Visa and Mastercard are household names synonymous with modern commerce. These companies have revolutionized the way we transact, providing the infrastructure that powers billions of credit card payments worldwide. However, their dominance has sparked significant debate about fairness, competition, and their role in the credit card ecosystem.

The Role of Visa and Mastercard

Visa and Mastercard do not lend money or issue credit cards. Instead, they act as intermediaries between banks, merchants, and consumers. Here’s how it works:

• Banks Issue Credit Cards: Banks like Chase or Citi provide credit cards to customers, determine credit limits, set interest rates (APR), and handle lending.
• Visa/Mastercard Provide the Network: These companies facilitate the data flow for transactions, ensuring that funds move securely and quickly between the cardholder’s bank (issuer) and the merchant’s bank (acquirer).

Their job is purely operational—they modernized commerce by creating a global, scalable payment system. However, they don’t collect interest or fees from cardholders; that’s the issuing banks’ revenue.

How Visa and Mastercard Make Money

While Visa and Mastercard don’t lend money, they generate significant revenue by acting as the infrastructure layer. Their income primarily comes from:

1. Network Fees: Paid by banks for processing transactions.
2. Interchange Fees: Paid by merchants on every transaction, where Visa and Mastercard collect a fraction.
3. Licensing Fees: Paid by banks to use Visa or Mastercard branding and networks.
4. Value-Added Services: Such as fraud prevention tools and analytics.

These companies earn money from every transaction routed through their networks, regardless of whether consumers carry a balance or pay in full.

The Issue with Their Market Dominance

Visa and Mastercard control approximately 83% of the U.S. credit card market. This dominance allows them to:

• Set Interchange Fees: Merchants have no say in these fees, which range from 1%-3% of every transaction. While banks receive most of this fee, Visa and Mastercard still collect a portion.
• Require Exclusive Routing: Transactions made with Visa or Mastercard-branded cards must be processed on their networks, locking out alternative providers.

This lack of competition has led to high costs for merchants, especially small businesses, which are often forced to pass those costs on to consumers. Critics argue this behavior stifles innovation and creates unnecessary financial burdens.

Why the Credit Card Competition Act Matters

The proposed Credit Card Competition Act seeks to break this duopoly by introducing more competition in transaction routing. Here’s how:

• Unbundling Networks: The Act would require major credit card issuers to include at least two unaffiliated networks for processing transactions. For example, a Visa card could also route through an alternative network like NYCE or Pulse.
• Lowering Fees: Merchants could choose the cheapest or most efficient routing option, forcing Visa and Mastercard to lower their fees to remain competitive.
• Fostering Innovation: Competing networks would have incentives to improve their services, benefiting merchants and consumers alike.

The Bigger Picture

Visa and Mastercard have played an essential role in modernizing global commerce, replacing checks and cash with a fast, secure, and universal card-based system. However, their monopolistic practices in transaction routing and fee-setting are drawing increasing scrutiny.

Competition doesn’t threaten their infrastructure or reliability—it encourages fairness. Just as other industries have benefited from breaking monopolies (e.g., telecommunications or utilities), the credit card ecosystem can thrive with multiple network options, lower costs, and better services.

Visa and Mastercard deserve credit for building the foundation of today’s payment systems. But as gatekeepers of commerce, their responsibilities now extend beyond profits to ensuring a fair, competitive marketplace. The proposed changes could usher in a new era of innovation, benefiting merchants, banks, and cardholders alike.