Excessive Swipe Fees and Barriers to Competition in the Credit and Debit Card Systems (U.S. Senate Committee on the Judiciary)

Hearing	Excessive Swipe Fees and Barriers to Competition in the Credit and Debit Card Systems
Committee	U.S. Senate Committee on the Judiciary
Date	May 4, 2022

 

Hearing Takeaways:

• Use of Swipe Fees in the U.S. Payments System: The hearing focused on how interchange fees (also known as swipe fees) were used in the U.S. payments system. Swipe fees are charged to merchants for accepting debit and credit cards and these fees generally range between 1 percent and 3 percent of a transaction’s total. These fees are distributed to the card’s issuing bank, the merchant’s bank, and the credit card and debit networks (such as Visa and MasterCard). Banks often distribute the majority of these fees to their customers in the form of rewards programs. Mr. Sheedy and Ms. Kirkpatrick testified that Visa and MasterCard did not earn revenue from swipe fees.
  • Purported Benefits of Swipe Fees: Mr. Sheedy and Ms. Kirkpatrick remarked that Visa and MasterCard used the revenue that they derived from swipe fees in order to invest in the security of their networks and to support fraud prevention efforts. They emphasized how these investments were critical given how they provided cardholders with zero liability protections on unauthorized transactions and guaranteed merchants payments whenever transactions were properly authorized (even when customers failed to pay their bills). They also noted how their companies used default interchange rates in order to incentivize both card issuance by banks and card acceptance by merchants. They stated that the absence of these default rates would require more than 90 million merchants to have individualized contracts with thousands of banks, which they commented would be impractical. Mr. Kim also stated that swipe fees were a key source of revenue for banks that supported their issuances of credit. Mr. Kantor and Ms. Karet asserted however that merchants tended to bear a significant amount of the costs associated with fraud involving credit cards and debit cards.
  • Competition Concerns: The hearing primarily focused on whether the current environment for setting swipe fees was anticompetitive in nature. Full Committee Chairman Dick Durbin (D-IL), Mr. Kantor, Ms. Karet, and Mr. Mierzwinski contended that Visa and MasterCard maintained a duopoly over credit card and debit card payments that had enabled the companies to dictate swipe fees for retailers. They called for increased federal antitrust oversight and enforcement against Visa and MasterCard, as well as Congressional action to more proactively police the improper use of market power. Mr. Sheedy and Ms. Kirkpatrick asserted however that Visa and MasterCard maintained sufficient competitive pressures and needed to balance the needs of merchants and banks in their setting of default interchange fees in order to ensure sufficient market participation. They stated that their use of default fees enabled banks and credit unions of all sizes to more easily issue credit cards and debit cards, which benefited consumers. They further contended that the payments space was increasingly competitive and included digital wallets, buy now, pay later (BNPL) solutions, financial technology (FinTech) companies, big technology companies, real-time payments systems, and cryptocurrencies in addition to cash, checks, and traditional payments networks. Mr. Kantor contended however that the current plethora of other available forms of payment was irrelevant to the specific issue of the lack of competition within the credit card market.
  • Recent April 2022 Swipe Fee Change: A key area of contention during the hearing was how both Visa and MasterCard had both amended their swipe fees in April 2022. Mr. Sheedy testified that Visa had lowered its swipe fees for the vast majority of its customers. Ms. Kirkpatrick testified that testified that MasterCard’s modeling had found that the net impact of its recent changes to their default interchange rates was “virtually neutral.” Ms. Karet testified however that Visa and MasterCard’s April 2022 swipe fee changes would cost her company $1.3 million annually. Full Committee Chairman Durbin expressed suspicion regarding the fact that these changes from Visa and MasterCard had occurred on the same day and commented that this might demonstrate coordination between the two companies.
  • Impact on Retailers: Ms. Karet and Mr. Kantor discussed how swipe fees imposed significant costs and compliance burdens on retailers. They highlighted how the complexity of the swipe fee schedule forced many smaller retailers to accept the terms of swipe fee changes without negotiation. Ms. Karet testified that swipe fees were her company’s third largest expense (behind labor and rent).
  • Impact on Inflation: Full Committee Chairman Durbin, Mr. Mierzwinski, Mr. Kantor, and Ms. Karet contended that the fact that swipe fees were based on a percentage of a transaction’s amount was a contributing factor to the current inflationary environment. They elaborated that higher consumer prices resulted in higher swipe fees, which led merchants to raise their prices in order to cover the higher swipe fees. However, Sen. Thom Tillis (R-NC) and Ms. Kirkpatrick suggested that higher swipe fee amounts might be needed as prices increase in order to better cover the increased risks associated with fraud and payment defaults.
  • Impact on Economic Inequality: Sen. Mazie Hirono (D-HI) and Mr. Mierzwinski stated that cash paying customers tended to be poorer than credit card users. They asserted that the higher prices resulting from swipe fees effectively led low-income consumers to subsidize prices and credit card rewards programs for more affluent consumers. Mr. Kim stated however that credit card rewards tended to be broadly distributed across all income levels.
  • Impact on Gas Prices: Sen. Richard Blumenthal (D-CT), Ms. Karet, and Mr. Kantor all raised concerns over how high swipe fees on gas were contributing to the recent spike in gas prices. 
  • Swipe Fee Regulation in Other Countries: Full Committee Chairman Durbin, Mr. Kantor, and Mr. Mierzwnksi highlighted how the European Union (EU), Australia, Brazil, Canada, China, India, Israel, Malaysia, and South Korea had had adopted swipe fee reforms without reducing consumer access to credit cards and debit cards and without undermining efforts to combat fraud.
  • Full Committee Chairman Durbin’s Proposed Reforms: Full Committee Chairman Durbin called for the establishment of a limit on Visa and MasterCard’s swipe fees and suggested that these companies should be required to disclose to how much of their card purchases went toward swipe fees in their monthly statements. He further called for eliminating swipe fees on the part of transaction amounts that were for sales taxes, eliminating the ability of Visa and MasterCard to require banks to exclusively use their networks, using a third party for setting security standards for credit cards and debit cards, and preventing network fixed swipe fees from being increased to “unreasonable” levels.
• Other Swipe Fee Policy Topics: Committee Members and the hearing’s witnesses also addressed enacted and proposed reforms to swipe fees.
  • The Durbin Amendment: One key area of contention during the hearing was the Dodd-Frank Wall Street Reform and Consumer Protection Act’s (Dodd-Frank) Durbin Amendment, which limits swipe fees on debit card transactions. Full Committee Chairman Dick Durbin (D-IL) (who authored the Durbin Amendment), Mr. Kantor, and Mr. Mierzwinski contended that the Durbin Amendment had been successful in terms of providing relief to merchants (who tended to have lower profit margins than large banks). They also highlighted how banks with assets less than $10 billion in assets were exempt from the law. However, Mr. Kim argued that the Durbin Amendment had led many banking customers to lose access to free checking services, experience higher minimum balance and monthly fees, and lose access to debit card rewards. He asserted that the Durbin Amendment had been a “windfall” for large merchants and stated that the policy had enabled these merchants to acquire more market share. Full Committee Chairman Durbin and Mr. Kantor noted however that access to free checking services was now greater than during the time of the Durbin Amendment’s adoption. Mr. Kim also expressed concerns with proposals to expand the Durbin Amendment’s routing rules (which required multiple routing options for debit cards) to credit cards and commented that such an expansion would make it more difficult for banks to offer credit cards.
  • Honor All Cards Rules: Sen. Mazie Hirono (D-HI), Mr. Kantor, and Ms. Karet all expressed concerns with honor all cards rules, which required merchants to accept all of the cards on a given network if they want to accept one card from the network. Ms. Karet stated that Visa and MasterCard were taking advantage of this rule by transferring their customers into higher rewards products (which led merchants to pay higher fees). Mr. Kantor stated that the rule eliminated the incentives of banking institutions to contract directly with merchants. Sen. Hirono suggested that merchants ought to challenge the honor all cards rule in federal court on antitrust grounds.

Hearing Witnesses:

1. Mr. Doug Kantor, General Counsel, National Association of Convenience Stores
2. Ms. Laura Shapira Karet, Chair And CEO, Giant Eagle, Inc.
3. Mr. Charles Kim, Executive Vice President and Chief Financial Officer, Commerce Bancshares, Inc
4. Ms. Linda Kirkpatrick, President, North America, MasterCard
5. Mr. Ed Mierzwinski, Senior Director, Federal Consumer Program, U.S. PIRG
6. Mr. Bill Sheedy, Senior Advisor to Chairman and CEO, Visa Inc.

Member Opening Statements:

Full Committee Chairman Dick Durbin (D-IL):

• He remarked that growing credit card and debit card swipe fees were contributing to the current inflation problems for consumers.
• He asserted that Visa and MasterCard possessed a duopoly over credit card and debit card payments that enabled the companies to dictate swipe fees for retailers.
  • He indicated that these swipe fees were passed along to consumers in the form of higher prices.
• He mentioned how 127 billion transactions in 2020 involved debit and credit cards and commented that this number had likely increased since the COVID-19 pandemic.
  • He noted how there were only 32.8 billion and 5 billion cash and check transactions in 2020, respectively.
• He raised concerns that credit card and debit card swipe fees could be anticompetitive and noted how Visa and MasterCard controlled about 80 percent of the credit card and debit card market.
• He explained how Visa and MasterCard charged swipe fees on all transactions involving their credit and debit cards and noted that these fees were not visible to consumers.
• He indicated that Visa and MasterCard kept a portion of these fees and distributed most of these fees to the banks that issued the credit and debit cards.
  • He noted that the fee that Visa and MasterCard required the retailer to pay to the card issuing bank was known as the interchange fee and was usually charged as a percentage of the transaction plus a flat fee.
• He stated that the aforementioned fees led retailers to raise their prices in order to make up for the fees.
• He further asserted that interchange fees were designed to avoid competitive market pressures.
• He noted that while banks received money from these interchange fees, he stated that banks allowed for Visa and MasterCard to set the fees on their behalf so that all banks received the same schedule of fee rates.
  • He commented that this arrangement guaranteed that all banks would receive the same interchange fees, regardless of their operational efficiency and their ability to combat fraud.
• He remarked that the raising of interchange fees by Visa and MasterCard led banks to issue more credit cards and debit cards and commented that this dynamic was mutually beneficial for Visa, MasterCard, and the banks.
  • He noted how Visa and MasterCard charged network fees on each credit card and debit card swipe.
• He stated however that the aforementioned fees harmed both retailers and consumers and asserted that retailers were limited in their ability to address these fees given the market power of Visa and MasterCard.
• He mentioned how Visa and MasterCard had recently increased their swipe fees, despite bipartisan opposition from Congress.
  • He contended that this increase would exacerbate the U.S.’s existing inflation issues.
• He asserted that the U.S.’s credit card and debit card system was not competitive and stated that the absence of competition led to higher costs, less innovation, and weaker security.
  • He further commented that this lack of competition made it difficult for new companies to enter the market.
• He highlighted how the EU, Australia, China, India, Israel, and South Korea had established “reasonable” swipe fee limits.
  • He noted that the U.S. only had the Durbin Amendment to limit swipe fees and indicated that the Durbin Amendment only applied to debit cards.
• He called for the establishment of a limit on Visa and MasterCard’s swipe fees and suggested that these companies should be required to disclose to consumers in their monthly statements how much of their card purchases went toward swipe fees.
• He further called for eliminating swipe fees on the part of transaction amounts that were for sales taxes, eliminating the ability of Visa and MasterCard to require banks to exclusively use their networks, using a third party for setting security standards for credit cards and debit cards, and preventing network fixed swipe fees from being increased to “unreasonable” levels.

Full Committee Ranking Member Charles Grassley (R-IA):

• He discussed how merchants paid swipe fees when they accepted debit and credit cards and indicated that these fees generally ranged between 1 percent and 3 percent of a transaction’s total.
• He stated that these swipe fees had received more attention as more customers used credit cards and debit cards to make purchases.
  • He mentioned how many businesses in his state of Iowa had complained that swipe fees were too high and commented that these fees particularly impacted smaller businesses.
• He remarked that there existed several benefits associated with credit card and debit card usage for both consumers and businesses, including convenience, security, and increased purchasing power.
  • He elaborated that credit cards and debit cards could lead consumers to spend more money at businesses and receive rewards and cash back for their purchases.
• He stated that the Committee would be focused on competition issues and whether interchange fees were set above rates that would be found in a competitive market.
• He commented that while swipe fees and were receiving newfound attention in light of the current inflationary environment, he asserted that President Biden’s policies were more responsible for current inflation.

Witness Opening Statements:

Ms. Laura Shapira Karet (Giant Eagle, Inc.):

• She testified that Visa and MasterCard’s April 2022 swipe fee increase would cost her company, Giant Eagle, $1.3 million annually.
  • She commented that this swipe fee increase had occurred without negotiation or the threat of competition to constrain Visa and MasterCard.
• She also mentioned how she served as vice chair of FMI – The Food Industry Association and indicated that the food retail industry had historically operated on “razor thin” margins of between 1 percent and 2 percent.
  • She further stated that rising inflation was causing customers to become more price conscious, which decreased the profits of food retailers.
• She remarked that Giant Eagle’s swipe fees had “materially” increased over time and asserted that the April 2022 swipe fee increase would only exacerbate this problem.
• She noted how Visa and MasterCard together controlled 85 percent of the payment processing market and stated that every bank that issues credit cards and debit cards adopts the swipe fee increases from Visa and MasterCard without deviation or exception.
  • She asserted that this dynamic did not comply with either the letter or spirit of U.S. antitrust laws.
• She then testified that electronic tender sales comprised 82 percent of Giant Eagle’s transactions.
• She indicated that while Visa and MasterCard only comprised about 37 percent of Giant Eagle’s electronic tender sales, she noted that Visa and MasterCard were responsible for over 62 percent of the company’s total card processing fees.
  • She highlighted how Visa and MasterCard had been accounting for an increasing percentage of Giant Eagle’s total card processing fees in recent years while Visa and MasterCard had been accounting for a decreasing percentage of Giant Eagle’s electronic tender sales during the same period.
• She mentioned how food retailers were authorized by the U.S. Department of Agriculture (USDA) to accept online payments using Supplemental Nutrition Assistance Program (SNAP) Electronic Benefits Transfer (EBT) cards during the COVID-19 pandemic.
  • She noted that these transactions were completed securely without Visa or MasterCard and without retailers incurring swipe fees.
• She expressed confusion as to why SNAP EBT cards could accommodate the changes necessitated by the pandemic while Visa and MasterCard used the pandemic to justify swipe fee increases.
• She then remarked that swipe fee increases led consumers to suffer and reiterated that the recent April 2022 swipe fee increase from Visa and MasterCard would force Giant Eagle and its customers to pay an additional $1.3 million annually.
  • She noted how this swipe fee increase came after Visa had reported in March 2022 that its profit margin was over 50 percent.
• She contended that there must exist competition within the credit card and debit card markets and stated that Visa and MasterCard currently did not compete for merchant business.
  • She testified that Giant Eagle’s swipe fees were its third largest expense (behind labor and rent).

Mr. Bill Sheedy (Visa Inc.):

• He remarked that his company, Visa, had recently taken several steps to support the economy and to maintain the security, reliability, and stability of its payments network.
• He mentioned how Visa had lowered interchange rates at the outset of the COVID-19 pandemic for certain key segments of the economy, including grocery stores, restaurants, and education.
  • He testified that Visa had lowered interchange rates in April 2022 for the majority of U.S. businesses.
• He also discussed how Visa was working to make online payments more secure through encouraging the use of secure digital tokens and implementing changes designed to promote accurate transaction processing.
  • He explained that these tokens would enable transactions to occur without the sharing of a cardholder’s sensitive account information.
• He remarked that Visa took its role in setting interchange fees “very seriously” and sought to foster balance, security, and stability while growing the overall payments ecosystem.
  • He testified that Visa did not earn revenue from interchange fees.
• He stated that Visa’s success was heavily based on investing in and continuously enhancing the security of its network and testified that the company had spent more than $9 billion over the past five years on reducing fraud and enhancing security.
  • He indicated that Visa’s fraud prevention programs had protected merchants and financial institutions from nearly $26 billion in fraud.
• He highlighted how Visa provided its cardholders with zero liability protections on unauthorized transactions and added that Visa provided merchants with an efficient dispute resolution process.
  • He indicated that merchants that choose to accept Visa are guaranteed payment when a transaction is properly authorized on the Visa network.
• He remarked that competitive pressures on Visa to maintain and improve upon its reliability, innovation, and security have never been more pressing in light of the emergence of new competitors, new payment methods and cybersecurity risks.
• He stated that the growing number of available payment options (especially on online stores) demonstrated the competitive nature of the payments environment.
  • He noted how Visa now competed with digital wallets, BNPL solutions, FinTech companies, big technology companies, real-time payments systems, and cryptocurrencies in addition to cash, checks, and traditional payments networks.
• He contended that regulatory interventions focusing exclusively on credit card and debit card networks could shift consumer spending away from payments networks (such as Visa) and toward more expensive payments methods with more risk, less reliability, and fewer protections.
• He lastly stated that Visa provided a fair environment for all of its network’s users, regardless of size.

Ms. Linda Kirkpatrick (MasterCard):

• She remarked that her company, MasterCard, sought to enable commerce in a safe and secure manner and highlighted how the company helped banks and credit unions offer useful financial products to their customers.
  • She noted how the U.S. had experienced an over 45 percent growth in credit cards and debit cards over the previous five years.
• She stated that electronic payments provided merchants with benefits and protections that were not available from cash and checks.
  • She elaborated that electronic payments helped merchants by increasing their sales, providing operational savings, and providing guaranteed payments (even when consumers failed to pay their bills).
• She expressed MasterCard’s commitment to supporting small merchants and mentioned how the company had provided a $250 million financial package to support small merchants in weathering the COVID-19 pandemic.
• She also stated that MasterCard’s products provided access, convenience, and peace of mind to consumers through shielding them from responsibility for fraudulent activity that occurred on their accounts.
• She further asserted that electronic payments had played a key role in keeping commerce alive for many small businesses during the pandemic.
  • She mentioned how the U.S. government had used MasterCard’s product to quickly distribute important aid to vulnerable Americans.
• She noted how the amount spent in the U.S. using MasterCard’s products had grown by over 60 percent during the previous five years, which demonstrated the value proposition of the products.
• She called banks, merchants, and consumers “critical stakeholders” for MasterCard and stated that MasterCard worked diligently to balance the needs of each of these stakeholders.
• She discussed how MasterCard set default interchange rates for the benefit of guaranteed payments, transaction processing, and account servicing.
  • She testified that MasterCard did not earn revenue from interchange fees and did not set the fees that were charged directly to the merchants.
• She stated that MasterCard’s default interchange rates sought to incentivize both card issuance by banks and card acceptance by merchants.
  • She commented that the absence of these default rates would require more than 90 million merchants to have individualized contracts with thousands of banks, which she called impractical.
• She mentioned how MasterCard had announced in 2020 that it would adjust default interchange rates in order to reflect current market conditions and investments.
  • She indicated that these adjustments represented the first significant changes in over a decade.
• She noted how MasterCard had just implemented changes to their default interchange rates following a delay resulting from the pandemic.
  • She testified that these changes included some rate increases and some rate decreases.
• She testified that MasterCard’s modeling had found that the net impact of these recent changes to their default interchange rates was “virtually neutral.”
• She lastly remarked that the payments industry had never been more competitive and stated that MasterCard “aggressively” competed with several global and regional payments networks, as well as BNPL companies, person-to-person payment services, real-time payments platforms, digital currencies, wallet providers, and other forms of payment.
  • She asserted that MasterCard did not hold or exercise market power and instead embraced consumer choice.

Mr. Ed Mierzwinski (U.S. PIRG):

• He remarked that non-negotiable and non-transparent fees set by credit card and debit card networks were forcing Americans to pay more for goods and services.
  • He emphasized that even the U.S. government was not able to negotiate swipe fees with Visa and MasterCard.
• He stated that small merchants were particularly impacted by high swipe fees and commented that these merchants must accept these fees as offered.
  • He noted that this situation forced merchants to raise the prices of their goods to all of their customers (including cash paying customers) in order to pay for the fees.
• He highlighted how cash paying customers tended to be poorer than credit card users and asserted that the higher prices resulting from swipe fees effectively led low-income consumers to subsidize prices for more affluent consumers.
  • He commented that the expenditures of debit card and credit card companies for security features were very modest as compared to the expenditures of these companies for customer rewards.
• He remarked that there currently did not exist any measures that could restrain Visa and MasterCard’s swipe fees.
• He noted that rising prices due to inflation led banks and credit card and debit card networks to make even greater profits, as their fees were based on a percentage of total transaction amounts.
• He applauded the Durbin Amendment for addressing high swipe fees within the debit card space.
  • He noted how the Amendment narrowly and proportionality capped fees for some types of debit cards and addressed the issue of debit card routing.
  • He also mentioned how the U.S. Federal Reserve was currently working on a debit card update to Regulation II, which would make it easier for merchants to pick and choose different networks that were not owned by the incumbent players.
• He highlighted how Europe and Canada more aggressively regulated interchange rates across debit card and credit card networks and noted how these places had significantly lower interchange rates as compared to the U.S.
  • He called for expanding the Durbin Amendment.
• He then discussed how the U.S. Department of Justice (DoJ) and the U.S. Federal Trade Commission (FTC) had taken actions to address the problem of high swipe fees.
  • He mentioned how the FTC had forced Visa to change how consumers were told about their choices with regard to using swipe card machines.
  • He also mentioned how the DoJ had challenged Visa’s acquisition of Plaid, which he described as a nascent competitor.
• He expressed support for proposals to establish disclosures on bank and credit card statements that would inform consumers of how much they were paying in swipe fees.

Mr. Charles Kim (Commerce Bancshares, Inc):

• He discussed how his bank holding company, Commerce Bancshares, offered a full suite of payment services, including debit cards, credit cards, and merchant card acceptance services.
  • He stated that the views expressed in his testimony were shared by most mid-sized and community banks.
• He remarked that interchange regulations (including the Durbin Amendment) harmed consumers, small businesses, competition, and communities.
• He discussed how the payments system required constant investment and protection and asserted that banks and merchants ought to share in the cost for building and maintaining the payments system.
  • He stated that banks and credit unions invested billions of dollars into building and securing the payments system before, during, and after transactions.
  • He noted that merchants contributed to these costs when they used the payments system to make sales.
• He remarked that the competition amongst banks for the business of merchants was very competitive and noted how merchants now had non-credit card and debit card payments options, including Venmo, PayPal, Square, CashApp, Clover, Toast, Red Dot Payment (RDP), FedNow, Same Day ACH, and BNPL products.
• He stated that the Durbin Amendment had led many banking customers to lose access to free checking services, experience higher minimum balance and monthly fees, and lose access to debit card rewards.
  • He added that the Durbin Amendment had made it more expensive for small merchants to accept debit cards.
• He asserted however that the Durbin Amendment had been a “windfall” for large merchants and stated that the policy had enabled these merchants to acquire more market share.
• He noted that while small banks and credit unions had been exempted from interchange fee caps for the purposes of the Durbin Amendment, he indicated that the interchange revenues of these financial institutions had declined by 30 percent per swipe on PIN debit transactions.
  • He attributed this decline to the fact that small issuers were covered by routing mandates, which he referred to as “backdoor price controls.”
• He noted that while merchants had promised Congress that they would reduce retail prices following the passage of the Durbin Amendment, he mentioned how the U.S. Federal Reserve had found that nearly 99 percent of merchants did not pass along any of the savings to their customers that resulted from the cap on interchange fees for debit card transactions.
• He contended that policymakers ought to be skeptical regarding demands for debit card routing rules to be expanded and extended to credit cards.
• He lastly highlighted how China and Russia were investing heavily in their payments systems and raised concerns that limiting interchange fees would hamper the U.S.’s ability to make similar investments in its payments system.

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

• He contended that the credit card market was broken and stated that Visa and MasterCard centrally set the fees that banks that issued credit cards and debit cards would charge.
  • He commented that interchange fee levels were the only part of the banking system in which financial institutions did not compete.
• He noted how Visa and MasterCard set the terms on which credit cards and debit cards were accepted and commented that this dynamic insulated interchange fees from any other competitive market pressures.
  • He mentioned how Visa and MasterCard maintained honor all cards rules, which required merchants to accept all Visa and MasterCard credit cards and debit cards.
• He remarked that the aforementioned policies created a market failure and called for increased competition within the credit card and debit card processing market.
• He contended that the previous statements from the other witnesses regarding the plethora of other available forms of payment were irrelevant to the hearing’s topic and stated that policymakers needed to specifically promote competition within the credit card and debit card markets.
  • He mentioned that policymakers had already implemented some reforms within the debit card space.
• He stated that swipe fees were contributing to the U.S.’s current inflation challenges and commented that the percentage-based nature of these fees helped to drive up prices.
• He further disputed the assertion that Visa and MasterCard provided payment guarantees for merchants and noted how the U.S. Federal Reserve had found that merchants ultimately paid for 56 percent of the fraud that involved debit cards.

Congressional Question Period:

Full Committee Chairman Dick Durbin (D-IL):

• Chairman Durbin recounted how Visa’s chief financial officer (CFO) had called inflation a net positive for the company during the company’s January 2022 earnings call. He asserted that credit card and debit card swipe fees were contributing to the current inflationary environment. He then noted how Visa and MasterCard had both raised their interchange fees on April 22, 2022. He asked Mr. Sheedy to indicate whether the fact that both companies had raised their interchange fees on the same day was a coincidence or the result of coordination between the companies.
  • Mr. Sheedy testified that Visa did not raise its interchange fees in April 2022. He stated that 90 percent of businesses in the U.S. had experienced a reduction in their interchange fees as a result of the April 2022 changes.
• Chairman Durbin asked Ms. Karet to address whether Giant Eagle had experienced an increase in their interchange fees in April 2022.
  • Ms. Karet mentioned that Giant Eagle had received a 300-page fee schedule in April 2022. She noted that while some of Giant Eagle’s fees would be reduced as a result of these changes, she stated that other fees would increase as a result of these changes. She testified that the net effect of these fee changes was an increase in fees for Giant Eagle.
• Chairman Durbin then discussed how Canada had a debit card system called Interac and noted how the system had one of the lowest rates of fraud globally and no interchange fees. He asked Ms. Kirkpatrick to explain how Interac was able to have such low fraud rates and charge no interchange fees.
  • Ms. Kirkpatrick disputed Chairman Durbin’s comments that Canadian merchants did not have interchange fees. She stated that debit card users provided value to merchants in terms of providing guaranteed payments, lower risks, and more purchasing power. She indicated that there were interchange fees on debit card transactions in Canada and commented that these fees were a direct result of the value that debit cards provided to merchants and consumers.
• Chairman Durbin noted how the EU capped interchange fees at 0.2 percent and 0.3 percent for debit card and credit card transactions, respectively. He commented that these interchange fees are significantly less than the fees charged within the U.S. He also noted how Australia, Brazil, China, India, Israel, Malaysia, and South Korea also limited interchange fees. He asked Mr. Mierzwinski to identify lessons that the U.S. could learn from other countries with respect to interchange fees.
  • Mr. Mierzwinski remarked that other countries acknowledged the market failures in the credit card system and how credit card networks possessed outsized market power. He called on Congress to strengthen and expand the Durbin Amendment to credit cards and to lower interchange rates.
• Chairman Durbin asked Ms. Kirkpatrick to answer whether MasterCard collected interchange fees on charitable donation transactions.
  • Ms. Kirkpatrick stated that banks charged interchange fees to merchants across all transactions for the benefit that the consumers received from the transactions.
• Chairman Durbin asked Ms. Kirkpatrick to answer whether interchange fees were applied to the sales tax amount of a transaction.
  • Ms. Kirkpatrick answered affirmatively. She stated that interchange fees applied to the total value that consumers were deriving when they shopped at a merchant. She noted that interchange fees covered important services, such as combating fraud, guaranteeing payments, increasing purchasing power, and providing broad accessibility of products.
• Chairman Durbin commented that there did not appear to exist “rampant” fraud in countries where interchange fees were heavily regulated.

Full Committee Ranking Member Charles Grassley (R-IA):

• Ranking Member Grassley mentioned how Visa and MasterCard had combined for 84 percent of all general purpose credit cards within the U.S. as of 2020. He commented that this dynamic had been characterized as a duopoly. He asked Mr. Sheedy and Ms. Kirkpatrick to respond to the assertions that Visa and MasterCard constituted a duopoly. He also asked Mr. Sheedy and Ms. Kirkpatrick to indicate whether Visa and MasterCard abused their market power. He further asked Mr. Kantor and Ms. Karet to respond to the statements from Mr. Sheedy and Ms. Kirkpatrick.
  • Mr. Sheedy asserted that Visa operated in a “highly competitive market” and remarked that merchants and consumers currently had an unprecedented number of payment options. He stated that the current interchange system enabled banks of all sizes to compete with one another, which ultimately benefited consumers. He further stated that the current interchange system benefited merchants through empowering consumers to transact in a secure system.
  • Ms. Kirkpatrick contended that the payments ecosystem had never been more competitive. She noted how MasterCard needed to compete with other credit card and debit card networks, as well as with BNPL providers, digital wallet providers, digital currencies, and regional debit networks. She stated that market power involved an institution that could raise prices while also reducing consumption. She asserted that MasterCard’s motivations were to reduce prices and increase consumption. She remarked that MasterCard possessed incentives to create balance across its various network stakeholders, including merchants and banks.
  • Mr. Kantor mentioned how the U.S. Federal Reserve Bank of Kansas City had found that the U.S.’s competitive merchant landscape meant that swipe fees could be set “well beyond any semblance of value.” He stated that the value of payment networks should not be used to justify the absence of competition for setting swipe fees. He also remarked that the innovation in other types of technologies and payments did not make up for the lack of innovation and antitrust issues within the credit card space. He stated that this situation demonstrated that Visa and MasterCard possessed market power. He also mentioned how the U.S. Court of Appeals for the Second Circuit had found that both Visa and MasterCard had market power.
  • Ms. Karet remarked that Visa and MasterCard effectively controlled over 80 percent of the credit market and were the only vendor that Giant Eagle could not negotiate with. She commented that this situation appeared to resemble a duopoly.

Sen. Richard Blumenthal (D-CT):

• Sen. Blumenthal discussed how gas for American consumers had experienced very high swipe fee increases in the previous year. He noted that the credit card and debit card industry had capped these fees at $1.10. He asked Ms. Karet and Mr. Kantor to discuss how these increases were impacting consumers.
  • Ms. Karet remarked that the retail price for gas was currently at a historical high. She stated that this high was directly related to the commodity market where oil barrel prices were very high. She asserted that the retail gas market was one of the most dynamically competitive markets. She noted how Giant Eagle used street pricing to set their gas prices and indicated that the margins for gas were impacted by costs.
  • Mr. Kantor noted how his organization’s members old about 80 percent of the U.S.’s gas. He mentioned how the U.S. Energy Information Administration (EIA) had found that there was 100 percent pass through of both cost increases and cost decreases into the retail price of gas in every region of the U.S. He asserted that the incidence of swipe fees therefore fell on consumers. He also testified that his organization’s members were reporting swipe fee increases for the previous year that were over 26.5 percent. He called this trend unsustainable. He further noted how higher gas prices resulted in lower margins and higher fees for retailers.
• Sen. Blumenthal then stated that Visa and MasterCard’s assertion that the payments market was very competitive was based on an overly generous definition of payments companies. He asked Mr. Kantor to discuss how the FTC could address competition concerns within the payments market in the absence of federal legislation that fostered competition.
  • Mr. Kantor remarked that the FTC had played a beneficial role in addressing Visa and MasterCard’s control of payment card terminals for accepting EMV chip cards. He also mentioned how the FTC had opened investigations into Visa and MasterCard’s anticompetitive practices within the debit card space. He stated however that the FTC was limited in its ability to oversee Visa and MasterCard because it lacked jurisdiction over the banking industry. He noted that while the DoJ had previously brought litigation within the payments space, he commented that litigation was a difficult and time-consuming strategy to pursue. He stated that litigation was better suited for addressing previous issues and asserted that Congress was better situated to design fairer competitive environments.

Sen. Mike Lee (R-UT):

• Sen. Lee asked Mr. Sheedy to respond to the contention that banks were engaging in anticompetitive behavior in collaborating to charge the same interchange fees to merchants through the Visa and MasterCard networks.
  • Mr. Sheedy testified that Visa sets default interchange fees between acquiring banks and issuing banks on its own. He acknowledged however that Visa set these interchange fees using input from the marketplace. He mentioned how Visa had lowered its interchange rates for restaurants, supermarkets, and education merchants in response to the COVID-19 pandemic and noted how 90 percent of merchants would soon receive an interchange rate reduction. He emphasized that Visa was not raising its interchange rates and indicated that the average interchange rate in Visa’s credit system had remained flat since 2015. He then disputed the assertion that banks were engaging in anticompetitive behavior in collaborating to set interchange fees for merchants. He asserted that the process for setting default interchange fees was highly competitive. He noted how the process resulted in the same interchange fee being provided to thousands of financial institutions and commented that this enabled these financial institutions to compete. He stated that the payments system relied upon a very large number of financial institutions to support an even larger number of merchants and card holders. He called the existence of a default interchange fee critical for operating this system.
• Sen. Lee asked Mr. Sheedy to confirm that a default interchange fee created a network effect, which was necessary for the payments system to function.
  • Mr. Sheedy remarked that a default interchange fee was necessary for enabling a diverse set of cards, merchants, and customers to interact with one another. He stated that having a single interchange fee (regardless of the financial institution’s size) helped to promote competition within the payments space.
• Sen. Lee asked Mr. Kantor to respond to Mr. Sheedy’s comments.
  • Mr. Kantor remarked that the high levels of market concentration amongst both acquiring banks and merchant banks meant that 90 contracts could cover 72 percent of all credit card volume. He also asserted that having the same interchange fees for all financial institutions did not promote fair competition within the payments space. He noted how community banks had higher costs per transaction than larger banks. He remarked that having uniform interchange fees for all financial institutions would therefore reduce the competitiveness of smaller banks. He stated that this dynamic had led larger banks to dominate the credit card space.
• Sen. Lee then asked Mr. Kim to address what would happen to credit card rewards if there existed an alternative network for which merchants could process transactions.
  • Mr. Kim stated that approximately 60 percent of credit card interchange revenue went to pay out credit card rewards and commented that these rewards tended to be broadly distributed across all income levels. He mentioned how the adoption of the Durbin Amendment had led to a reduction in debit card rewards and highlighted how interchange fees had played a key role in paying for these rewards. He further stated that caps on interchange fees would make it less economical for smaller and mid-sized banks to issue credit cards.
• Sen. Lee asked Mr. Kim to address whether the consumer rewards supported by interchange fees provided a means for enabling consumers to share in the monopoly rents of credit card networks at the expense of merchants.
  • Mr. Kim remarked that credit card rewards were not meant to harm merchants and were instead meant to provide value propositions to customers so that they will use a given credit card. He stated that the credit card rewards space was very competitive for financial institutions and commented that larger banks were better positioned within this space.

Sen. Chris Coons (D-DE):

• Sen. Coons mentioned how his state’s banks and credit unions that issued credit cards had told him that they depend on interchange fees in order to support the credit cards that they offered to consumers. He noted how credit unions and community banks were particularly concerned that a substantial decrease in interchange fees would make it difficult for them to sustain credit card programs for individuals with credit access issues. He commented that reducing interchange fees would therefore impact more than the availability of credit card rewards programs and could hamper competition within the space. He asked Mr. Kim to discuss how issuing banks relied upon interchange fees in order to offer credit card services. He also asked Mr. Kim to address how a substantial decline in interchange fee revenue would impact his bank.
  • Mr. Kim noted how interchange fees were a source of revenue for credit card issuing banks in addition to credit card interest and fees. He highlighted how it was difficult for banks to make small dollar loans and commented that interchange fee caps limited banks in their abilities to make such loans. He remarked that capping interchange fees would lead less small and mid-sized banks to issue credit cards, which would reduce options for consumers.
• Sen. Coons also mentioned how many of his state’s small retailers had raised concerns that an increase in interchange and swipe fees would adversely impact their already thin operating margins. He then noted how a credit union in his state had told him that covering the costs associated with reissuing cards, investigating fraud, and addressing data breaches would not be sustainable without interchange fees. He asked Mr. Sheedy and Ms. Kirkpatrick to address whether this concern was valid based on the experiences of their companies.
  • Mr. Sheedy remarked that there did exist fraud and cybersecurity issues for consumers and merchants that transact online. He recounted how credit card networks had previously addressed the problem of counterfeit credit cards that were based on breached data through the rollout of chip cards and chip terminals. He stated that there remained significant fraud issues surrounding online purchases. He discussed how Visa was encouraging the adoption of secure digital tokens that would authenticate consumers and provide more security assurances to merchants in order to combat fraud. He testified that Visa had invested $9 billion in efforts to combat fraud over the previous five years and asserted that credit card and debit card networks and card issuers would need to make investments to combat online fraud.
  • Mr. Kantor noted how other countries had reformed their interchange and swipe fee systems and stated that these countries had made such reforms without experiencing issues. He commented that credit, credit cards, and credit card rewards were still widely available in the countries that had made such reforms. He also highlighted how merchants had not requested a cap on credit card fees. He asserted that increased competition would be sufficient for exerting downward pressure on these fees.
• Sen. Coons asked Mr. Mierzwinski, Mr. Kim, and Mr. Kantor to address whether the imposition of interchange fee caps for debit cards under the Durbin Amendment had led to lower prices for consumers and better access to banking services for lower income borrowers and consumers.
  • Mr. Mierzwinski remarked that there were many pressures on banks to lower their prices and to provide better services to low-income consumers. He indicated that much of this work was being done through partnerships between banks and consumer advocates. He asserted that the Durbin Amendment had been beneficial to consumers (including lower income consumers).
  • Mr. Kim remarked that the cap on interchange fees had made checking accounts more expensive for consumers. He also stated that the cap on interchange fees had caused many banks to eliminate debit card rewards programs.
  • Mr. Kantor had remarked that consumers had saved “tremendously” as a result of the Durbin Amendment. He noted how the Producer Price Index (PPI) had outpaced the Consumer Price Index (CPI) over the Amendment’s first five years of implementation. He also indicated that retail profit margins did not increase during this period. He stated that the retail market was very competitive and highlighted how the retail sector’s profit margins were significantly lower than the banking sector’s profit margins.

Full Committee Chairman Dick Durbin (D-IL):

• Chairman Durbin highlighted how banks with less than $10 billion in assets were exempted from the Durbin Amendment. He noted how small banks and credit unions had received 53.49 percent of total debit interchange fee revenue in 2019, even though these financial institutions only conducted 35 percent of total debit transactions. He asserted that the Durbin Amendment had been a “boon” to small banks and credit unions.

Sen. Marsha Blackburn (R-TN):

• Sen. Blackburn first provided Mr. Kim with an opportunity to respond to Mr. Kantor’s assertions that banks were much more profitable than retailers.
  • Mr. Kim noted how the profitability of banks was often assessed based on net interest income. He stated however that this approach did not account for the cost of money for banks and commented that accounting for this cost would lead to lower profit margin determinations.
• Sen. Blackburn then noted how many retailers had told her that they needed to absorb swipe fees and that these fees were most harmful to small retailers. She asked Ms. Karet to confirm that swipe fees drove up the cost of doing business and compliance burdens.
  • Ms. Karet confirmed Sen. Blackburn’s statements and testified that Giant Eagle operated on a 1 percent profit margin.
• Sen. Blackburn asked Ms. Karet to address how swipe fees were contributing to “out of control” inflation.
  • Ms. Karet noted how credit card swipe fees were percentage-based, which meant that rising prices led to higher fees for credit card companies. She commented that this dynamic resulted in retailers paying higher fees, which retailers often passed along to their customers.
• Sen. Blackburn then mentioned how a U.S. Government Accountability Office (GAO) study had looked into the “harmful” impacts of the Durbin Amendment and had found that the Amendment had reduced access to banking services. She asked Mr. Kim to discuss how the Durbin Amendment had adversely impacted unbanked and underbanked Americans.
  • Mr. Kim discussed how many underbanked individuals had often used debit cards and noted how the swipe fees associated with these debit cards had supported banking services for this population. He stated that the Durbin Amendment had reduced the revenues associated with debit cards for banks, which in turn forced banks to increase the fees for their accounts. He commented that this dynamic resulted in a decline in free checking offerings from banks. He stated however that the banking industry had subsequently developed new ways to serve underbanked and unbanked individuals.
• Sen. Blackburn interjected to ask Mr. Kim to address how the Durbin Amendment had impacted his bank’s total customer mix with regard to debit cards.
  • Mr. Kim stated that the Durbin Amendment had caused some stagnation in demand for debit cards.
• Sen. Blackburn then asked Mr. Kim to address how changes to the credit routing system would impact the banking sector.
  • Mr. Kim remarked that changes to the credit routing system would make it more difficult for banks to offer credit cards. He discussed how the credit card business was becoming increasingly less profitable for banks in light of increased competition and regulation.
• Sen. Blackburn expressed interest in learning what MasterCard’s costs were for accepting credit cards. She noted how MasterCard accepted responsibility for credit card losses and fraud. She acknowledged however that her question period time had expired and requested that Ms. Kirkpatrick respond to the question for the hearing’s record.

Full Committee Chairman Dick Durbin (D-IL):

• Chairman Durbin noted how 53 percent of Americans had free checking services when the Durbin Amendment was passed into law in 2010. He indicated that 61 percent of Americans had free checking services in 2015.

Sen. Mazie Hirono (D-HI):

• Sen. Hirono mentioned how the average American family was estimated to spend an additional $700 annually in higher prices as a result of high credit card fees. She noted how Mr. Mierzwinski had stated that the bulk of interchange fees went to support credit card rewards programs. She discussed how lower income households tended to rely on cash and debit cards more, which meant that they were less likely to benefit from credit card rewards programs.
  • Mr. Mierzwinski expressed agreement with Sen. Hirono’s comments. He mentioned how the U.S. Federal Reserve Bank of Boston had found that the poorest Americans that lacked credit cards and debit cards were forced to pay for swipe fees in the form of higher prices. He asserted that the market power of Visa and MasterCard essentially forced merchants to charge higher prices in order to cover their swipe fees.
• Sen. Hirono stated that while some large companies might be able to negotiate with Visa and MasterCard for lower interchange fees, she commented that small businesses lacked such negotiating power.
  • Mr. Mierzwinski expressed agreement with Sen. Hirono’s comments.
• Sen. Hirono then asked Ms. Karet and Mr. Kantor to explain the honor all cards rule and to discuss how this rule impacted the fees paid by merchants and consumers. She further asked Ms. Karet and Mr. Kantor to address whether the elimination of this rule would result in greater competition and lower fees.
  • Ms. Karet explained that the honor all cards rule required merchants to accept all of the cards on a given network if they want to accept one card from the network. She noted how cards on a network might vary in terms of fees and indicated that higher fee cards tended to be rewards program cards. She stated that Visa and MasterCard were actively transferring their customers into higher rewards products, which led merchants to pay higher fees.
• Sen. Hirono asked Ms. Karet and Mr. Kantor to address whether the honor all cards rule violated existing antitrust rules.
  • Mr. Kantor asserted that the honor all cards rule’s requirement that a merchant accept all cards (regardless of fee amounts) undermined the competitiveness of the fees for credit cards and debit cards. He also noted how the honor all cards rule required merchants to accept cards from all of the banking institutions using the Visa and MasterCard networks if they wanted to take any single card from those networks. He stated that this situation eliminated the incentives of banking institutions to contract directly with merchants. He remarked that the honor all cards rule therefore reduced competition and drove up swipe fees.
• Sen. Hirono suggested that merchants ought to challenge the honor all cards rule in federal court on antitrust grounds.
  • Mr. Kantor expressed receptiveness towards Sen. Hirono’s suggestion.

Sen. Thom Tillis (R-NC):

• Sen. Tillis asked Mr. Kim to discuss how the Durbin Amendment had impacted the banking sector.
  • Mr. Kim noted how the GAO had found that the Durbin Amendment was one of the top five laws and regulations most cited as having impacted the cost and availability of basic banking services.
• Sen. Tillis interjected to mention that the U.S. Federal Reserve Bank of Richmond had found that nearly 99 percent of the savings realized from the Durbin Amendment were not passed back to the consumer. He asked Mr. Kim to address whether the Durbin Amendment had been overall beneficial to consumers.
  • Mr. Kim acknowledged that while it was difficult to calculate exactly how much of the savings realized from the Durbin Amendment were passed on to consumers, he indicated that he would defer to the U.S. Federal Reserve Bank of Richmond’s conclusion on the topic.
• Sen. Tillis provided Mr. Kantor with an opportunity to respond to the previous comments regarding the Durbin Amendment’s impact on the banking sector.
  • Mr. Kantor noted how the U.S. Federal Reserve Bank of Richmond’s study had only surveyed banks and did not conduct an economic analysis regarding the pass through of savings realized from the Durbin Amendment. He also mentioned how the U.S. Federal Reserve Bank of Richmond’s study had acknowledged that it was susceptible to bias issues.
• Sen. Tillis interjected to ask Mr. Kantor to indicate whether the U.S. Federal Reserve Bank of Richmond study’s finding suggested that an “unhealthy” amount of the Durbin’s realized savings did not flow to consumers.
  • Mr. Kantor responded no. He stated that merchants were mainly focused on competing with other merchants, which meant that reductions in swipe fees would enable merchants to offer lower prices in order to become or remain price competitive. He asserted that the U.S. Federal Reserve Bank of Richmond’s study was therefore flawed because it asked merchants to directly attribute their price decreases to lower swipe fees rather than increased price competition (which were spurred by lower swipe fees).
• Sen. Tillis then noted how swipe fee increases were commensurate to price increases given how swipe fees were based on a percentage of a transaction amount. He asked Mr. Sheedy and Ms. Kirkpatrick to address whether increased swipe fees would be necessary in response to increased prices in order to account for the increased risks of fraud and payment defaults.
  • Ms. Kirkpatrick remarked that increased payment volumes led to increased risks of fraud.
• Sen. Tillis interjected to ask Ms. Kirkpatrick and Mr. Sheedy to discuss the increased risks associated with card-not-present (CNP) transactions and other internet-based transactions.
  • Ms. Kirkpatrick testified that MasterCard was spending billions of dollars to protect its consumers against online fraud. She stated that increasing transaction fraud was leading bad actors to become more sophisticated, which required MasterCard to increase its investments in anti-fraud measures.
  • Mr. Sheedy discussed how online shopping was convenient for customers and enabled merchants to reach new customers and reduce their costs. He stated that there remained fraud and uncertainty issues surrounding online transactions. He remarked that Visa’s recent changes to its interchange fee schedule would enable the Visa network to become safer and more secure through encouraging the use of secured digital tokens.
• Sen. Tillis asked Mr. Sheedy and Ms. Kirkpatrick to address whether capping interchange fees would make it unprofitable to provide credit cards to certain consumers, which would reduce consumer access to credit.
  • Mr. Sheedy remarked that the regulation of interchange fees by other countries had led to a narrowing of credit card issuance in those countries. He further stated that such regulations drove up credit card fees and reduced credit card features and benefits. He commented that this situation constitutes a “horrible” outcome.
• Sen. Tillis remarked that merely addressing high swipe fees would not be sufficient for meaningfully reducing consumer prices. He commented that retailers were also facing significant supply chain and inflation issues. He asked Ms. Karet to indicate whether the issue of high swipe fees was the most pressing issue currently facing retailers in terms of its impact on consumer prices.
  • Ms. Karet first remarked that merchants currently bore the costs of online fraud. She noted how increased online shopping during the COVID-19 pandemic was forcing merchants to bear more of the costs associated with online fraud. She then remarked that the issue of swipe fees was one of the biggest issues impacting retailers that the U.S. government had a direct role in influencing. She noted how retailers tended to operate on 1 percent profit margins and indicated that bank fees were the third largest cost for retailers. She contended that the U.S. government ought to work to ensure that swipe fees and interchange fees were being set in a competitive manner.
• Sen. Tillis expressed interest in further addressing the issue of swipe fees and interchange fees through the U.S. Senate Committee on Banking, Housing, and Urban Affairs.

Sen. Amy Klobuchar (D-MN):

• Sen. Klobuchar asked Mr. Kantor to indicate whether stronger enforcement of antitrust laws could lead to more competitive credit card and debit card markets.
  • Mr. Kantor remarked that “more and better” antitrust enforcement would be welcomed within the credit card and debit card space. He noted that while the DoJ’s Antitrust Division and the FTC had been active within this space, he asserted that more work was needed and highlighted how litigation was time consuming and resource intensive. He stated that there remained worked to be done on the issues related to fee setting and whether these fees were being unfairly insulated from market forces.
• Sen. Klobuchar asked Mr. Kantor to discuss how U.S. Supreme Court decisions (including Ohio v. American Express Co.) had impacted competition within credit card markets.
  • Mr. Kantor expressed his disagreement with the U.S. Supreme Court’s Ohio v. American Express Co. decision. He asserted that the decision would create problems within the credit card market and with regard to other technology platforms. He stated that the current credit card market should still be considered problematic from an antitrust standpoint, even under the standard articulated in the U.S. Supreme Court’s Ohio v. American Express Co. decision. He contended that Congress had an important role to play in terms of supporting the competitiveness of credit card markets moving forward. He acknowledged that while antitrust cases were important, he stated that federal courts were limited in their ability to ensure the competitiveness of the credit card market.
• Sen. Klobuchar expressed agreement with Mr. Kantor’s comments regarding the importance of Congressional action. She called it essential for policymakers to ensure that companies did not self-preference their products when they operated in heavily concentrated markets. She then noted how Mr. Kim had testified that payments systems require constant investment and protection and that interchange fees covered much of the costs associated with this investment and protection. She asked Mr. Kim to elaborate on the types of costs that interchange fees helped to cover from the perspective of mid-sized and community card issuers.
  • Mr. Kim discussed how his bank needed to maintain 24/7 customer service in order to swiftly respond to consumer transaction problems. He also stated that his bank needed to be able to choose its payment networks in order to provide its customers with the best service. He further mentioned how his bank needed to constantly perform data analysis in order to protect against fraud and to invest in communications capabilities in order to inform consumers when they might be victims of fraud.
• Sen. Klobuchar asked Mr. Kim to discuss how community bank and mid-sized bank credit card issuers would fit into the payments landscape moving forward.
  • Mr. Kim discussed how the entrance of FinTech companies into the payments space was taking away business from traditional banks. He stated that banks were now considering whether to partner with or compete against these FinTech companies in their payments offerings.

Full Committee Chairman Dick Durbin (D-IL):

• Chairman Durbin noted how Commerce Bancshares had continued to offer free checking services since the enactment of the Durbin Amendment. He also highlighted how Commerce Bancshares was a profitable bank.
  • Mr. Kim noted how Commerce Bancshares had discontinued its offering of free checking services for a period of time following the Durbin Amendment’s enactment and had recently reintroduced free checking services.
• Chairman Durbin commented that the profit margins for Commerce Bancshares were significantly greater than the profit margins for Giant Eagle. He then expressed interest in how the recent changes in interchange fees from Visa and MasterCard were detailed in a 300-page document. He asked Ms. Karet to address the compliance burdens associated with this change in fees.
  • Ms. Karet indicated that Giant Eagle possessed a team of accountants and lawyers that could make sense of the recent change in interchange fees. She stated that these changes were very difficult to understand and suggested that this complexity could be intentional.
• Chairman Durbin noted how the U.S. had both large and small convenience stores with varying levels of resources. He asked Mr. Kantor to discuss the ability of convenience stores to respond to changes in interchange fees.
  • Mr. Kantor remarked that most convenience stores were unable to make sense of changes to interchange fees. He noted how 60 percent of convenience stores were single-store operators. He stated that these single-store operators often just accepted fee increases and commented that these fee increases harmed their businesses. He then discussed how the GAO had merely reviewed existing studies that looked at the decline of free checking offerings with a January 2009 start date. He noted how the Durbin Amendment had not gone into effect until October 2011. He highlighted how there had thus occurred a three-year decline in free checking offerings prior to the Durbin Amendment’s enactment and implementation. He attributed much of this decline in free checking services to the 2008 Financial Crisis. He contended that opponents of the Durbin Amendment were referencing the GAO report in order to take attention away from anticompetitive practices within the credit card space and to discredit Dodd-Frank’s financial reforms. He asserted that the ability of banks to offer free checking services was more dependent on the interest rate environment than interchange fee caps.
  • Mr. Mierzwinski stated that the GAO report on the Durbin Amendment was merely a survey of stakeholders that asked the stakeholders to identify what was the most harmful policy impacting them. He commented that he was “unimpressed” with the GAO report.
• Chairman Durbin remarked that Visa and MasterCard provided overly complex and opaque contracts to merchants. He also contended that there did not exist sufficient competition within the payments markets and highlighted how both Visa and MasterCard had announced changes to their fees on the same day. He further expressed concerns with regard to how swipe fees were contributing to inflation.