Technology/Services

Open Banking Regulation Could Mean Alternative to Swipe Fees

Changes from the CFPB might mean that consumers won’t have to go through credit card company to move money to merchants
Credit card swipe fees
Photograph: Shutterstock

Open banking regulations that the Consumer Financial Protection Bureau (CFPB) issued could lead to an alternative to credit card swipe fees, according to the National Retail Federation (NRF). 

The new regulations include the final version of the CFPB's Financial Data Rights Rule, first proposed in October 2023. The rule would make it easier for consumers to switch between financial services providers, and banks would be required to share data on bank accounts, credit cards, prepaid cards, mobile wallets, payment apps and other financial products, and would be prohibited from charging to do so, according to NRF. 

However, in addition to these changes, it will also allow money to be moved directly from a consumer’s bank account to a merchant’s bank account without needing to go through a credit card company like Visa or Mastercard, according to CFPB Director Rohit Chopra.

“Retailers need to pay close attention to developments with open banking and the potential it offers as an alternative to the costly way payments are currently processed,” said Stephanie Martz, chief administrative officer and general counsel at NRF.  “Retailers pay the card industry tens of billions of dollars to process credit and debit card transactions, driving up prices for American families on every purchase. Open banking could cut out these middlemen and create competition that would benefit small businesses and consumers alike. These new rules are an important step toward making that happen.”

The CFPB announcement comes as Congress is considering the Credit Card Competition Act (CCCA). The bill would require banks with at least $100 billion in assets to enable credit cards to be processed over at least one unaffiliated network in addition to Visa or Mastercard. Doing so would create competition over fees, security and service expected to save merchants and their customers more than $16 billion a year, according to NRF.

Credit and debit card swipe fees have more than doubled over the past decade and soared to a record $172.05 billion in 2023, up from $160.7 billion in 2022, according to the Merchants Payments Coalition (MPC), citing a Nilson Report. They are most merchants’ highest operating cost after labor and are too much to absorb, driving up prices paid by the average family by more than $1,000 a year, said MPC.

Visa and Mastercard credit card swipe fees alone totaled $100.77 billion in 2023, rising from $93.2 billion the year before and topping the $100 billion mark for the first time.

Visa and Mastercard, which control 80% of the market, each centrally set the swipe fees charged by banks that issue cards under their brands, and also block transactions from being processed over other networks that could do the job with lower fees and better security. The CCCA would require banks with at least $100 billion in assets to enable cards they issue to be processed over at least two unaffiliated networks—Visa or Mastercard and a competitor such as NYCE, Star, Shazam or Discover.

Banks would choose which networks to enable but merchants would then decide which to use, resulting in competition over fees, security and service that is expected to save merchants and consumers more than $16 billion a year, said MPC. Rewards would not be affected, security would be improved, consumers would still use the same cards and community banks and all but one credit union would be exempt, it said.

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