How the Credit Card Competition Act of 2023 Could Affect Consumers, Merchants, and Banks
link to page 1 
December 13, 2023
How the Credit Card Competition Act of 2023 Could Affect
Consumers, Merchants, and Banks
When a consumer makes a payment with a credit card, a
agreements. (Discover and American Express each own
small portion of the transaction is used to compensate the
both a network and a bank and issue their own cards, so a
merchant’s bank, the payment processors, the payment
number of topics discussed below do not apply to them.
network, and the consumer’s bank—each of which play a
The rest of this In Focus concentrates on Visa and
role in facilitating the transaction. (More on transaction
MasterCard.)
fees, or “swipe fees” can be found at CRS In Focus
IF11893, Merchant Discount, Interchange, and Other
Credit Card Processing
Transaction Fees in the Retail Electronic Payment System,
Although a retail purchase appears instantaneous, there are
by Andrew P. Scott.)
a number of discrete steps involved in processing a single
transaction that take place over the course of a few days.
Credit card fees have been a long-standing subject of
(See Figure 1.)
debate, including in the 118th Congress. Merchants argue
that card network operators use market power to charge
Figure 1. The Credit Card Payment Process
higher-than-competitive fees. The industry argues that
participants are in tight competition and fees closely reflect
the costs of providing fast, reliable, and secure transactions.
Proposed legislation—including the Credit Card
Competition Act of 2023 (S. 1838/H.R. 3881 or CCCA)—
is aimed at lowering the fees. This In Focus explains how
credit card transactions are processed, examines
competition in the industry, and analyzes the proposed
changes in the CCCA.
Retail Payments Infrastructure
The basic structure of a card payment involves a customer,
the customer’s bank (called the issuing bank), a card
network, the merchant, the merchant’s bank (called the
acquiring bank) and payment processors that facilitate the
flow of transaction data. Before a transaction occurs, these
parties make several decisions about how payments will be
accepted. For example, when a merchant starts a business, it
needs to decide how to accept payments. Most merchants
want to accept electronic payment cards (as opposed to just
cash) due to their popularity among consumers. Further,
merchants generally choose to accept cards that can be run
on at least one of the most popular networks, such as Visa,
MasterCard, Discover, or American Express. (There are
also a number of smaller networks.) In order to accept
certain cards, it needs to procure the hardware (e.g., a card
reader), software (e.g., payment app), and services
necessary to use a certain payment network. Accepting
payments for multiple networks is also an option, but these
Source: Skift Research, “The State of Hotel Payments 2021,”
services cost money and so there is a trade-off between the
September 2021, https://research.skift.com/report/the-state-of-hotel-
costs and benefits of accepting payments over more than
payments-2021/.
one or two card networks.
First, the cardholder provides his or her credit card
Before a consumer can use a card, a bank or credit union
information to the business. For in-person transactions, this
has to issue one to him or her. The financial institutions that
issue credit cards belong to credit card networks. A bank
means swiping, inserting, or tapping the card. Then, the
business’s point of sale system or payment gateway (the
that is a member of the Visa network would issue a Visa
online payment portal) captures the transaction details and
card, for example. Issuers can belong to multiple card
networks, however, and they would issue cards specific to a
securely transmits this information to the credit card
processor, which forwards the transaction data to the
particular network in accordance with their membership
https://crsreports.congress.gov
How the Credit Card Competition Act of 2023 Could Affect Consumers, Merchants, and Banks
acquiring bank and on to the appropriate card network,
Section 2 of the CCCA would prohibit banks and card
which then routes the authorization request to the issuing
networks from restricting the network over which a
bank. The issuing bank verifies the cardholder’s account,
transaction is processed. This means that card networks
checking for sufficient funds and any potential fraud or
could not require banks to issue cards that would run only
security issues.
on their networks. Merchants are generally proponents of
this type of regulation, as they would benefit from paying
If the transaction is approved, the business completes the
lower transaction fees. Networks and generally most banks
sale and provides the goods or services to the customer. The
(although the provision would apply only to the largest
processor also forwards the transaction details to the
banks) are opposed to measures that might lower those fees.
respective card networks. The card networks coordinate
with the issuing bank to transfer the funds to the acquiring
Potential Issues for Consideration
bank, which receives the funds in the merchant account.
One issue is that the ultimate impact of routing restriction
The acquiring bank then transfers the funds into the
prohibitions is not certain. For example, even if an issuing
business’s regular business bank account, minus any
bank ensures that cards can be routed over multiple
processing fees. This entire process usually takes one to
networks, merchants would still want to choose the most
three business days.
popular ones, and consumers would still want cards that are
accepted everywhere. So this does not necessarily
Who Chooses the Network?
incentivize merchants to switch networks. Further, it is
Merchants can choose which payment processor(s) they
unlikely a small business would be aware of a smaller
want to use for certain payments. In some cases, the
network, and even if it did offer payment on that network,
merchant can direct the processor to route different types of
the odds that a bank would issue a card enabled for that
payments over different networks. In more simplified cases,
exact network are relatively small.
the merchant may choose a service provider that makes
these decisions on behalf of the merchant. (For example,
Second, if it is impactful, it is unclear who would benefit.
the processor may work with only certain acquiring banks
Both opponents and proponents argue that this would affect
and card networks.) Ultimately, when a payment is made,
customers. Banks argue that rewards programs—a major
the processor will send information to the acquiring bank,
incentive for card issuers to attract consumers generally
which will route the transaction over the chosen network to
funded through interchange fees—may disappear if
communicate with the issuing bank.
interchange revenue falls. Issuing banks might lose fee
revenue, but a case could be made that by having more
Credit Card Network Competition
network options they could negotiate more favorable terms
There are four major credit card networks. Merchants want
for themselves. Retailers stand to benefit from lowers fees.
to accept the cards consumers have. Banks want to issue
However, they might face higher incidences of fraud if
cards that consumers want. Consumer want cards that
payment security is weakened. In addition, it is not clear
merchants accept. This circular demand structure creates a
whether retailers would pass interchange savings on to
market whereby the networks can gain market power and
consumers.
set higher prices, and merchants have limited options to
choose competing networks on the basis of price.
Third, to the extent that the major networks invest in
making their infrastructure secure in order to attract
Routing restrictions on transactions are a feature of
customers and profits, if cards are effectively required to be
contracts between the networks and banks that could
interoperable, networks may be less willing to invest as
potentially lead to higher prices by limiting competition in
much in secure payment technologies, as part of the benefit
the market. Payment cards possess the technological
would accrue to their competitors.
capacity to run on multiple networks. However, the
membership agreements for Visa and MasterCard generally
Fourth, there may be unintended consequences of this bill.
prevent card issuers from routing transactions over
For instance, there is nothing stopping the major retailers
competing networks. Further, the networks restrict
from creating a payment network that cuts out the major
merchants’ ability to process cards over competing
payment networks and lowers interchange costs. However,
networks.
this would tighten links between commerce and banking
and potentially lead to conflicts of interest.
Competitive Routing Requirements
Policymakers can influence transaction fees by (1) directly
Finally, while the banking agencies have enforcement
imposing a fee structure such as a cap—the approach taken
authority for interchange regulation, there is not a clear
in the Durbin Amendment (15 U.S.C. §1693o-2) with
mechanism for the regulators to ensure that banks are
respect to debit card interchange fees—or (2) indirectly
making these networks available to merchants.
influencing the market through incentivizing competition.
The Durbin Amendment also contains a competition
Andrew P. Scott, Analyst in Financial Economics
feature, but its caps are considered more impactful. (See
CRS Report R41913, Regulation of Debit Interchange
IF12548
Fees, by Darryl E. Getter for more details.) Encouraging
competition is the approach taken by the CCCA to
influence swipe fees.
https://crsreports.congress.gov
How the Credit Card Competition Act of 2023 Could Affect Consumers, Merchants, and Banks
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF12548 · VERSION 1 · NEW
December 13, 2023
How the Credit Card Competition Act of 2023 Could Affect
Consumers, Merchants, and Banks
When a consumer makes a payment with a credit card, a
agreements. (Discover and American Express each own
small portion of the transaction is used to compensate the
both a network and a bank and issue their own cards, so a
merchant’s bank, the payment processors, the payment
number of topics discussed below do not apply to them.
network, and the consumer’s bank—each of which play a
The rest of this In Focus concentrates on Visa and
role in facilitating the transaction. (More on transaction
MasterCard.)
fees, or “swipe fees” can be found at CRS In Focus
IF11893, Merchant Discount, Interchange, and Other
Credit Card Processing
Transaction Fees in the Retail Electronic Payment System,
Although a retail purchase appears instantaneous, there are
by Andrew P. Scott.)
a number of discrete steps involved in processing a single
transaction that take place over the course of a few days.
Credit card fees have been a long-standing subject of
(See Figure 1.)
debate, including in the 118th Congress. Merchants argue
that card network operators use market power to charge
Figure 1. The Credit Card Payment Process
higher-than-competitive fees. The industry argues that
participants are in tight competition and fees closely reflect
the costs of providing fast, reliable, and secure transactions.
Proposed legislation—including the Credit Card
Competition Act of 2023 (S. 1838/H.R. 3881 or CCCA)—
is aimed at lowering the fees. This In Focus explains how
credit card transactions are processed, examines
competition in the industry, and analyzes the proposed
changes in the CCCA.
Retail Payments Infrastructure
The basic structure of a card payment involves a customer,
the customer’s bank (called the issuing bank), a card
network, the merchant, the merchant’s bank (called the
acquiring bank) and payment processors that facilitate the
flow of transaction data. Before a transaction occurs, these
parties make several decisions about how payments will be
accepted. For example, when a merchant starts a business, it
needs to decide how to accept payments. Most merchants
want to accept electronic payment cards (as opposed to just
cash) due to their popularity among consumers. Further,
merchants generally choose to accept cards that can be run
on at least one of the most popular networks, such as Visa,
MasterCard, Discover, or American Express. (There are
also a number of smaller networks.) In order to accept
certain cards, it needs to procure the hardware (e.g., a card
reader), software (e.g., payment app), and services
necessary to use a certain payment network. Accepting
payments for multiple networks is also an option, but these
Source: Skift Research, “The State of Hotel Payments 2021,”
services cost money and so there is a trade-off between the
September 2021, https://research.skift.com/report/the-state-of-hotel-
costs and benefits of accepting payments over more than
payments-2021/.
one or two card networks.
First, the cardholder provides his or her credit card
Before a consumer can use a card, a bank or credit union
information to the business. For in-person transactions, this
has to issue one to him or her. The financial institutions that
issue credit cards belong to credit card networks. A bank
means swiping, inserting, or tapping the card. Then, the
business’s point of sale system or payment gateway (the
that is a member of the Visa network would issue a Visa
online payment portal) captures the transaction details and
card, for example. Issuers can belong to multiple card
networks, however, and they would issue cards specific to a
securely transmits this information to the credit card
processor, which forwards the transaction data to the
particular network in accordance with their membership
https://crsreports.congress.gov
How the Credit Card Competition Act of 2023 Could Affect Consumers, Merchants, and Banks
acquiring bank and on to the appropriate card network,
Section 2 of the CCCA would prohibit banks and card
which then routes the authorization request to the issuing
networks from restricting the network over which a
bank. The issuing bank verifies the cardholder’s account,
transaction is processed. This means that card networks
checking for sufficient funds and any potential fraud or
could not require banks to issue cards that would run only
security issues.
on their networks. Merchants are generally proponents of
this type of regulation, as they would benefit from paying
If the transaction is approved, the business completes the
lower transaction fees. Networks and generally most banks
sale and provides the goods or services to the customer. The
(although the provision would apply only to the largest
processor also forwards the transaction details to the
banks) are opposed to measures that might lower those fees.
respective card networks. The card networks coordinate
with the issuing bank to transfer the funds to the acquiring
Potential Issues for Consideration
bank, which receives the funds in the merchant account.
One issue is that the ultimate impact of routing restriction
The acquiring bank then transfers the funds into the
prohibitions is not certain. For example, even if an issuing
business’s regular business bank account, minus any
bank ensures that cards can be routed over multiple
processing fees. This entire process usually takes one to
networks, merchants would still want to choose the most
three business days.
popular ones, and consumers would still want cards that are
accepted everywhere. So this does not necessarily
Who Chooses the Network?
incentivize merchants to switch networks. Further, it is
Merchants can choose which payment processor(s) they
unlikely a small business would be aware of a smaller
want to use for certain payments. In some cases, the
network, and even if it did offer payment on that network,
merchant can direct the processor to route different types of
the odds that a bank would issue a card enabled for that
payments over different networks. In more simplified cases,
exact network are relatively small.
the merchant may choose a service provider that makes
these decisions on behalf of the merchant. (For example,
Second, if it is impactful, it is unclear who would benefit.
the processor may work with only certain acquiring banks
Both opponents and proponents argue that this would affect
and card networks.) Ultimately, when a payment is made,
customers. Banks argue that rewards programs—a major
the processor will send information to the acquiring bank,
incentive for card issuers to attract consumers generally
which will route the transaction over the chosen network to
funded through interchange fees—may disappear if
communicate with the issuing bank.
interchange revenue falls. Issuing banks might lose fee
revenue, but a case could be made that by having more
Credit Card Network Competition
network options they could negotiate more favorable terms
There are four major credit card networks. Merchants want
for themselves. Retailers stand to benefit from lowers fees.
to accept the cards consumers have. Banks want to issue
However, they might face higher incidences of fraud if
cards that consumers want. Consumer want cards that
payment security is weakened. In addition, it is not clear
merchants accept. This circular demand structure creates a
whether retailers would pass interchange savings on to
market whereby the networks can gain market power and
consumers.
set higher prices, and merchants have limited options to
choose competing networks on the basis of price.
Third, to the extent that the major networks invest in
making their infrastructure secure in order to attract
Routing restrictions on transactions are a feature of
customers and profits, if cards are effectively required to be
contracts between the networks and banks that could
interoperable, networks may be less willing to invest as
potentially lead to higher prices by limiting competition in
much in secure payment technologies, as part of the benefit
the market. Payment cards possess the technological
would accrue to their competitors.
capacity to run on multiple networks. However, the
membership agreements for Visa and MasterCard generally
Fourth, there may be unintended consequences of this bill.
prevent card issuers from routing transactions over
For instance, there is nothing stopping the major retailers
competing networks. Further, the networks restrict
from creating a payment network that cuts out the major
merchants’ ability to process cards over competing
payment networks and lowers interchange costs. However,
networks.
this would tighten links between commerce and banking
and potentially lead to conflicts of interest.
Competitive Routing Requirements
Policymakers can influence transaction fees by (1) directly
Finally, while the banking agencies have enforcement
imposing a fee structure such as a cap—the approach taken
authority for interchange regulation, there is not a clear
in the Durbin Amendment (15 U.S.C. §1693o-2) with
mechanism for the regulators to ensure that banks are
respect to debit card interchange fees—or (2) indirectly
making these networks available to merchants.
influencing the market through incentivizing competition.
The Durbin Amendment also contains a competition
Andrew P. Scott, Analyst in Financial Economics
feature, but its caps are considered more impactful. (See
CRS Report R41913, Regulation of Debit Interchange
IF12548
Fees, by Darryl E. Getter for more details.) Encouraging
competition is the approach taken by the CCCA to
influence swipe fees.
https://crsreports.congress.gov
How the Credit Card Competition Act of 2023 Could Affect Consumers, Merchants, and Banks
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF12548 · VERSION 1 · NEW