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Wednesday, January 26, 2022

US retailers seek congressional action on interchange

Emboldened by Amazon's public threat to pull the plug on Visa cards issued in the United Kingdom, a group representing U.S. retailers is urging U.S. policymakers to "find a way" to help bring down interchange fees.

"U.S. merchants large and small are closely watching the Amazon-Visa developments in the UK and hope that U.S. policymakers are doing the same," the Merchants Payments Coalition stated in a letter sent to leaders of the House and Senate Banking Committees.

The Merchants Payments Coalition includes trade groups representing all manner of merchants "focused on reforming the U.S. payments system to make it more transparent and competitive," the coalition's website states. It is commonly believed to have coined the term "swipe fees" to describe interchange.

Fallout from BREXIT

Back in November 2021, Amazon said it would stop accepting Visa credit cards issued in the UK as of Jan. 19, 2022, due to rising interchange. But on Jan. 17, Amazon put a hold on that action, with no comment on possible negotiations with Visa.

Prior to 2021, interchange in the UK was capped at 0.2 percent for debit cards and 0.3 percent for credit cards, under a cap structure put in place by the European Union. But when Britain formally left the EU, at the end of 2020, those caps fell by the wayside. Soon after, both Visa and Mastercard announced new interchange rates—to 1.15 percent for credit cards and 1.15 percent for debit cards—effective last fall.

In addition to Amazon's threat, Visa, and Mastercard too, faced backlash from the British government, with the Payments System Regulator disclosing recently that it was working on "remedies" to rising interchange. The Treasury Committee, a panel withing Parliament that oversees banking and payments laws, also has scheduled hearings in March to discuss remedies.

"Given that Visa and Mastercard currently dominate this space, it's vital to ensure there is sufficient regulation and competition in the market so that businesses are not subject to ever-increasing servicing costs," the committee said in a statement.

Should Congress follow UK lead?

Now the MRC wants Congress to take a cue from UK policymakers. "As bad as the situation is in the United Kingdom, the pain for merchants is far worse in the United State, which has the highest swipe fees in the industrialized world," the group wrote. "We believe U.S. authorities should look closely at what Amazon has done in the UK and need to be aware that many retailers here feel the same. It's time to bring about competition that will require the U.S. card industry to play under the same rules as any other business."

The retailer's group said interchange hikes have "grown unchecked largely because Visa and Mastercard set swipe fees that are followed by virtually all the banks that issue their cards rather than the banks competing to set the lowest fees – a practice that has been repeatedly challenged in court as a violation of federal antitrust law."

They also asserted that the COVID-19 pandemic has resulted in "an unearned windfall" as more purchases moved online, where most transactions are with credit and debit cards. Online card payments generally carry higher interchange.

And the letter suggested that interchange is contributing to inflation. "Every time prices go up, the card industry's swipe fee percentage is collected on a larger base amount, creating a multiplier effect that ultimately comes out of the pockets of consumers," the MRC wrote.

The MRC insisted that merchants want "transparency and competition" and "reasonable" interchange rates. "Since the card industry has chosen not to compete on its own, it is up to policymakers to find a way to make it happen," the MRC wrote. end of article

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