Small businesses need the Credit Card Competition Act 

As a franchisee owner and immigrant entrepreneur, America’s longstanding commitment to a level playing field has allowed small business men and women like me the chance to work hard, compete, and succeed  — creating jobs, prosperity and opportunity for millions of families. 

America’s small businesses are the backbone of our economy. The over 32 million small businesses across the United States make up 64 percent of new jobs created and generate 44 percent of the country’s economic activity. However, with inflation still up and post-pandemic supply chain issues persisting, overhead costs are through the roof. With the new Congress back in session, lawmakers should make supporting small businesses a priority this session, and the best way to do that is by passing the Credit Card Competition Act. 

The outlook for small businesses is, unfortunately, murky. A recent survey found that 74 percent of small business employers surveyed "have instituted hiring freezes” until at least the second quarter of 2023, up an astounding 12 percent from November. More than 41 percent of them are having a hard time making rent. Meanwhile, U.S. discretionary spending in 2022 dropped 2 percent compared to the year prior. 

Mom-and-pop stores continuing to shed jobs and freeze hiring while consumers spend less at the checkout counter is just not sustainable. It’s clear our small business economy is in critical need of a legislative solution that can help keep retailers’ doors open and provide consumers relief. One way to do that is by addressing businesses’ second highest expense —one that is even higher than rent —behind labor: swipe fees.

Despite being hidden from most consumers, merchants pay, on average, between 1.5-3.5 percent of the total transaction amount with every credit card payment. Unfortunately, many small businesses and those with tight profit margins are forced to bake these fees into the price of their goods and services. This means swipe fees act as an inflation multiplier — higher prices result in higher swipe fees creating a vicious cycle of exceedingly expensive products.

Part of the reason these fees continue to rise is the lack of competition. Credit card titans Visa and Mastercard have a stranglehold on the industry, dominating over 80 percent of the market share and raising fees indiscriminately, with the latest rate hike occurring last April. Unlike other fees that face competition, like overdraft fees, big banks chargeswipe fees set by the major credit card companies. Through this process, companies like Visa and Mastercard have struck exclusivity deals to ensure merchants have no choice but to use their networks to route transactions.

As a result, small business owners have no leverage to negotiate. They are forced to accept the excessive swipe fees or forfeit the ability to accept credit card payments altogether. A catch-22 for businesses already struggling to stay afloat.

Fortunately, Sens. Roger Marshall (R-Kan.) and Dick Durbin (D-Ill.) are expected to reintroduce the Credit Card Competition Act (CCCA). If enacted, this bill would require competition by allowing a second network a chance to compete for transactions on every credit card the big banks issue. Then, small businesses could choose the payment network offering the best services with a competitive structure.

The American economy thrives under healthy competition, inspiring enhanced innovation and motivating companies to continuously advance and strive to provide better services at lower prices for consumers. This is a glaring gap in the payments sector.

Take security standards, for example, where the United States falls victim to 34 percent of the world’s credit card fraud while only making up 22 percent of the world’s transaction volume. This is partly because Visa and Mastercard have used their governing positions on standard-setting boards like EMVCo and PCI to further entrench their duopoly instead of protecting American consumers.

It’s critical our government acts to correct a clear market failure. Congress must take this opportunity to lessen the burden looming over small businesses. It’s time to empower retailers and consumers alike by passing the Credit Card Competition Act now. 

John Motta is chairman of Coalition of Franchisee Associations.