Is it possible to destroy Visa and Mastercard's dominance of the retail industry?



In recent years, the popularity of online shopping and the growing number of people who do not carry much cash have further strengthened the dominance of credit cards in the retail industry. While the cost that retailers pay to credit card companies is also a problem, the economic media The Economist summarizes the topic 'Is it possible to escape from the control system by credit card companies such as Visa and Mastercard?' .

Can the Visa-Mastercard duopoly be broken? | The Economist

https://www.economist.com/finance-and-economics/2022/08/17/can-the-visa-mastercard-duopoly-be-broken

Credit card companies and banks collect a portion of sales from card payments as exchange fees from merchants, earning a large amount of profit. According to the National Retailers Association, American retailers pay $ 138 billion (about 18.8 trillion yen) annually in exchange fees, and the burden is passed on to consumers as an increase in selling prices. .

In the EU, credit card exchange fees are limited to 0.3% of the transaction amount and debit cards are limited to 0.2%, but in the United States it is known for its high exchange fee ratio of about 2%. Visa and Mastercard, which account for more than three-fourths of all credit card payments in the United States, are strongly benefiting from this, and in 2021, Visa boasts a very high net profit margin of 51% and Mastercard 46%. increase.

Credit card brands, banks and companies responsible for issuing credit cards, transaction processing centers, etc., are credit card networks that handle everything from transactions at merchants to payment processing, debits from user bank accounts, and final payments to merchants. It has been constructed. US consumers made 45% of their transactions with a credit or debit card in 2016, and that percentage will reach 57% by 2021, with card networks increasingly dominating. that's right.



Exchange fees are collected by the companies that make up the card network, and some are returned as benefits such as insurance, miles, and points. However, in general, the poorer the household, the lower the percentage of redeemable exchange fees paid by benefits, and part of the return system is funded by consumer protection that should be provided by regulators, legislators, etc. The Economist points out.

For example, the card issuer may reverse the transaction if there is a problem with the transaction, or protect the user from fraudulent transactions. 'In short, Americans rely more on capitalism and competition than on laws and regulations to protect consumers,' says The Economist.

For the retail industry, where the presence of card networks is increasing, one possible solution is to ``collect an additional fee equivalent to the exchange fee at the time of credit card payment''. In fact, in the United States, in a class action lawsuit filed against Visa and Mastercard in 2013, a ruling was made that ``members should not be prohibited from collecting additional fees when paying with credit cards.'' However, it seems that it is still difficult to collect additional charges from the situation where cards with various conditions are mixed.



Credit card companies' domination of the retail industry is fairly strong, but in July 2022 the Credit Card Competition Act was introduced by bipartisan lawmakers calling for regulation of card networks. This will require banks to present multiple card networks to merchants, rather than just a specific card network, with the aim of making it easier for emerging card networks with low exchange fees to enter.

In addition, in recent years, various high-tech giants have begun to offer payment options using apps, and if their influence increases, existing credit card companies may be forced to fight hard, The Economist points out. Even if consumers do not actively switch from credit cards to other payment options, retailers who want to reduce exchange fees may add their own benefits and switch payment options.

The Economist tried to acquire Fintech company Plaid for $ 5.3 billion (approximately 580 billion yen at that rate) in 2020 by Visa, but gave up the acquisition because the Department of Justice sued for antitrust law. Pointing out that credit card companies feel threatened by new payment options, he said. “The house of cards carefully built by the two payment giants is formidable and has a long history, but it is not indestructible,” he said.

in Note, Posted by log1h_ik