Visa and Mastercard are more than just logos on your credit card; they’re the powerhouses behind a payment system that fuels trillions of dollars in transactions every year. But their dominance in the U.S. credit card market—where they control a staggering 83%—comes at a steep price. For merchants, consumers, and the economy at large, this duopoly has created a cycle of high fees, stifled competition, and mounting financial strain.

A recent Senate hearing titled “Breaking the Visa-Mastercard Duopoly: Bringing Competition and Lower Fees to the Credit Card System” pulled back the curtain on how these giants operate, revealing why their control over the industry deserves closer scrutiny—and reform.

Visa and Mastercard: Payment Architects, Not Lenders

It’s crucial to understand Visa and Mastercard’s role: they’re not banks or lenders. Instead, they provide the digital highways that connect merchants, banks, and consumers in a transaction. They profit handsomely by charging fees for access to their networks, including:

• Network Fees: Paid by banks and merchants for using Visa and Mastercard’s infrastructure.
• Interchange Fees: A percentage of every sale (typically 1%-3%) paid by merchants, much of which goes to banks, but with Visa and Mastercard dictating the terms.
• Licensing Fees: Paid by banks to issue cards branded with Visa or Mastercard.

While this setup delivers seamless and secure transactions, their near-monopoly status gives them immense pricing power, which merchants—and eventually consumers—pay for.

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The Costs of a Duopoly

The Senate hearing highlighted a range of issues tied to Visa and Mastercard’s market dominance:

1. Sky-High Fees that Hit Everyone

• In the U.S., interchange fees are among the highest globally, ranging from 1% to 3% per transaction. By contrast, European Union regulations cap these fees at just 0.3%.
• Merchants, especially small businesses, face a tough choice: absorb the fees and cut into their margins or pass them on to consumers via higher prices.

2. Small Businesses Shoulder the Burden

• For many small businesses, credit card fees are one of their largest operational expenses, rivaling even rent. Unlike large retailers, they lack the leverage to negotiate better terms.

3. Limited Choices for Merchants

• Visa and Mastercard’s dominance leaves merchants with few alternatives for processing transactions, forcing them to comply with high fees to stay competitive.

Ripple Effects on Consumers

The costs don’t stop with merchants. Here’s how Visa and Mastercard’s practices hit your wallet:

• Higher Prices: Merchants often pass interchange fees on to customers, meaning you pay more whether you’re using cash or credit.
• Mounting Debt: Rising prices push more consumers to rely on credit cards. In 2024, U.S. credit card debt hit $1 trillion, with the average household carrying $6,100 in balances—and paying over $1,300 annually in interest at an average APR of 21.47%.
• Innovation Stalled: With little competition to spur change, Visa and Mastercard face no pressure to lower fees or introduce consumer-friendly features.

A Path Toward Fairer Competition

The proposed Credit Card Competition Act could change the game. Here’s how:

• More Networks, Lower Fees: The legislation would require large banks to support at least two unaffiliated payment networks. This would allow merchants to choose lower-cost options, fostering competition and potentially reducing fees.
• Leveling the Playing Field: By breaking the stranglehold of Visa and Mastercard, smaller competitors could enter the market, spurring innovation and creating better deals for everyone.

Why Reform Matters to Everyone

• For Merchants: Lower fees mean small businesses can reinvest in growth, lower prices, or simply stay afloat.
• For Consumers: A competitive market could bring down fees, enhance rewards programs, and introduce innovative features that benefit cardholders.
• For the Economy: Thriving small businesses strengthen local economies, creating jobs and driving innovation.

Balancing Innovation and Accountability

Visa and Mastercard deserve credit for building a secure and efficient payment ecosystem that supports modern commerce. But their unchecked control over transaction fees has created a system where the costs outweigh the benefits for many stakeholders.

The Senate’s push for reform is a critical step toward restoring balance. By fostering competition, we can build a fairer payment system that rewards innovation, lowers costs, and ensures the benefits of a modern economy are shared more broadly.

As a consumer, you can advocate for change by staying informed, supporting legislation like the Credit Card Competition Act, and choosing financial products that align with your values. It’s time to break the duopoly and create a credit card ecosystem that truly works for everyone.