With the new 118th Congress comes refreshed opportunities to bolster the economy by helping small businesses — a community that’s nearly 7 million strong in the Sunshine State. And while a Republican-controlled House and Democrat-controlled Senate presents a partisan knot to untangle, there are opportunities for the divided government to roll up their sleeves and get things done. Florida’s elected officials in Washington should help lead the charge.
Chief among policies with bipartisan support is the Credit Card Competition Act — legislation that was debated in 2022 and should be reintroduced this year. Previously cosponsored by Sens. Dick Durbin (D-Ill.) and Roger Marshall (R-Kansas), the policy package aims to foster competition within the credit card market. It’s a move that would help small businesses retain more of their own dollars.
You see, every time a consumer uses a credit card to purchase anything from a restaurant meal to a television, the entrepreneur is on the hook to pay the credit card company and bank what’s known as a “swipe fee.” And in the current environment, these fees are rising at an uncontrollable rate — now amounting to roughly 2-3% of a customer’s total purchase.
For comparison, U.S. businesses pay seven-times more in swipe fees compared to their European peers.
As a result, small businesses are getting hammered. Just in the past 10 years, the amount businesses pay in “swipe fees” has more than doubled — piling on to the other challenges entrepreneurs are facing like high inflation, supply chain challenges, and the pandemic fallout. In total, over the course of 2021, businesses shelled out nearly $140 billion to credit card companies and banks to process customer transactions — fees that often account for the largest business expense behind labor costs for main street operations.
Why are small businesses being sucker-punched by credit card companies? Because of a lack of competition.
Two corporate heavyweights, Visa and Mastercard, control roughly 80 percent of the credit-card market. And the companies are using their dominant position to raise prices on businesses without fear of backlash while, at the same time, freezing would-be competitors out of the market. There are alternatives to Visa and Mastercard that could provide the same service at a lower cost if given the opportunity to gain a foothold.
Collecting a reasonable fee for services rendered is warranted; it’s a cornerstone of free market capitalism. But taking advantage of an uncompetitive environment to gouge small businesses is not. Instead of padding the pockets of Visa and Mastercard executives with ballooning fees, that money could be better used by small businesses to raise employee wages, provide more robust staff benefits, lower prices for consumers, or invest in business expansion.
The U.S. government has a long history of addressing breakdowns in the free market to protect consumers and other businesses. Examples range from aggressive action under the Sherman Antitrust Act to break up monopolies like Standard Oil, AT&T, and American Tobacco, to softer oversight that encourages competition within industries. For example, the Federal Trade Commission and Microsoft are currently butting heads over the purchase of video game company Activision Blizzard.
Why not apply similar scrutiny to the credit card industry?
As previously introduced, the Credit Card Competition Act would foster competition by requiring banks with more than $100 billion in assets to include at least two unaffiliated credit card networks on the cards it issues to its users. In practice, that will give small businesses more options on how to process credit card transactions — pitting networks against one another to compete for a merchant’s business by offering lower swipe fees.
Small businesses are currently facing an uphill climb as persistently high inflation eats away at company budgets. The 118th Congress — notably Florida’s renewed leaders in Washington — have an opportunity to pursue bipartisan legislation that will give entrepreneurs a hand up. Injecting competition into the credit card market should be among their priorities.
Elaine Parker, who lives in Orlando, is the President of the Job Creators Network Foundation.