In February, Walmart released its latest earnings. Things are looking bright for the retailer—their revenue is up more than seven percent globally. In the US, they are continuing to dominate with eCommerce and grocery sales expanding. But this is not enough for the mega-retailer. Along with chain stores like Target, Kroger and Home Depot, Walmart is lobbying for a billion-dollar windfall. These corporate megastores are hoping Congress will pass new credit card mandates on your credit card that will mean more profit for their investors, while leaving small businesses and consumers holding the bag.
These mandates will give the Federal Reserve broad power to manipulate the credit card market to help retailers pocket more money. The problem is this comes at substantial cost to the financial system and consumers. The new mandates will allow retailers to route customers’ payments over untested, alternative networks. This will help retailers avoid paying a processing charge known as interchange on your purchases—typically around two percent of a purchase. But interchange revenue fuels things customers need and want: financial fraud protections, rewards programs, and a healthy and functioning banking system that supports credit unions and community banks.
A new study from Indraneel Chakraborty, the finance department chair at the University of Miami Herbert Business School, looked at what exactly these new credit card routing mandates would mean for businesses big and small. His research showed that it is big businesses that will benefit the most from this legislation. He calculated that the five biggest retailers in the United States stand to gain the most. The top one hundred retailers in the United State could see a windfall of about $3 billion dollars gained from this bill, and out of that, more than a third would go to the largest five retailers in the United States: Walmart, Amazon, Costco, Kroger, and Home Depot.
While these corporate megastores are pocketing more than a billion dollars, small businesses will suffer. Small businesses depend on the benefits interchange revenue brings to the market. For instance, the study concluded one of the biggest impacts from the bill will be that small and medium-sized businesses will see a decline in credit card rewards. Small businesses use credit card rewards for employee benefits, to keep costs down, and to grow their client base. The study estimated that small businesses generate about $12 billion in credit card rewards.
A portion of the card processing revenue also goes to financial institutions of all sizes. Small businesses will also pay the price when credit unions and community banks must reduce the amount of loans they offer. There will be a real, painful reduction in the availability of credit if these credit card mandates become law. The final nail in the coffin will be the increase in fraud small businesses may face. These untested payment networks have not been proven to be safe and will likely not offer the same liability protections that name-brand networks do.
A new survey from PYMNTS showed consumers also value and use credit card rewards, especially cashback and travel rewards. Almost half of survey-takers said they have earned travel points or miles in the last three months. The survey also showed that more than seventy percent of respondents are “very or extremely” satisfied with their primary rewards program. This echoes recent analysis from Airlines for America that demonstrated how important travel rewards are to consumers, and the economy overall. Their research estimates that about one in four American households has an airline credit card. These consumers use their reward cards to help afford domestic travel, which in turn helps fuel the tourism industry right here in your local communities. Overall, for 2022, they estimated that rewards help fund 15 million domestic trips that resulted in $23 billion in economic activity.
Retailers will stop at nothing to try to pass these credit card routing mandates, even though it will hurt their customers and the economy overall. They know what it means for their pockets, and they are hoping consumers don’t notice until it’s too late. Every year, they try to put these mandates in must-pass legislation. Their allies in Congress, like Senators Dick Durbin (D-IL) and Roger Marshall (R-KS), are happy to help. Last year, they tried to include it as part of a package needed to fund the military. And even called on the CFPB to investigate American companies opposing the bill. We expect no less of them this year. Unfortunately, trying to undo laws like this is a bit like trying to unscramble an egg. Once the payments system is broken by these government-enforced mandates, it’ll be difficult to make consumers whole again.
Members of Congress need to know the real, long-lasting impact of these credit card routing mandates, and they should work to oppose this legislation with everything they’ve got.
Richard Hunt, Executive Chairman, Electronic Payments Coalition
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