By Patti Murphy
ProScribes Ink
Call me a pessimist, but I worry the Credit Card Competition Act (CCCA) will become law. That's the bill introduced by Senator Dick Durbin, D-Ill., to force network choice on the U.S. credit card market. Sen. Durbin and his allies (Republicans and Democrats, alike) have vowed to attach the bill to any larger bill they can find. Their latest target: a contentious spending bill which, if not passed, threatened a government shutdown.
You'll likely recall that Sen. Durbin pushed through debit card interchange regulation on the coattails of the Dodd-Frank Act, back in 2010, promising lower interchange would result in lower prices for consumers. The Federal Reserve's own research illustrated how that didn't happen, of course. But Sen. Durbin seems oblivious.
The CCCA would go a lot further, requiring that every card-accepting merchant get to choose from a list of two which payment card network their credit card payments get processed over; only one of those networks can be owned by Mastercard or Visa.
For that to work, every financial institution issuing Visa and Mastercard credit cards would have to reissue those cards; the new cards would need to be programmed to accommodate processing through different preferred merchant networks. That's a lot of card issuance, as there are more than 1.2 billion Mastercard and Visa credit cards in Americans' wallets (physical or digital), according to the latest data.
Issuers won't have the luxury of taking their sweet time getting those new cards in customer hands, as they did with EMV-enabled cards, either. Any legislation/regulation is sure to have hard-and-fast implementation windows of no more than a few years.
There's also the issue of network capabilities. As folks in this industry understand, the debit card networks—which merchants like to point to as lower-cost card processing options—lack the tech infrastructure to handle credit cards. They were built as single-message networks, with authorization and payment occurring at the same time (in a single message stream). Credit card payments require dual-message networks: one message for authorization, the other for payment.
Writing in a recent report, Ben Danner, senior analyst at Javelin Strategy & Research, suggested American Express and Discover are best positioned to take the second selection slot alongside Mastercard and Visa should the CCCA become law. Other potential winners include large retailers, like Walmart.
There are many potential losers, including small to midsize merchants, who aren't apt to see much in the way of savings, as well as consumers.
As a consumer, I feel secure knowing my card details are traveling across financial networks (Visa and Mastercard) that are among the most secure in the world. I'm not sure how good I'd feel knowing that information was traveling across some other network the merchant chose in order to save a little money.
The CCCA is getting a lot of attention from national and local media.
"Why many business owners would love it if you stopped using your credit card," read a headline on National Public Radio's website. "Bolster Delaware's small businesses by passing the Credit Card Competition Act," declared an editorial in the Delaware Cape Gazette. The editorial, like many others in local news outlets, urged the state's representatives in Washington to get behind the bill. (Delaware is known as a pro-business state that's home to many of the largest U.S. issuers of Mastercard and Visa credit cards.)
What bothers me the most about what's unfolding in Washington is that Sen. Durbin, the second most powerful Democrat in the Senate, wants that body to vote on the CCCA without so much as a hearing on the merits of the bill. In a September speech on the Senate floor he pushed for an up or down vote on the bill by the full Senate. The speech suggested he's riled about changes in Visa and Mastercard interchange planned for October.
Truth be told, interchange in the United States is high. U.S. merchants pay, on average, about twice the 0.96 percent average paid in much of Europe; in the U.K. credit card interchange is capped at 0.3 percent.
I get it: lawmakers are concerned that interchange is a financial burden for small businesses. But adding network choice to the equation isn't going to lead to lower costs. Certainly not initially, as it will cost financial institutions and the potential alternatives to Visa and Mastercard billions of dollars to create this new marketplace where merchant choice is the rule. Those companies will need to recoup those investments, through pricing.
When the Durbin Amendment was added to the Dodd-Frank Act back in 2010, it hit banks and the card industry by surprise. This time around, Sen. Durbin has made his objective clear. There are no excuses. Time is running out for financial institutions and the card companies to make a compelling, public case against passage of the CCCA. 
Patti Murphy, self-described payments maven of the fourth estate, is senior editor at The Green Sheet. She also co-hosts the Merchant Sales Podcast, and is president of ProScribes Ink (www.proscribes.net).
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