The Durbin Amendment, part of the Dodd-Frank Act, was supposed to promote competition by capping interchange fees for payment networks like Visa, mandating merchant choice in processing networks for large issuers. However, the Act’s legacy has been a poor one for consumers.
Nothing about capping fees changes the cost of producing a given service. It simply reduces the revenue stream from that service and redistributes it to counterparties. Research by the Richmond Federal Reserve indicates that those counterparties – retailers – largely pocketed the difference and did not pass along savings to consumers. Worse, debit interchange price controls were estimated to have increased the unbanked population by about 1 million.
The Department of Justice recently filed a complaint in the Southern District of New York against Visa, alleging monopolistic behavior in debit card network services. This is the latest in a long series of federal interventions in this market. Indeed, the lawsuit says more about federal interventions than Visa’s business practices. As the DOJ embarks on another antibusiness adventure, it again neglects the role consumers play in choosing their preferred networks. While the incoming Trump Administration will no doubt reassess how federal agencies approach antitrust policy and enforcement, it is unclear if it will reverse course in this case.
At the core of the debit market is payment infrastructure. These four-party networks connect banks, merchants, acquirers, and issuers, making broad, secure, payment acceptance possible for consumers. Visa doesn’t profit directly from interchange fees. Instead, issuing banks collect these fees, often reinvesting them into consumer rewards, which in turn increases consumer demand for card-based payments. Visa’s income comes from network fees, a small portion of merchant processing costs.
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