Sen. Roger Marshall (R-KS) writes that Visa and MasterCard “have gotten hoggish on the backs of hardworking Americans” thanks to swipe fees. Marshall is a free thinker in good standing, which is why his stance on Visa and MasterCard is so surprising. Not only is Marshall bothered by their $25 billion in combined annual profits, he wants to legislate away their prominence in the marketplace.
The happy news is that what Marshall wants doesn’t require legislation. Indeed, while no less than Jeff Bezos made plain through Amazon long ago that “your margin is my opportunity,” Bezos would surely agree that his brilliant quip was as old as commerce is. And it still applies.
The simple truth is that profits are what attract competition. Amazon looms large here. That it does speaks loudly to the problems that arise from members of the political class trying to legislate outcomes. Almost without fail, the legislation amounts to politicians looking deeply into the past. This is certainly true as Sen. Marshall aims to revive the Credit Card Competition Act.
As Amazon executives would surely attest, there’s increasingly a past-tense quality to credit cards as necessary facilitators of transactions. Thanks to Venmo, Zelle, and PayPal, among others, more and more transactions take place without credit cards altogether. And then as evidenced by growing excitement about cryptocurrencies and other forms of private money, it’s safe to say that we’re at the beginning of major change on the matter of transactions.
It's something to keep in mind with the swipe fees that concern Marshall and his legislation co-sponsor Sen. Richard Durbin (D-IL) well in mind. While the senators look askance at transaction fees in the 2 to 4% range, and seek legislation meant to compress those charges, actual market forces are already at work on the matter. They are because profits attract the very competition necessary to compete away the margins.
Which requires a pivot back to Visa and MasterCard. That they’ve achieved such market prominence on the way to $25 billion in combined annual profits is something we should cheer about, not disdain. Companies with billions in profits don’t grow on trees as much as they’re miracles. $25 billion in profits signals the discovery of a massive market, and successful servicing of same.
Applied to Visa and MasterCard, they can charge the swipe fees only insofar as individuals and businesses are willing to pay them. And they’re willing to pay them because the two credit card companies make it possible for individuals to walk into businesses around the world, pick out what they want, and walk out with what they want all with a swipe. Visa and MasterCard charge swipe fees because they’re financing our purchases anywhere, and at any time.
Just the same, think of what the above means for businesses the world over. Owing to the willingness of Visa and MasterCard to finance transactions between individuals and businesses they’ve never known (and never will know), the potential for business success grows by leaps and bounds. In other words, the $25 billion in profits is the happy seen, but the even happier unseen is all the businesses that have taken flight thanks to Visa and MasterCard financing transactions in hundreds of millions of businesses around the world.
The simple truth is that the Credit Card Competition Act is backward-looking legislation in search of a problem. Not only is commerce evolving in a way that will shrink card fees as is (the competition Marshall desires), the profits earned by Visa and MasterCard signal brilliant servicing of global economic activity that grows more vibrant by the day.