An increase in fraud rates on Visa and Mastercard’s networks shows the need to pass the Credit Card Competition Act to provide merchants with more secure options for routing consumer transactions, the Merchants Payments Coalition said today.
“The competing networks that would finally be given a chance under this legislation are far more secure than Visa and Mastercard and are getting more secure while Visa and Mastercard fall behind,” MPC Executive Committee member and National Grocers Association Senior Vice President of Government Relations Christopher Jones said in a news release. “These are not new, upstart companies as claimed by opponents. They are well-established, highly secure networks that the banks themselves have trusted to safely and efficiently process billions of dollars in debit card and ATM transactions for decades. They do the job better and they do it for less. It’s time for their expertise to be applied to credit card transactions to better protect consumers’ sensitive financial data.”
Credit Card Fraud a Major Problem
Fraud as a share of purchase transactions rose to 0.13 % on “dual message” networks like those run by Visa and Mastercard in 2021, up from 0.11% in 2019, according to the Federal Reserve. Meanwhile, fraud on “single message” networks such as NYCE, Star and Shazam fell to 0.016% from 0.02%.
Those numbers mean the fraud rate on Visa and Mastercard’s networks is now more than eight times the rate on competing networks, up from more than five times. The data, which was released October 25, is the latest available.
The Federal Trade Commission considers credit card fraud a form of identity theft. According to FTC data in early 2022, credit card fraud has consistently been the most commonly reported type of identity theft since 2017. A survey conducted by the Federal Reserve Bank of Atlanta also found that 3.5% of credit card holders in 2020 said they had experienced an incident of loss, theft, or fraud related to their credit card in the past 12 months. The percentage varies from year to year and has been as high as 5.7% since 2015. The annual average is about 4.7%.
Credit card fraud is clearly a huge problem that is negatively impacting many Americans.
Visa and Mastercard Barring Competition
Visa and Mastercard – which control over 80% of the market – currently restrict processing to their own networks, barring competition from others that have better security and lower fees, according to the Merchants Payments Coalition. Under the CCCA, banks with at least $100 billion in assets would be required to enable credit cards they issue to be routed over at least one unaffiliated competing network in addition to Visa or Mastercard. The second network could be American Express, Discover, or one of about a dozen networks than currently handle debit card and ATM transactions.
Banks would pick which networks to enable but merchants would then choose which to use, resulting in competition that is expected to save merchants and consumers at least $15 billion a year. Competition has also historically led to improvements in security: The U.S. card industry finally rolled out long-delayed EMV chip cards and measures like tokenization after legislation was passed in 2010 requiring similar routing options on debit cards.
In addition to providing a more secure routing option, the legislation would close a glaring security gap by barring banks from choosing networks supported by foreign governments like China UnionPay or Russia’s Mir network as the second network. Under current law, nothing prohibits banks from exposing consumers’ financial data to foreign governments by routing U.S. credit card transactions over foreign networks, according to the Merchants Payments Coalition.
The CCCA Can Help
First proposed last year, the CCCA was reintroduced in June by Senators Richard Durbin, D-Ill.; Roger Marshall, R-Kan.; Peter Welch, D-Vt., and J.D. Vance, R-Ohio, along with Representatives Lance Gooden, R-Texas; Zoe Lofgren, D-Calif.; Thomas Tiffany, R-Wis., and Jefferson Van Drew, R-N.J.
The bill is aimed at credit card swipe fees, which average 2.24% of the transaction but can be as high as 4%. Credit and debit card swipe fees have more than doubled over the past decade and have increased 50% since the pandemic alone, hitting a record $160.7 billion last year. They are most merchants’ highest operating cost after labor, driving up prices over $1,000 a year for the average family.