Big Banks have launched an aggressive campaign against the recently introduced Credit Card Competition Act, spreading misinformation about how this bill will devastate community banks – despite this bill only applying to financial institutions with over $100 billion in assets (which is estimated to only impact 30 banks TOTAL). What Wall Street fails to realize is that because this bill will benefit businesses and consumers in communities across the country, it will also benefit community banks by making them more competitive.
Anyone knows that when our small businesses succeed, we all succeed. Unlike the major financial institutions, community banks channel most of our loans into our local Arizona retailers, with the goal of helping to keep our local communities vibrant and growing.
But for entrepreneurs who come into a community bank to get a loan to start their own business, many are unaware that once that business opens, their second highest overhead cost will be swipe fees – a fee that isn’t typically transparent.
With every single credit card transaction, swipe fees are tacked on and collected by big banks from every American business. In fact, the United States is home to the highest swipe fee rates in the world, reducing our competitiveness on a global scale. These fees show no signs of slowing down; the cost of swipe fees has more than doubled since 2010 and just rose again this past Spring.
These are all signs that swipe fees aren’t susceptible to fair market competition. First, they are not transparent to consumers. If consumers knew that these credit card swipe fees were contributing to the cost of all the goods they purchase, they might make different payment choices.
Moreover, retailers aren’t given a choice when it comes to which payment network they use to process credit card transactions, meaning they can’t go with another option outside Visa and Mastercard, who dominate 83% of the marketplace and set the swipe fee rate so that all issuing banks charge the same rates. In this duopoly, no one competes, leading to $140 billion spent in swipe fees in the U.S. in 2021 alone.
No wonder Wall Street is pushing back against the Credit Card Competition Act. This bill would successfully reign in the excessive, unchecked swipe fees padding banks’ bottom lines. They’re scared that, by increasing competition and allowing retailers additional options to choose which payment network they want to use, credit companies will have to finally compete and, ultimately, lower their rates.
Due to their substantial economies of scale, it typically costs large banks less to issue cards and process transactions than it does for community banks. However, small banks must still employ the same price-fixed swipe fees as the big banks under the Visa/MasterCard system, securing larger financial institutions’ competitive edge over the little guy.
The Credit Card Competition Act will finally help level the playing field for the local banks woven into the fabric of our communities both in Arizona and across the country. It’s important to remember that big Wall Street financial institutions don’t speak for the community banks ingrained in our neighborhoods that follow customers from their first credit card and their first car loan, to their first house and children’s college fund.
Community leaders should be invested in the success of local families, not in lining Big Banks pockets. Sens. Mark Kelly (D-AZ) and Kyrsten Sinema (D-AZ), we’re counting on you to pass the Credit Card Competition Act and help communities in Arizona and across the country thrive.
Robert Uribe is a small business owner and the former border mayor of Douglas. He is the youngest elected official to ever serve Douglas and the first Afro-Latino. Robert was a former board member of the Arizona-Mexico Commission and currently serves on the Arizona Office of Tourism’s advisory council.