How things have changed. Think payments. As Jimmy Soni notes in his excellent 2022 book The Founders (a history of PayPal), “In the late 1990s, only 10 percent of all online commerce was conducted digitally – the vast majority of transactions still ended with a buyer sending a check by mail.” Imagine that. While online transactions were supposed to take place online, even those who’d taken the plunge into this all new way of commerce were still reliant on the U.S. postal system.
It’s something to think about with the present top of mind. U.S. Senators Richard Durbin (D-IL) Roger Marshall (R-KS) introduced the Credit Card Competition Act of 2022 “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.” Up front, it will be said at first, second, or third glance that it’s hard to countenance legislation that would empower the Federal Reserve to pursue a non-market outcome inside an industry (credit cards) that embodies markets. Please read on.
Figure that in the year 2021 alone, VisaV and MasterCard (the credit card giants that have drawn the ire of Durbin and Marshall) financed over $3.49 trillion worth of transactions. The previous number unearths some obvious conclusions. For one, imagine the plight of businesses large and small the world over without Visa and MasterCard. As $3.49 trillion ideally indicates, cards associated with the sector’s two behemoths are accepted around the world. Where would consumers and businesses be without them?
From there, $3.49 trillion tells us something bigger about the superfluity of legislation meant to inject more competition into the credit card space. It’s not needed. Think about it. If there’s that much commerce taking place with Visa and MasterCard as the financial middle man, we needn’t worry about a lack of competition. Profits are a lure for the latter, or as AmazonAMZN founder Jeff Bezos once put it, “your margin is my opportunity.” In the real world of commerce, profits always and everywhere attract competition for same. Amazon looms large here.
While most Amazon shoppers transact with credit cards (think American ExpressAXP, Visa, MasterCard) stored on the site, there is always the exisence of what I refer to in The End of Work as “venture buyers” rushing an all-new future into the present. In this case, more and more Amazon customers (the guess here is that they’re young) are transacting without traditional credit-card companies as the financier.
Venmo allows for direct payment via debit from one’s bank account, and it’s important to stress that Venmo is one of many that in a sense leaves out the credit card middleman. Younger readers of this piece likely have committed to memory more payment services than they have fingers.
After which, cryptocurrency exchange rears its futuristic head. Talk about an exchange concept that aims to compete away margins! Though some readers perhaps see crypto and private money forms as a market response to unstable fiat currencies, they also foretell a future of costless transactions.
Please think about Venmo, Zelle, and the myriad private money concepts with $3.49 trillion top of mind. Amazon plainly has. Precisely because it can lay claim to the world’s greatest virtual shopping experience, it’s actively looking for ways to enable those who are in search of “everything” to transact in every way they want to transact.
All of which will ideally get Senators Durbin and Marshall thinking. While there are opposing viewpoints about their legislation (the view here is that government legislation always and everywhere worsens the problem it was meant to solve), hopefully there’s not too much disagreement that the legislation as currently written is arguably lawmaking in search of a problem.
Indeed, it cannot be stressed enough that the gargantuan amount of transactions that Visa and MasterCard finance speak to a market that is enormously well-served, but that by virtue of its size will have no shortage of entrants eager to win a piece of a transaction pie that will logically only grow. And if the latter is true, we can then point to Amazon as a market symbol solving a problem not born of a lack of competition, but instead as a size entrant that will give credit card companies enjoying theoretically fat margins a run for their money.
While most online transactions were once again completed via U.S. mail when the 21st century began, that’s no longer true in 2023. See Visa and MasterCard yet again. Looking ahead, commerce in the dynamic U.S. is many things, none of them stationary. As evidenced by the evolutionary nature of transactions on Amazon alone, 2030 will be another country relative to 2023 in terms of how we buy things.
In other words, no legislation is needed on the matter of credit cards and competition. Profits create the latter, and they’re doing so as you’re reading this piece.
