Chairman of the House Financial Services Committee Jeb Hensarling (R-TX) is expected to officially introduce the so-called “Financial CHOICE Act” this week, undoing one of most important legislative victories independent grocers have had in the payments space in recent years. The bill includes a repeal provision for the Durbin Amendment, which lowered debit swipe fees, and saved businesses and consumers alike billions of dollars per year since it was enacted. Ending these reforms would be drastic for independent grocers.
The swipe fee reforms brought fairness and competition to a market that was witnessing a rising duopoly by two major companies, Visa and MasterCard, prior to the introduction of the bill. As a result, card brands are now forced to compete with other networks for business. This competition helps control these previously out-of-control fees.
The Durbin Amendment prevented the two financial institutions from signing exclusivity agreements with the largest U.S. banks to only issue their branded debit card and route transactions through their networks. Previously, these exclusivity agreements had led to the elimination of a significant portion of the debit routing networks that had been competing with Visa and MasterCard, which prevented retailers from choosing how their debit transactions were routed.
By preventing two companies from dominating to the debit marketplace, Congress paved the way for free-market to do what it’s supposed to: allow businesses to compete and innovate. In fact, because of the increased competition, routing networks have increasingly competed on security benefits, leading to networks utilizing end-to-end encryption which benefits all members of the payments chain.
The Durbin Amendment also helped lower the cost of some debit swipe fees to a more reasonable level for retailers by capping the amount that can be charged by the biggest banks. While independent grocers operate on a one percent profit margin, Big Banks are pressuring Congress to repeal debit swipe fee reforms while they continue to rake in an average 25 percent profit margin. It’s no surprise why they want to continue price-gouging retailers – financial institutions earn a staggering $79 billion each year.
Due to the fierce competition in the supermarket industry, grocers are forced passed on the savings they achieved through lower interchange rates to consumers. If swipe fee reforms are repealed, the extra money earned by banks will go directly into their coffers, while businesses and consumers are further encumbered by high fees.
It’s crucial that independent grocers share the stories about how increased swipe fees and reduced debit routing competition would affect their day-to-day operations. To urge your representatives to preserve the Durbin Amendment, click HERE.