Debit And Credit Cards, Visa Barclays Connect Natwest Switch American Express Mastercard. (Photo by Jeff Overs/BBC News & Current Affairs via Getty Images)
BBC News & Current Affairs via Getty Images
Merchants reliant on credit card transactions have lost the proverbial plot. In a two-decade battle with Visa and MasterCard largely over exchange fees, they’ve seemingly forgotten just how instrumental the two credit card giants have been to their evolution.
To see why, contemplate the antitrust charges directed at MasterCard and Visa. While “monopoly” in no way applies to such a varied payments market (credit cards, Apple Pay, Google Pay, Zelle, Venmo, crypto, debit cards and surely more), the fact that merchants have lobbed antitrust charges at Visa and MasterCard to begin with confirms the assertion from the previous paragraph about how instrumental the credit card companies have been to the growth of businesses small and large in the U.S., and the world over. Think about it.
As evidenced by MasterCard and Visa as the specific targets of the lawsuit, the two corporations expertly discovered a vastly unmet need in the marketplace. If there were no validity to the previous assertion, then there would have been no lawsuit to begin with.
Importantly, there’s substantial amounts of empirical validity to the assertion in the previous paragraph. And it can be found in the size of the settlement.
While there’s no notable cash exchange implied in the proposed settlement, news accounts point to an agreement that “is set to lower swipe fees merchants pay when customers make purchases using their Visa or Mastercard.” To be specific there, Visa and MasterCard have agreed to reduce swipe fees by 0.1 percent. Stop and contemplate that number for a bit.
It’s important in consideration of a settlement that’s being valued at roughly $38 billion over five years. It once again confirms just how instrumental the accused have been in the growth of businesses of all sizes, and who have been rendered so fortunate by the growth of credit card usage and acceptance over the years.
$38 billion over five years of swiping, all based on a 0.1 percent swipe fee shrinkage tells the tale, and it’s one that powerfully recommends merchants keep their misgivings to themselves. As the settlement indicates, MasterCard and Visa are financing many trillions annually worth of transactions that give powerful life to businesses that would be quite a bit smaller absent their ability to outsource finance to credit card companies.
To which it’s not unreasonable to speculate that some in the merchant community would reply that they’re not down on Visa and MasterCard as much as they’re down about the swipe fees charged based on the presumption that monopolist forces inform the fees. The reply isn’t serious.
For one, simply re-read the second paragraph of this opinion piece. Competition to finance the transactions of an increasingly acquisitive domestic and global population is enormous, and surely growing.
Second, evidence supporting the obvious claim that Visa and MasterCard haven’t abused their so-called “monopoly powers” can once again be found in the trillions worth of transactions that they annually finance. If it were true that they were overcharging, then it’s also true that they would have long ago been replaced. Translated, investors generously reward businesses that compete away excessive margins, yet Visa and MasterCard stand tall two decades after this needless lawsuit began.
All of which confirms what’s true: Visa and MasterCard aren’t a monopoly as much as they’ve achieved grand market share exactly because they’re essential to the health of the businesses reliant on them. Spoiled merchants, meet your Visa and MasterCard “gift horse.”