).
  • He added that Visa’s investments in contactless and token technologies are supporting the next generation of commerce solutions and experiences.
• He remarked that Visa’s payment network “levels the playing field” between large and small market participants.
  • He elaborated that this payment network provides all community banks and credit unions (regardless of size) with access to the same payment products and network technologies as the largest financial institutions.
• He stated that any small merchant or online seller can benefit from Visa’s “world class” security and fraud fighting tools to better compete with the largest retailers and their technology platforms.
  • He commented that Visa’s offering of an open payment network makes it easier for all businesses to compete and asserted that this benefits all consumers.
• He discussed how Visa is focused on growing transactions on its payment network and stated that Visca can only grow these transactions when consumers and merchants successfully and securely complete sales.
• He explained how interchange fees are fees between banks that can encourage parties to use payment networks (such as Visa) and testified that Visa has no incentive to set interchange fees high or low.
  • He commented that Visa has no transactions to process if sales are not being made.
• He remarked that Visa faces “unprecedented” competition, including from financial technology (FinTech) companies, large technology companies, and foreign companies.
• He asserted that consumers and merchants can choose to process transactions through an “expanding” list of alternative platforms that do not rely upon payment networks.
  • He indicated that these alternatives include digital stored value wallets, BNPL platforms, ACH, and pay-by-bank solutions.
  • He also stated that Visa “vigorously” competes against cash, check, and other payment card networks, as well as several additional credit and debit options.
• He remarked that government regulation should encourage innovation, security, and consumer choice.
• He asserted however that the Credit Card Competition Act of 2023 would remove consumer control over their own payment decisions, reduce competition, impose technology sharing mandates, and pick winners and losers.
  • He warned that this legislation would stifle innovation, create significant inefficiencies, undermine security, and allow merchants to override consumer payment choices.
• He expressed pride in Visa’s work to develop and deliver safe digital payments for consumers and merchants across the U.S. and the world.

Ms. Linda Kirkpatrick (Mastercard):

• She remarked that Mastercard is a global company that connects millions of consumers with businesses and that enables consumers to make payments that are safe and simple.
  • She testified that Mastercard facilitates 200 billion payments a year and that Mastercard processes nearly $10 trillion in payments annually.
• She described the payments space as “massively competitive” and asserted that the current number of consumer payment choices is unprecedented.
  • She noted how these payment choices include cash, checks, debit, prepaid, credit, BNPL, digital wallets, ACH, real-time payments, A2A payments, pay-by-bank, private label, regional networks, cryptocurrencies, and the U.S. Federal Reserve.
• She remarked that the current competition within the payments space motivates Mastercard to pursue innovations.
• She noted how the DoJ has stated that Mastercard is a very different company from its largest competitor in terms of size and structure.
  • She testified that nearly 40 percent of Mastercard’s revenues come from services like fraud detection and merchant loyalty and commented that Mastercard’s customers find value in these services.
• She also noted how Mastercard’s credit market share is close to the size of American Express’s market share, half the size of Visa’s credit market share, and less than 5 percent of all payments.
  • She asserted that Mastercard lacks the market share or the ability to exert market power.
• She described the benefits of electronic payments as “profoundly impactful” and highlighted three of these benefits.
  • She first noted that consumers using electronic payments are not responsible for fraud.
  • She secondly noted that merchants accepting electronic payments will get paid even when consumers default.
  • She lastly noted that electronic payments protect consumers and merchants from attacks before the attacks occur.
• She mentioned how 52 million Americans (including herself) had experienced fraud on their accounts in 2023 and emphasized that consumers were not held responsible for the cost of this fraud.
  • She called this lack of consumer responsibility for fraud important given that the cost of this fraud was $18 billion in 2018.
  • She testified that Mastercard’s Zero Liability Protection Policy had protected consumers from these “potentially catastrophic” losses.
• She also highlighted how merchants will get paid for transactions involving credit cards, even when consumers default.
  • She elaborated that credit cards enable merchants to avoid the problems associated with counterfeit currency, bounced checks, and debts that will not be repaid.
• She noted how the U.S. Federal Reserve has found that 4.5 percent of consumers default on their purchase and noted how these defaults will total nearly $50 billion in 2024.
  • She indicated that credit card protections against consumer defaults have amounted to $685 billion in cost avoidance for merchants since 2004.
• She further discussed how Mastercard protects consumers and merchants from fraud before the fraud occurs and testified that Mastercard has invested $8 billion since 2018 in “cutting edge” technologies to keep consumers safe.
  • She indicated that these technologies include biometrics and cyber threat prevention.
  • She also mentioned how Mastercard’s Safety Net product had prevented $50 billion of fraud within the previous three years.
• She stated that Mastercard’s fraud prevention activities are very important given how cybercrime is projected to exceed $9 trillion in 2024.
• She remarked that the value derived from electronic payments significantly exceeds the costs associated with these payments.
  • She mentioned how many small businesses have conveyed this sentiment to Mastercard.
• She warned that the Credit Card Competition Act of 2023 would impose artificial controls on a well-functioning payments system, remove choice from consumers, erode payment security, and harm community institutions and credit unions.
• She stated that her warnings regarding the Credit Card Competition Act of 2023 are largely based on the U.S.’s experience with debit card regulations.
  • She asserted that the U.S.’s adoption of debit card regulations had caused debit card rewards to be eliminated, debit card fees to increase, access to capital to decrease, and competition to be stifled.
• She concluded that the payments industry operates efficiently, safely, and cost effectively and expressed pride in Mastercard’s role in protecting consumers and businesses both domestically and internationally.

Prof. Roger Alford (University of Notre Dame Law School):

• He discussed how voters had expressed significant anxieties over the economy in the recent U.S. Presidential election.
  • He noted how 41 percent of swing state voters had ranked the economy as their top concern.
  • He also noted how exit polls had found that 32 percent of voters nationally had identified the economy as their most important issue.
• He stated that the Democratic and Republican parties are competing to attract working class voters based on their platforms.
  • He commented that federal politicians from both parties are seeking policy solutions to reduce the prices of goods and services.
• He remarked that credit card swipe fees are a surprisingly large part of consumer spending and noted how the average American had spent $1,100 on these swipe fees in 2023.
• He stated that the Credit Card Competition Act of 2023 should be assessed primarily on whether it would reduce the costs of goods and services for Americans.
  • He mentioned how his written testimony outlines the market failure of credit networks and attempted solutions to address this market failure.
• He remarked that while he generally prefers antitrust litigation over antitrust regulation, he asserted that antitrust litigation in the credit network market has never resolved fundamental problems stemming from Visa and Mastercard’s anticompetitive behavior.
  • He commented that “pro-competitive” regulation of credit networks in Europe and “pro-competitive” regulation of debit networks in the U.S. have been successful and can inform the U.S.’s policies.
• He discussed how Americans are expecting federal solutions to address inflation and the high price of goods and services.
• He remarked that policymakers must assess how the Credit Card Competition Act of 2023 would pass through potential benefits to consumers and how the legislation would pass through potential harms to consumers.
  • He elaborated that these benefits could come in the form of lower prices for goods and services and that these harms could come in the form of reduced credit card rewards.
• He noted how merchants argue that high credit card swipe fees harm consumers because these fees are passed through to consumers in the form of higher prices for goods and services.
  • He commented that the narrow price margins for retailers suggests “fierce” price competition, which increases the likelihood of fees being passed through to consumers.
• He mentioned however that independent studies in Europe and the U.S. have found a 70 percent pass through of lower credit card swipe fees to consumers, which results in lower consumer prices.
• He then noted that while Visa and Mastercard have asserted that the Credit Card Competition Act of 2023 would cause banks to reduce credit card reward benefits, he stated that such a reduction in credit card reward benefits is unlikely.
  • He highlighted how the net profit margins for banks are approximately 30 percent and commented that these profit margins are among the highest of any industry.
  • He also mentioned how banks have multiple sources of income, including interchange fees, annual fees, and late fees.
• He remarked that if Visa and Mastercard should acknowledge that the Credit Card Competition Act would benefit consumers through reducing prices.
• He further noted how the U.S. Federal Reserve had found that credit card reward programs transfer money from less educated populations to more educated populations, from poorer populations to richer populations, and from higher minority areas to lower minority areas.
  • He asserted that using credit card swipe fees to fund credit card reward programs constitute a regressive wealth transfer.
• He stated that consumer benefits and harms are not all alike and commented that increasing credit card reward programs does not have the same broad distributional benefits as reducing the costs of goods and services.
  • He expressed support reducing consumer prices for all Americans, even if it results in fewer credit card reward benefits.

Mr. Doug Kantor (National Association of Convenience Stores):

• He asserted that Visa and Mastercard have formed credit card issuing banks into cartels and stated that credit card issuing banks do not compete on their swipe fees.
  • He commented that this lack of competition results in higher credit card swipe fees and higher costs for Americans.
• He noted that while Visa and Mastercard do not set the interest rates or fees that banks charge to consumers and do not issue credit cards, he stated that Visa and Mastercard set the interchange fees imposed on merchants.
  • He commented that interchange fees are the sole area where there does not exist competition within the credit card market and called for competition in this area.
• He recounted how Americans had incurred additional costs when Visa and Mastercard had increased their interchange fees in April 2022, October 2023, and April 2024.
  • He added that Visa has scheduled another interchange fee increase in January 2025 (despite the DoJ’s recent lawsuit against the company).
• He remarked that increasing interchange fees most harm low-income Americans and Americans with low credit scores.
  • He mentioned how the U.S. Federal Reserve had found that the U.S.’s interchange fee system transfers $13 billion from low-income Americans and Americans with low credit scores to high income Americans and Americans with high credit scores.
• He stated that the U.S.’s interchange fee problems are hidden from consumers and elaborated that consumers are unaware of Visa and Mastercard’s involvement in setting interchange fees, the existence of other credit card processors, and the pricing and existence of interchange fees.
  • He asserted that consumers should know how much they pay in credit card swipe fees and commented that this information would better enable consumers to negotiate other fees with credit card issuing banks.
• He remarked that the Credit Card Competition Act of 2023 would simply require that credit cards have two payment processing networks.
  • He noted how debit cards in the U.S. already must have two payment processing networks.
  • He added that other countries require that credit cards have two payment processing networks.
• He stated that requiring that credit cards have two payment processing networks would generate price competition.
  • He emphasized that the credit card issuing bank would get to choose the two payment processing networks for their credit cards.
• He further remarked that smaller financial institutions are currently at a disadvantage because smaller financial institutions lack the economies of scale of larger financial institutions.
  • He elaborated that Visa and Mastercard’s setting of uniform interchange fees results in smaller financial institutions having lower profit margins.
• He stated that large financial institutions have taken advantage of this dynamic to dominate the U.S. credit card market.
• He lastly dismissed the arguments that mobile payment applications provide sufficient competition to Visa and Mastercard.
  • He noted how the U.S. Federal Reserve Bank of San Francisco has found that these mobile payment applications account for less than 1 percent of payments.

Panel II Congressional Question Period:

Full Committee Chairman Richard Durbin (D-IL)

• Chairman Durbin discussed how most airlines make more money from branded credit cards and frequent flyer programs than from air operations. He described the current airlines as “banks that own airplanes” based on the balance sheets of the airlines. He also mentioned how airlines are increasingly making in-flight sales pitches for their branded credit cards. He asserted that airlines are concerned about the Credit Card Competition Act of 2023 because the legislation might reduce the profitability of their branded credit cards. He mentioned how Europe regulates interchange fees and caps these fees at 0.3 percent. He noted how interchange fees in the U.S. by contrast range between 1 percent and 3 percent. He stated that Visa and Mastercard remain profitable in Europe, even though the companies have caps on their interchange fees. He added that frequent flyer programs are still being offered in Europe. He asked Mr. Sheedy to explain how Visa can continue to engage in business in Europe given that Europe caps interchange fees at 0.3 percent.
  • Mr. Sheedy noted how Europe regulates interchange fees and has imposed a fixed interchange fee. He acknowledged that while there exist some credit card reward programs in Europe, he stated that most of these programs have either been eliminated or greatly devalued. He discussed how 84 percent of U.S. cardholders enjoy consumer credit card rewards and commented that these credit card reward programs serve a broad socio-economic spectrum of the U.S. public. He stated that European consumers have less access to credit card rewards and added that European consumer credit card fees have increased. He acknowledged that while the European credit card market had adjusted to account for interchange fee regulation and caps, he asserted that these adjustments have ultimately harmed European consumers and cardholders.
• Chairman Durbin then noted how Visa’s former CFO Vasant Prabhu had stated that Visa is a beneficiary of inflation. He asked Mr. Sheedy to explain how Visa could be a beneficiary of inflation.
  • Mr. Sheedy remarked that he did not view Visa as being a beneficiary of inflation. He also indicated that he does not know the context in which Mr. Prabhu had made his statement regarding Visa being a beneficiary of inflation.
• Chairman Durbin elaborated that Mr. Prabhu had stated that inflation driving up ticket sizes is beneficial to Visa. He asked Mr. Sheedy to indicate whether Visa would benefit from inflation when ticket sizes increase. He noted that Visa takes a percentage of transactions occurring on its payment networks.
  • Mr. Sheedy remarked that inflation is not beneficial for either his business or any business. He stated that a healthy economy benefits U.S. consumers and U.S. merchants. He remarked that Visa desires transactions on its payment network and views these transactions as key for growing its business.
• Chairman Durbin commented that Mr. Prabhu’s statement contradicts Mr. Sheedy’s statement. He asserted that Visa benefits from weaknesses in the U.S. economy. He remarked that the Committee is seeking to promote competition within the U.S. credit card market.

Full Committee Ranking Member Lindsey Graham (R-SC):

• Ranking Member Graham noted how Europe maintains regulations that set interchange fees. He mentioned how some argue that the U.S. has high interchange fees because of a lack of competition within the credit card processing market. He asked Mr. Kantor to indicate whether the U.S. should use regulation or competition to reduce interchange fees.
  • Mr. Kantor remarked that the U.S. should use competition to reduce interchange fees and commented that the Credit Card Competition Act of 2023 would provide such competition.
• Ranking Member Graham asked Mr. Kantor to confirm that there does not exist any data that explains the impact of competition on interchange fees.
  • Mr. Kantor remarked that there exists data that explains the impact of competition on interchange fees. He noted how many countries (including France, Denmark, and South Korea) have competition in their credit card processing markets. He added that several countries (including the U.S. and Canada) have competition in their debit card processing markets.
• Ranking Member Graham asked Prof. Alford to indicate whether Europe’s regulatory approach to interchange fees benefits European consumers.
  • Prof. Alford stated that Europe’s lower interchange fees benefit European consumers.
• Ranking Member Graham interjected to ask Prof. Alford to indicate whether competition within the credit card processing market would theoretically reduce consumer costs.
  • Prof. Alford answered affirmatively.
• Ranking Member Graham interjected to ask Prof. Alford to indicate whether the U.S. should use regulation or competition to reduce interchange fees.
  • Prof. Alford expressed his preference for using competition to reduce interchange fees. He commented however that regulation can foster competition.
• Ranking Member Graham stated that the U.S. does not have any regulation governing interchange fees.
  • Prof. Alford stated that the Credit Card Competition Act of 2023 would not impose caps on interchange fees.
• Ranking Member Graham interjected to comment that the Credit Card Competition Act of 2023 seeks to foster competition within the credit card processing market.
  • Prof. Alford stated that the Credit Card Competition Act of 2023 seeks to foster competition within the credit card processing market through imposing routing restrictions.
• Ranking Member Graham interjected to remark that Europe regulates interchange fees. He asked Prof. Alford to confirm that Europe has lower credit card swipe fees than the U.S. He also asked Prof. Alford to indicate whether Europe’s regulation of interchange fees benefits consumers.
  • Prof. Alford stated that independent studies have found that the benefits of Europe’s lower interchange fees are largely passed along to European consumers.
• Ranking Member Graham asked Mr. Sheedy to indicate whether European consumers receive fewer credit card rewards.
  • Mr. Sheedy remarked that European consumers experience higher credit card fees and receive fewer credit card rewards.
• Ranking Member Graham noted how Europe sets credit card swipe fees at 0.3 percent of transaction amounts. He asked Mr. Sheedy to indicate Visa’s current credit card swipe fee levels.
  • Mr. Sheedy stated that the average credit card interchange fee in the U.S. is approximately 2 percent.
• Ranking Member Graham noted that the U.S.’s credit card interchange fees are greater than Europe’s credit card interchange fees. He commented that regulation of interchange fees has proven effective in terms of reducing interchange fees while the effectiveness of fostering competition for interchange fees remains unknown. He expressed interest in determining the potential negative impacts of interchange fee regulation. He asked Ms. Kirkpatrick to discuss the rewards that are generally offered through credit card reward programs.
  • Ms. Kirkpatrick discussed how there exist a variety of rewards offered through credit card reward programs, including cash, travel, gasoline, and groceries.
• Ranking Member Graham asked Ms. Kirkpatrick to indicate whether lower income Americans can participate in credit card reward programs.
  • Ms. Kirkpatrick answered affirmatively. She stated that more than 80 percent of U.S. credit card holders can benefit from credit card reward programs.
• Ranking Member Graham asked Mr. Kantor to indicate whether most low-income Americans benefit from credit card reward programs.
  • Mr. Kantor noted how the U.S. Federal Reserve had found that low-income Americans pay more credit card fees and that credit card rewards disproportionately flow to high-income Americans.
• Ranking Member Graham asked Ms. Kirkpatrick to indicate whether she agrees with the U.S. Federal Reserve’s findings regarding credit card reward programs.
  • Ms. Kirkpatrick remarked that credit card rewards are widely available.
• Ranking Member Graham interjected to ask Ms. Kirkpatrick to indicate whether she agrees with the U.S. Federal Reserve’s findings regarding credit card reward programs.
  • Ms. Kirkpatrick testified that she had not seen the U.S. Federal Reserve’s analysis on credit card reward programs.
• Ranking Member Graham interjected to comment that Ms. Kirkpatrick should review the U.S. Federal Reserve’s analysis on credit card reward programs. He expressed receptiveness toward legislation to address the U.S.’s credit card interchange fee system. He stated that he generally supports pursuing policies that promote competition except in instances where monopolies exist. He expressed skepticism that credit card interchange fees are being set in a manner that advantages consumers.

Sen. Chris Coons (D-DE):

• Sen. Coons mentioned how both small businesses and financial institutions have expressed concerns to him over the U.S.’s current credit card interchange fee system. He noted how Mr. Sheedy and Ms. Kirkpatrick have asserted that the payments space is very competitive. He noted however that the other witnesses have asserted that there exists a significant monopoly within the U.S. payments system that results in fees that do not benefit consumers or merchants. He asked the witnesses to address whether the payments space is competitive and to project the impact of the Credit Card Competition Act of 2023 on consumers. He also mentioned how the Durbin Amendment had imposed a cap on debit card swipe fees. He asked the witnesses to indicate whether the Durbin Amendment had benefited merchants and consumers.
  • Ms. Kirkpatrick remarked that multiple stakeholders have entered the U.S. payments market. She noted how PayPal and Venmo created their own value exchange ecosystems and highlighted how these platforms exist outside of the credit card payments system. She described the PayPal and Venmo value exchange ecosystems as “massively successful.” She remarked that the U.S. payments market is much broader than credit cards. She stated that there exists unprecedented competition and consumer choice within the U.S. payments system.
• Sen. Coons noted how Mr. Kantor had asserted that customers are unaware of payment choices and that customers are not intentionally moving toward alternative payment options (such as Venmo and Cash App).
  • Mr. Kantor acknowledged that there does exist competition on the consumer side of the payments market. He asserted however that there does not exist sufficient competition on the merchant side of the payments market. He stated that Visa and Mastercard are setting credit card interchange fees on the merchant side. He mentioned how the DoJ had recently filed a complaint against Visa alleging that Visa pays off Apple, PayPal, and Square (which owns Cash App) to not compete with them.
• Sen. Coons asked Mr. Sheedy to respond to Mr. Kantor’s statements.
  • Mr. Sheedy noted how Visa maintains a commercial agreement with Apple and stated that this commercial agreement does not prohibit Apple from competing with Visa. He stated that this commercial agreement pertains to the sharing of sophisticated security technologies that support the functioning of Apple Pay. He testified that there do not exist any provisions within this commercial agreement that impacts Apple’s ability to compete with Visa. He stated that Apple can and does compete with Visa.
• Sen. Coons asked Mr. Callahan to discuss the costs and challenges associated with accepting non-credit card payment methods for his business. He also asked Mr. Callahan to discuss the costs of accepting credit cards as a payment method for his business.
  • Mr. Callahan noted his store operates in New York and how New York state law prohibits merchants from charging a credit card surcharge. He commented that his store must therefore absorb the cost of credit card interchange fees. He also stated that his store is ill-suited to compete on price. He commented that passing along credit card interchange fees to consumers will make it even more challenging for his store to remain competitive. He then remarked that while does not know how competitive the U.S. payments market is, he testified that most of his store’s credit card swipe fees come from Visa and Mastercard.

Sen. Charles Grassley (R-IA):

• Sen. Grassley mentioned how the DoJ had brought an antitrust lawsuit against Visa alleging that Visa has an unlawful monopoly within the debit card market. He asked Mr. Sheedy to discuss how the credit card market differs from the debit card market.
  • Mr. Sheedy remarked that the U.S. credit card market is “very different” from the U.S. debit card market. He noted that American Express operates outside of the four-party credit card network system and commented that the Credit Card Competition Act of 2023 would therefore not apply to American Express. He stated however that American Express is a “huge player” in the U.S. credit card market. He noted how American Express offers significant rewards and robust customer service and commented that financial institutions that issue credit cards have needed to respond to American Express’s offerings. He highlighted how the U.S. credit card market has 4,000 financial institutions underneath the Visa system. He indicated that these financial institutions include credit unions, community banks, and larger financial institutions that issue credit cards. He stated that other credit card markets around the world are not as diverse and involve fewer players. He asserted that the foreign interchange fee regulatory experiences cannot be directly applied to the U.S. credit card market. He remarked that consumers paying with Visa credit cards have expectations regarding how their transactions will be processed and the features and benefits that they will receive. He stated that consumers should maintain their current credit card choices and benefits. He warned that the Credit Card Competition Act of 2023 would transfer these choices and benefits to merchants.
• Sen. Grassley then asked Mr. Kantor to address whether the Durbin Amendment had been effective in terms of promoting competition among debit card networks.
  • Mr. Kantor answered affirmatively. He noted however that the DoJ has alleged that Visa has attempted to evade the Durbin Amendment and that this alleged evasion has caused antitrust violations. He remarked that the Durbin Amendment has resulted in lower debit card swipe fees and stated that several studies have found that consumers have benefited from this policy. He noted how a University of Pennsylvania Law Review had found that the Durbin Amendment had resulted in a 53 direct percent pass through of benefits to consumers in the form of lower prices. He noted how another study had found that the Durbin Amendment had resulted in a 70 direct percent pass through of benefits to consumers in the form of lower prices. He commented that the remaining benefits manifest in the form of higher employee wages and improved service. He stated that the Durbin Amendment had not caused profit margins for retailers to increase at all and indicated that the grocery industry’s profit margins had decreased following the enactment of the Durbin Amendment. He concluded that the Durbin Amendment has benefited consumers. He then discussed how banks that issue credit cards generate $125 billion annually in interest and fees from consumers and generate $172 billion annually in credit card swipe fees from merchants. He noted that these banks only pay $41 billion in credit card rewards each year. He disputed the argument that the Credit Card Competition Act of 2023 would cause the elimination of credit card rewards. He noted that the legislation is expected to reduce credit card swipe fees by just $16 billion annually. He emphasized that the banking industry has the highest profit margin among all industries. He remarked that existing interest, consumer fees, and credit card swipe fees are more than sufficient to cover the cost of credit card reward programs.
• Sen. Grassley indicated that his question period had expired and that he would submit an additional question for the hearing’s record.

Sen. Amy Klobuchar (D-MN):

• Sen. Klobuchar mentioned how the DoJ has sued Visa for monopolizing debit card network services. She also mentioned how the FTC has entered into a consent decree with Mastercard. She asked Mr. Kantor to discuss how increased federal antitrust enforcement efforts within the payments space have benefited merchants and consumers. She also asked Mr. Kantor to recommend areas of focus for federal antitrust enforcement agencies in the next administration.
  • Mr. Kantor remarked that federal antitrust enforcement efforts within the payments space have been beneficial. He commended the FTC’s action with Mastercard. He noted how the FTC had previously needed to address Visa and Mastercard’s actions within the debit card space. He also applauded the DoJ’s recent lawsuit against Visa and indicated that this litigation remains pending. He noted however that the DoJ’s recent lawsuit against Visa only pertains to Visa’s alleged anticompetitive practices within the debit card market. He mentioned how a subsequent Wall Street Journal story had stated that much of Visa’s alleged anticompetitive practices within the debit card market also apply to the credit card market. He stated that there does not exist an underlying competitive dynamic within the credit card space or federal law creating competition within the credit card space. He asserted that the U.S. needs federal legislation (such as the Credit Card Competition Act of 2023) so that federal antitrust enforcement agencies can address the lack of competition with the credit card space.
• Sen. Klobuchar then mentioned how the U.S. Supreme Court had created new antitrust rules through its 2018 Ohio v. American Express Co. decision. She elaborated that this decision had created new rules for how antitrust enforcement agencies must evaluate two-sided platform markets. She asked Prof. Alford to discuss how this decision had impacted the ability of antitrust enforcement agencies to deter anticompetitive conduct in two-sided platform markets.
  • Prof. Alford explained that two-sided platform markets involve simultaneous transactions where the fee impacts both the merchant and the buyer. He remarked that the Ohio v. American Express Co. decision makes it more difficult to determine market definitions for the purposes of antitrust cases. He stated that this decision has made it more difficult for antitrust enforcement agencies to enforce anticompetitive conduct with respect to credit card companies.
• Sen. Klobuchar indicated that she would submit a follow-up question to Prof Alford for the hearing’s record. She then mentioned how she had recently introduced the Preventing Algorithmic Collusion Act of 2024. She stated that this legislation would ensure that middlemen do not use algorithms to circumvent price fixing laws. She noted that while credit card networks do not collect interchange fees, she indicated that these networks set the interchange fees that credit card issuing banks charge to most merchants. She asked Mr. Sheedy to elaborate on how interchange fees are determined. She also asked Mr. Sheedy to indicate whether Visa uses algorithms that involve processed data derived from credit card issuing banks.
  • Mr. Sheedy testified that Visa uses a wide variety of factors to determine interchange fees. He indicated that Visa considers the competitiveness of the environment and a credit card’s acceptance among merchants. He also mentioned how Visa maintains incentives for the adoption of new technologies through its interchange fee structure. He commented that these new technologies are meant to reduce risk and fraud within the payments system and promote streamlined credit card processing. He indicated that parties that adopt these technologies qualify for lower interchange fees. He further remarked that Visa works to understand the needs of credit card issuers and the costs that these issuers incur in supporting consumers. He commented that it is very expensive for banks to issue credit card products, provide payment guarantees, offer online customer service, and provide zero liability protection. He remarked that Visa considers these factors when determining its interchange fees. He then testified that Visa has invested “significantly” in developing sophisticated algorithms and indicated that Visa has made investments in AI technology. He remarked that these algorithms are “squarely and wholly” focused on reducing fraud and addressing cyber risk within the payments system. He commented that these efforts have been effective.
• Sen. Klobuchar indicated that she would submit additional follow-up questions to Mr. Sheedy for the hearing’s record. She expressed concerns that algorithms could be used to support price fixing schemes because centralized entities may use data from multiple market participants to set optimal prices that come at the expense of consumers.

Sen. John Kennedy (R-LA):

• Sen. Kennedy asked Mr. Sheedy to address why Visa’s CEO is not present at the hearing.
  • Mr. Sheedy indicated that Visa’s CEO has a conflicting obligation that is preventing him from appearing at the current hearing.
• Sen. Kennedy asked Mr. Sheedy to indicate the conflicting obligation that is preventing Visa’s CEO from appearing at the current hearing.
  • Mr. Sheedy testified that he does not know the precise nature of Visa’s CEO’s conflicting obligation that is preventing him from appearing at the current hearing.
• Sen. Kennedy asked Mr. Sheedy to indicate whether Visa’s CEO’s conflicting obligation takes precedence over the current hearing.
  • Mr. Sheedy reiterated that Visa’s CEO is unable to attend the current hearing and stated that Visa’s CEO sends his regards to the Committee.
• Sen. Kennedy then remarked that he remains undecided regarding whether to support the Credit Card Competition Act of 2023. He noted how Congress had previously capped debit card interchange fees. He asked Prof. Alford to indicate whether the savings associated with these capped interchange fees have been passed onto consumers and/or retailers.
  • Prof. Alford answered affirmatively.
• Sen. Kennedy stated that the Credit Card Competition Act of 2023 would not cap credit card interchange fees and would instead introduce competition into the credit card processing market. He remarked that Visa, Mastercard, and the retailers need to work together on developing a policy solution for payment processing. He warned that the failure of stakeholders to address this area on their own will result in Congressional action that could be suboptimal for Visa and Mastercard. He raised concerns over inflation’s current impact on Americans and stated that Congress will work to address this inflation. He lastly asked Mr. Sheedy to request that Visa’s CEO appear before the Committee.

Sen. Mazie Hirono (D-HI):

• Sen. Hirono asked the witnesses to indicate whether larger retailers can negotiate their fees with Visa and Mastercard.
  • Mr. Kantor remarked that a small number of retailers can negotiate their fees with Visa and Mastercard absent filing lawsuits against Visa and Mastercard. He noted how Costco is a club retailer where customers pay in advance for the privilege of shopping at their stores. He commented that Costco therefore has more flexibility in their interactions with Visa and Mastercard. He stated however that most large retailers experience the same fee challenges with Visa and Mastercard as small retailers.
• Sen. Hirono remarked that small retailers must accept Visa and Mastercard’s imposed fees. She also expressed doubts that large retailers pass their savings derived from lower fees from Visa and Mastercard along to their consumers. She then mentioned how the Durbin Amendment had set caps on debit card interchange fees. She asked the witnesses to address whether Congress should consider capping fees on other types of charge cards.
  • Mr. Kantor remarked that members of Congress have expressed a preference for first pursuing policies to promote competition within the payments space. He stated that while many National Association of Convenience Store members want credit card interchange fees to be capped, he asserted that the Credit Card Competition Act of 2023’s approach has a better likelihood of becoming law within the near term. He expressed confidence in the ability of market competition to tame credit card interchange fees. He also stated that credit card interchange fees could increase if Visa and Mastercard provide valuable enough services.
• Rep. Hirono asked Mr. Kantor to indicate whether there exist markets where competition does not work.
  • Mr. Kantor answered affirmatively. He commented that there exist market failures within the current credit card processing market.
• Rep. Hirono asked Mr. Kantor to indicate whether consumers would ultimately benefit from the passage of the Credit Card Competition Act of 2023. She stated that consumers would only benefit the legislation if they receive lower market prices. She commented that the legislation does not require merchants to pass along realized savings to consumers.
  • Mr. Kantor noted how the profit margins for retailers had not increased following the Durbin Amendment’s enactment. He indicated that 70 percent of retailer savings derived from the Durbin Amendment had gone directly to consumers. He added that the credit card industry’s preferred study on this issue indicates that 53 percent of these retailer savings had gone directly to consumers. He asserted that there exists no doubt that interchange fee reforms benefit consumers and that the question is how much these reforms benefit consumers.
  • Mr. Sheedy mentioned how a U.S. Federal Reserve Bank of Richmond had found that more than 15 times as many merchants had increased their prices after debit card interchange fee caps had been implemented than had lowered their prices. He asserted that it remains unclear whether imposing caps on interchange fees would benefit consumers. He stated that these caps have led merchants to increase prices and not pass along savings to consumers in some cases.
• Rep. Hirono stated that while the Credit Card Competition Act of 2023 would benefit merchants, she expressed uncertainty as to whether the legislation would benefit consumers.

Sen. Marsha Blackburn (R-TN):

• Sen. Blackburn mentioned how she had observed many Tennessee small businesses move from extending in-store credit, accepting checks, and factoring to accepting credit cards. She commented that the extension of in-store credit, the acceptance of bad checks, and factoring had created “enormous” expenses for these small businesses. She also called it “interesting” that some small businesses only accept credit cards using the Visa and Mastercard payment networks. She stated that these small businesses are predetermining choices for consumers. She asked Mr. Callahan to indicate whether his store limits the credit cards that it accepts to credit card cards using the Visa and Mastercard payment networks.
  • Mr. Callahan testified that his store accepts all credit cards.
• Sen. Blackburn asked Mr. Callahan to indicate whether he had spoken to the previous owners of his store about the costs that they had experienced chasing bad debts.
  • Mr. Callahan answered no.
• Sen. Blackburn stated that many small businesses have told her that their acceptance of credit cards have reduced their holdings of bad customer debts. She indicated that bad customer debts increase compliance and loss costs for merchants. She then remarked that credit card swipe fees are not a major contributor to high inflation. She asserted that the Biden administration’s policies are more responsible for high inflation. She then asked Ms. Kirkpatrick to identify some of the harms that the Credit Card Competition Act of 2023 would inflict on U.S. consumers.
  • Ms. Kirkpatrick remarked that the Credit Card Competition Act of 2023 would reduce consumer choices and increase the power of a small number of large companies. She stated that consumers currently have access to a wide variety of credit card options and credit card reward options. She also stated that consumers currently have assurances that their credit card transactions are safe.
• Sen. Blackburn interjected to ask Ms. Kirkpatrick to indicate whether the Credit Card Competition Act of 2023 would create disruptions for consumers.
  • Ms. Kirkpatrick remarked that the Credit Card Competition Act of 2023 would reduce credit card choices for consumers and would empower a small number of large companies to dictate choices within the credit card market.
• Sen. Blackburn then stated that Congress could address the payments market through regulation or through competition. She asked Prof. Alford to indicate whether he had considered alternative payment systems (including Apple Pay, Venmo, PayPal, and Bitcoin) as part of his assessment of the current payment processing market.
  • Prof. Alford remarked that the U.S. should generally trust markets to be efficient and only intervene during market failure situations. He expressed doubts that antitrust litigation could solve the U.S. payments market’s challenges. He stated that new payments innovations have not reduced credit card transactions as a share of total transactions. He also remarked that these new payment innovations have their own problems. He mentioned how the DoJ is suing Apple for monopolistic practices related to the Apple Wallet. He described Apple Wallet’s restrictions as significant and noted how Apple smartphone users must use the Apple Wallet (rather than applications provided by banks) to make transactions via smartphone.

Sen. Peter Welch (D-VT):

• Sen. Welch remarked that Congress must be concerned regarding the erosion of community small businesses. He stated that small businesses have limited control over their costs and that the survival of small businesses benefits local communities. He acknowledged that Visa and Mastercard provide security features, fraud protection features, and confidence to businesses that payments will be honored. He asserted however that these benefits do not justify Visa and Mastercard’s “rip off” prices. He noted how Visa and Mastercard’s CEOs make eight figure salaries and how the companies have twelve figure market capitalizations. He asked Mr. Sheedy to confirm that he had asserted that lower credit card interchange fees would not necessarily benefit consumers.
  • Mr. Sheedy expressed concerns over previously implemented caps on credit card interchange fees.
• Sen. Welch interjected to assert that Mr. Sheedy wants credit card companies to take all of the profits from transactions. He remarked that increased competition within the payment processing space would reduce consumer prices. He then discussed how Visa and Mastercard charge merchants different rates. He asked Mr. Sheedy to indicate the rates that Visa charges Walmart to use the Visa credit card network.
  • Mr. Sheedy stated that Visa maintains a “large business” with Walmart.
• Sen. Welch interjected to ask Mr. Sheedy to indicate the rates that Visa charges to Walmart to use the Visa credit card network.
  • Mr. Sheedy testified that he does not know the rates that Visa charges to Walmart to use the Visa credit card network.
• Sen. Welch interjected to ask Mr. Sheedy to indicate the rates that Visa charges to Mr. Callahan’s store to use the Visa credit card network.
  • Note: Mr. Sheedy did not respond to Sen. Welch’s question.
• Sen. Welch asked Ms. Kirkpatrick to indicate the rates that Mastercard charges to Walmart to use the Mastercard credit card network.
  • Ms. Kirkpatrick testified that she does not know the rates that Mastercard charges to Walmart to use the Mastercard credit card network.
• Sen. Welch interjected to ask Ms. Kirkpatrick to indicate the rates that Mastercard charges to Mr. Callahan’s store to use the Mastercard credit card network.
  • Ms. Kirkpatrick indicated that she would have to follow up with Sen. Welch regarding this question.
• Sen. Welch interjected to ask Mr. Sheedy and Ms. Kirkpatrick to confirm that both Visa and Mastercard negotiate their rates with Walmart to access their respective credit card networks because Walmart is a large company.
  • Ms. Kirkpatrick acknowledged that Walmart is a large customer of Mastercard’s services.
• Sen. Welch asked Ms. Kirkpatrick to indicate whether Mr. Callahan’s store can negotiate its rates with Mastercard.
  • Ms. Kirkpatrick expressed her willingness to connect Mr. Callahan to third parties that could assist his store with credit card processing.
• Sen. Welch interjected to ask Ms. Kirkpatrick to indicate how many retailers Mastercard serves that are similar to Mr. Callahan’s store.
  • Ms. Kirkpatrick noted how there are 33 million U.S. businesses.
• Sen. Welch interjected to ask Ms. Kirkpatrick and Mr. Sheedy to indicate whether Mastercard and Visa have business units that can handle 33 million business accounts. He asserted that Visa and Mastercard merchants are taking advantage of merchants. He then noted how the EU caps in-person credit card interchange fees at 0.3 percent. He asked Mr. Sheedy and Ms. Kirkpatrick to confirm that their respective companies engage in business in the EU market.
  • Mr. Sheedy confirmed that Visa engages in business in the EU market.
  • Ms. Kirkpatrick confirmed that Mastercard engages in business in the EU market.
• Sen. Welch asked Mr. Sheedy and Ms. Kirkpatrick to indicate whether Visa and Mastercard offer fraud protection services and support consumer confidence in Europe.
  • Mr. Sheedy answered affirmatively.
• Sen. Welch asked Mr. Sheedy and Ms. Kirkpatrick to indicate why Visa and Mastercard cannot lower their credit card interchange fee rates for small businesses within the U.S.
  • Ms. Kirkpatrick remarked that Mastercard wants to support lower prices for small businesses.
• Sen. Welch interjected to assert that Visa and Mastercard are “killing” small business in the U.S.

Sen. Thom Tillis (R-NC):

• Sen. Tillis expressed frustration with Congress’s continued consideration of the Credit Card Competition Act of 2023. He remarked that Congress must address the payment network market and noted how there is ongoing litigation surrounding this market’s competitiveness. He also lamented how no representatives from banks or credit unions are testifying at the hearing. He further stated that the Committee should receive the perspective of banks and credit card issuers in foreign jurisdictions to learn about their experience with credit card interchange fee regulation. He contended that the Credit Card Competition Act of 2023 would create additional problems. He also stated that Congress is very unlikely to enact the Credit Card Competition Act of 2023 before the end of the 118th Congress. He expressed hope however that the hearing would enable the Committee to understand the legitimate concerns of small businesses regarding credit card interchange fees. He further stated that small businesses can voluntarily choose not to accept credit card payments. He remarked that Congress should not advance legislation that is disruptive and that resembles failed policies from foreign countries. He stated however that the credit card industry’s failure to set credit card interchange fees at reasonable rates for small businesses will result in Congress eventually passing the Credit Card Competition Act of 2023 (or similar legislation). He asked the witnesses to confirm whether Visa and Mastercard receive between 10 percent and 15 percent of interchange fees and that other parties (including credit card issuing banks) receive the reminder of these fees.
  • Mr. Sheedy stated that all of the interchange fees being discussed at the hearing go to the banks.
• Sen. Tillis then asked Mr. Sheedy and Ms. Kirkpatrick to indicate whether Visa and Mastercard make their processing and interchange fee information available online.
  • Ms. Kirkpatrick answered affirmatively.
  • Mr. Sheedy answered affirmatively.
• Sen. Tillis also noted that all of Visa and Mastercard’s competitors make their processing and interchange fee information available online except for Discover. He then asked the witnesses to indicate whether the Credit Card Competition Act of 2023 would cover both three-party credit card network systems and four-party credit card network systems.
  • Mr. Sheedy answered no.
• Sen. Tillis asked Mr. Sheedy to confirm that the Credit Card Competition Act of 2023 would not apply to all of Visa and Mastercard’s competitors.
  • Mr. Sheedy confirmed that the Credit Card Competition Act of 2023 would not apply to all of Visa and Mastercard’s competitors.
• Sen. Tillis reiterated that Visa and Mastercard’s competitors do not publish their interchange fees online. He asked the witnesses to explain why Congress would seek to exempt other credit card companies (such as American Express and Discover) from the Credit Card Competition Act of 2023. He also asked the witnesses to indicate whether the Credit Card Competition Act of 2023 (or similar legislation) should be applied to all credit card companies.
  • Ms. Kirkpatrick noted that Mastercard’s market share is similar to American Express’s market share. She stated that Mastercard should therefore not be subjected to different rules than other credit card companies.
  • Mr. Sheedy remarked that while Visa has other concerns with the Credit Card Competition Act of 2023, he expressed agreement with Sen. Tillis’s concerns that the legislation is not being uniformly applied to all credit card companies.
• Sen. Tillis remarked that small businesses and the credit card companies must develop a reasonable legislative solution to address credit card interchange fees. He warned that the failure of stakeholders to develop such a legislative solution would result in new federal legislation that will be suboptimal.

Sen. Josh Hawley (R-MO):

• Sen. Hawley asked Ms. Kirkpatrick and Mr. Sheedy to indicate Mastercard and Visa’s respective profit margins.
  • Ms. Kirkpatrick stated that Mastercard’s profit margin is approximately 50 percent.
  • Mr. Sheedy stated that Visa’s profit margin is slightly higher than Mastercard’s profit margin.
• Sen. Hawley commented that Visa and Mastercard’s respective profit margins are very high. He then asked Mr. Sheedy and Ms. Kirkpatrick to indicate the interchange fee rates that Visa and Mastercard charge to Walmart.
  • Ms. Kirkpatrick indicated that she does not know the interchange fee rate that Mastercard charges to Walmart.
• Sen. Hawley interjected to ask Ms. Kirkpatrick to indicate whether the interchange fee rates that Mastercard charges to Walmart are higher or lower than 2.5 percent.
  • Ms. Kirkpatrick stated that Walmart’s interchange fee rates with Mastercard are negotiated based on the amount of business that Walmart engages in with Mastercard.
• Sen. Hawley asked Ms. Kirkpatrick to confirm that Walmart receives lower interchange fee rates than most small businesses.
  • Mr. Sheedy testified that Visa offers volume-based discounts to some merchants. He stated that Walmart likely qualifies for these discounts from Visa. He asserted that it is commercially reasonable for merchants to qualify for lower interchange fee rates if the merchants engage in greater business volume.
• Sen. Hawley remarked that while it may be in the commercial interests of Walmart to receive lower interchange fee rates and of Visa to offer Walmart lower interchange fee rates, he asserted that this arrangement disadvantages small businesses. He asked Mr. Callahan to indicate why small businesses continue to use Visa and Mastercard when these payment processing companies charge small businesses different rates than large businesses.
  • Mr. Callahan remarked that Visa and Mastercard’s services provide convenience to his store’s customers (which helps his store to obtain customers).
• Sen. Hawley asked Mr. Callahan to indicate whether his store uses Visa and Mastercard for payment processing because Visa and Mastercard are effective monopolies. He noted how these two companies control 80 percent of the payments market.
  • Mr. Callahan stated that the market power of Visa and Mastercard play a key role in his store’s decision to use these companies for payment processing.
• Sen. Hawley interjected to emphasize that Visa and Mastercard control 80 percent of the payments market and have profit margins in excess of 50 percent. He remarked that Visa and Mastercard charge higher interchange fee rates to smaller businesses and noted how Missouri businesses pay an estimated $1.5 billion annually in interchange fees. He stated that limited choices are causing these businesses to continue to pay these high interchange fees because of a lack of choice. He asserted that Visa and Mastercard are engaged in monopolistic behavior and criticized these companies for seeking to prevent competition within the payments market. He then mentioned how there were 726 million Visa and Mastercard credit cards issued in the U.S. He asked Ms. Kirkpatrick and Mr. Sheedy to indicate how much debt is owed on the Visa and Mastercard networks.
  • Ms. Kirkpatrick indicated that Mastercard is separate from the banks issuing credit cards and that Mastered therefore does not have visibility into credit card debt information. She also testified that Mastercard does not derive revenue from interchange fees.
  • Mr. Sheedy stated that he does not know how much debt is owed on the Visa network.
• Sen. Hawley indicated that the amount of debt owed on the Visa and Mastercard networks is $1.17 trillion. He also asked Ms. Kirkpatrick and Mr. Sheedy to indicate the average credit card interest rates on the Visa and Mastercard networks.
  • Ms. Kirkpatrick reiterated that Mastercard does not function as a bank and does not set interest rates. She further stated that Mastercard does not collect revenue from credit card interest.
  • Mr. Sheedy stated that he does not know the average credit card interest rate on the Mastercard network.
• Sen. Hawley noted how Forbes magazine had estimated that the average credit card annual percentage rate (APR) for the Visa and Mastercard networks is 28.75 percent. He emphasized that this figure had nearly doubled over the previous four years and called the figure “absolutely astounding.” He criticized Visa and Mastercard for maintaining high profit margins while arguing that competition would threaten the continued viability of the companies. He asked the witnesses to respond to his statements.
  • Mr. Sheedy remarked that Visa supports competition and emphasized that banks (rather than Visa) extend credit to consumers. He also stated that Visa is very interested in the viability of small businesses and commented that the COVID-19 pandemic had been especially challenging to these businesses. He mentioned how Visa had lowered its rates for 90 percent of U.S. small businesses in 2022. He also stated that many of Visa’s implemented security and digital features help small businesses. 
• Sen. Hawley interjected to note that Visa has consistently raised its credit card swipe fees in recent years. He commented that these credit card swipe fee increases have coincided with network expansions and growing profit margins. He also stated that Visa is paying competitors to not enter the payment processing market. He mentioned how the DoJ has alleged that Visa had threatened retailers with “staggering financial penalties” if they use a competitor and that Visa is paying some companies (including Apple and Square) to not compete in their markets. He further stated that Visa is charging small businesses higher rates than larger businesses to use their payment networks than larger businesses. He remarked that Visa is engaged in collusive and monopolistic behaviors. He asserted that the U.S.’s current payment processing situation is not sustainable and that Congress must act to address this situation. He then expressed support for President-elect Trump’s proposal to cap credit card interest rates. He further expressed frustration with Visa and Mastercard for opposing legislation to promote competition within the payment processing space.

Full Committee Chairman Richard Durbin (D-IL)

• Chairman Durbin noted how an ideologically diverse group of bipartisan U.S. Senators supports the Credit Card Competition Act of 2023. He mentioned how his interest in interchange fees dates back to a 2006 Committee hearing where merchants had discussed their challenges associated with these fees. He recounted how he had subsequently proposed studying interchange fees and how the payments industry had objected to the study. He then mentioned how he had proposed the Durbin Amendment in 2010 as part of Dodd-Frank to regulate debit card interchange fees. He indicated that this policy was ultimately included in Dodd-Frank. He remarked that retailers and merchants are frustrated with current interchange fee levels and commented that the U.S.’s current inflationary environment is particularly harming these sellers. He stated that he had proposed the Credit Card Competition Act of 2023 to spur competition within the payments space. He expressed hope that Congress would advance this legislation and emphasized how the legislation has bipartisan support.