Despite What Politicians Tell You, Credit Cards Are the Embodiment of ‘Main Street’

Hollywood Shuffle made it into movie theaters in 1987. It was a film that attacked racial stereotypes (and the casting that resulted from those perceptions) in cheerful fashion. Try to watch it now without laughing uncontrollably.

What’s remarkable about this film is how unlikely its release was. Creator Robert Townsend ran into very challenging financing problems as moviemakers long have. As film (Parenthood, Apollo 13, A Beautiful Mind, etc.) and television (Arrested Development, Friday Night Lights, Empire, etc.) producer extraordinaire Brian Grazer observed in his 2015 book A Curious Mind, “Instead of spelling out the word H-O-L-L-Y-W-O-O-D in the famous sign in the Hollywood Hills, they could have spelled out: N-O-N-O-NO-N-O!” Even for the greats with brilliant track records, the answer from financiers is overwhelmingly “NO!”

In Townsend’s case, he lacked Grazer’s record of hits. Which meant his odds of finding traditional finance were microscopic. He would turn his vision into reality with the only sources of finance that would touch him. Townsend went the route that all-too-many visionaries have over the years: credit cards.

Townsend’s story is one that rates routine re-telling. Only in fiction novels and faculty lounges is money ever “easy.” In the wider world governed by market realities, financing is always and everywhere difficult, and this truth will hopefully cause Senators Richard Durbin (D-IL) and Roger Marshall (R-KS) to rethink their Credit Card Competition Act of 2022. Their bill would empower the Fed to “to ensure that giant credit card-issuing banks offer a choice of at least two networks over which an electronic credit transaction may be processed.” In other words, they’re encouraging an entity decidedly not governed by market forces to interfere with an industry that is.

The expressed view of the Senators is that there’s not enough competition in the credit card market to the detriment of small businesses and their customers, but as their bill acknowledges, in 2021 alone there were $3.49 trillion worth of transactions on Visa and MasterCards alone. The extraordinarily high volume signals two certain market truths: for one, it’s a sign that the credit-card market in its present form doesn’t lack for competition. We know this simply because a market that large is logically going to exist as a major lure for new entrants seeking a piece of what’s massive. It’s only in the small markets that competition is slim.

Second, the previously mentioned $3.49 trillion in transactions is powerful evidence that the alleged “market power” of Visa and MasterCard wasn’t achieved by force as much as it’s been a consequence of how pleased retailers are with the service the two credit-card giants provide. Readers implicitly know this given the ubiquity of Visa and MasterCard acceptance in establishments that take credit cards. Durbin and Marshall want government to force a switch from the two most effective credit-card companies in the world.

At which point it’s useful to contemplate the miracle that is a credit card more broadly. In this case, please stop and think about the card (or cards) that sit in your wallet. Those who have them can unsheathe them all over the U.S. and all over the world, only to receive goods and services after the card has been swiped. Durbin and Marshall bemoan swipe fees, while soft-peddling all that those swipes make possible.

The Senators want to enlist the power of the federal government to bring the fees down, but they would be wise to rethink their approach. Government can never decree lower prices, nor legislate same, and it can’t because prices are a reflection of reality. In which case government can at best decree scarcity. Applied to cards, forcefully reduced swipe fees will just shrink the number of businesses that credit card companies will service the transactions of, along with the volume of transactions. The losers from the Durbin/Marshall bill will be those the senators claim to want to help.

To see why, it’s worth re-stating that finance is never easy. It’s the living definition of difficult. For government to then seek lower prices by decree could be for government to reduce the ubiquity of the service rendered. And it’s once again an amazing service that allows cardholders to transact with all manner of businesses.

Lest we forget, the reputation of the card companies makes transactions possible anytime and anywhere, and with people who’ve never met us. Stop and think about that while also thinking about how credit card companies are financing our ability to get what we need anytime and anywhere. These services are worth paying for, and as the growing usage of credit cards indicates, consumers and businesses alike agree.

Senator Marshall in particular knows this. A free market legislator through and through, it’s hard to imagine he wants to associate himself with what amounts to price controls. As has already been expressed, “price controls” always and everywhere reveal themselves through scarcity.

That’s why the Kansas senator will hopefully soft-peddle the Act he’s co-authoring with Senator Durbin. Indeed, as Marshall has said, “When it comes to Main Street vs Wall Street, I’ll choose Main Street every time.” Which is precisely the point. Main Street has long been built by credit cards, and the companies behind them that have long financed what Wall Street and big banks never would, or could.