Payments processing giants Fiserv and FIS stand to benefit if legislation aimed at fostering more competition in the routing of credit card transactions passes Congress.
The Credit Card Competition Act of 2022, which Senate sponsor Dick Durbin (D-IL) plans to advance in the lame-duck session, could create an opening for more network players in a market dominated by Visa and Mastercard.
Fidelity National Information Services, also known as FIS, owns the NYCE network, and Fiserv owns rivals Star and Accel, but they currently focus on routing debit transactions, not credit. If the bill becomes law, they’ll have an assist in extending their networks to credit, but dislodging network heavyweights Visa and Mastercard won’t be easy.
“It’s a tough market battle between the titans,” said David Robertson, publisher of industry publication The Nilson Report. “It’s really the big merchants and the big processors on one side, and the big banks and the big networks on the other.”
The battle has heated up this year as swipe fees — what merchants pay to route credit card transactions over Visa or Mastercard networks — have climbed.
Visa and Mastercard control about 80% of the market for U.S. credit payments, according to Autonomous Research analyst Ken Suchoski. American Express and Discover Financial Services have about 20%.
U.S. retailers largely back the legislation, arguing that the stranglehold Visa and Mastercard have on the industry has resulted in some of the highest swipe fees in the world, with the two companies snagging $77.48 billion last year, according to the National Association of Convenience Stores.
On the other side of the long-running debate, the card network giants and card-issuing banks contend the fees allow them to fund credit card rewards programs and enhanced transaction security, among other services.
Creating opportunity
If the legislation becomes law, other payments players have a better chance of getting a piece of the credit-routing pie, proponents say.
“All the smaller competitive networks are potential winners here,” said Doug Kantor, general counsel for the National Association of Convenience Stores.
NYCE, Star and Accel – as well as Discover-owned Pulse and Johnston, Iowa-based Shazam – are considered debit-exclusive networks partly because Visa and Mastercard have such a grip on the credit side, Kantor asserted. But they might become contenders in the credit landscape, too, if the legislation passes, he said.
Because the credit swipe fees are so high, NYCE, Star and other networks have a bigger incentive to do this now than they’ve ever had. FIS and Fiserv “definitely want to have an opportunity to take a crack at more transactions,” and, whenever possible, disintermediate Visa and Mastercard, Robertson said.
A Fiserv spokesperson said the company is “monitoring the legislation, and if it moves forward, Fiserv will evaluate our technical capabilities to support the requirements envisioned by the bill.”
When asked about the opportunity the legislation could present for FIS, during the company’s second-quarter earnings call in August, FIS CEO Gary Norcross said regulatory change is usually a “big positive” for the company. We typically “find ways to grow our revenue through that because our customers need assistance in implementing those regulations,” he said during the webcast with analysts.
If there are legislative changes, “we’ll look at ways to help our customers with that, help maximize their revenue,” and bolster FIS revenue in the process, Norcross explained.
An FIS spokesperson declined to comment further, other than to note that Norcross was acknowledging the potential opportunity, though not endorsing the legislation.
Spokespeople for Discover and Shazam declined to comment.
Technological capabilities
Still, Suchoski wonders if the payment processors have the technology to quickly act on that opportunity.
“If this bill is passed, are they in a position to really step in on Day One, or do they have to develop certain tech requirements, et cetera, to make this happen?” he said. “That’s the other thing, I think, that is TBD.”
For his part, Robertson said FIS and Fiserv already support very large merchants as processors, and the technological capabilities “could be put into place with very little effort.” From there, it would become a cost evaluation for merchants, he said.
Where it becomes harder to imagine FIS and Fiserv stepping in, Robertson said, is on the issuing side, because Visa’s and Mastercard’s deals with issuers are predicated on volume.
Issuers also don’t want a situation where they have bilateral relationships with dozens of different merchants, Robertson said. “They’d rather have a covenant that’s through Visa, Mastercard — that everybody has,” he said.
Long-shot legislation
Durbin and co-sponsor Sen. Roger Marshall (R-KS) introduced the legislation in July, seeking to break down the Visa-Mastercard duopoly by requiring merchants have access to at least two unaffiliated networks over which to route credit card transactions. A companion bill was introduced in the House in September.
The bill calls for credit routing parameters similar to debit routing requirements enacted in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Durbin also spearheaded passage of those debit routing provisions as an amendment to the 2010 act.
Regulation that grew out of that legislation, known as the Durbin Amendment, is still a point of controversy on the debit side. Just last month, the Federal Reserve clarified that a debit card routing rule requiring multiple networks be available to merchants applies in all cases, including online.
As for the credit legislation, the Senate sponsors failed to attach it to a defense funding bill before a November holiday break, but they plan to try again before the congressional session ends at the end of the year.
Brian Riley, cohead of payments for the industry consulting firm Mercator Advisory Group, gave the legislation a decent chance of passage, given bipartisan support in both the House and Senate. “It’s an issue that consumers tend to follow,” he said.
That said, passage of the legislation remains a long shot, according to some industry-watchers. Suchoski estimated it has less than a 10% chance of becoming law. Robertson, too, gave it little chance of passing. Historically, there’s not been any real action on credit cards and giving merchants an option, he said.
“I do not see politicians in the United States forcing this issue,” even with a Democratic president, Robertson said.
Durbin, a majority leader in the Senate, has driven the legislation, and it builds on Democratic President Joe Biden's stated goal of fostering more competition in U.S. industries that lack competition. Last year, Biden issued an executive order calling for changes to combat “excessive market concentration.”
