Visa, MasterCard Scolded by Durbin on ‘Bad-for-Competition’ Fees

  • Illinois senator asked for information on networks’ fees
  • Visa says it has already abandoned plans to add new charge

Visa Inc. and MasterCard Inc., the world’s largest payments networks, are once again facing criticism from U.S. Senator Richard Durbin over bank-card fees.

Durbin, the Illinois Democrat whose amendment to the 2010 Dodd-Frank Act capped debit-card swipe fees, sent a letter Thursday to MasterCard Chief Executive Officer Ajay Banga asking for more information about charges the company levies on card issuers when purchases made with one of its brands are processed by a competing network.

“This raises troubling questions about the fee’s impact on network competition and the burdens the fee creates for small banks and credit unions, as well as merchants and consumers,” Durbin said in the letter to Purchase, New York-based MasterCard.

Retailers have long fumed about the cost of accepting credit cards -- about 2 percent of each transaction. Those swipe fees, also known as interchange, are set by Visa and MasterCard and most of the money ultimately goes to banks, which say they use it to fund security and technology upgrades and cardholders’ beloved rewards programs.

Visa also received a letter from Durbin this week over a different fee called a “delayed de-conversion assessment.” The proposed fee would have tacked on an extra 5 cents for every $100 spent on Visa cards if banks showed a “material decline” in volume, a drop in the number of cards issued or an intention to defect to another network, Durbin said.

The senator called Visa’s proposal “bad for competition, bad for small-bank and credit union issuers, and bad for merchants and consumers.” Visa had already decided it wouldn’t pursue the plan before receiving Durbin’s letter, the San Francisco-based company said in an e-mailed statement.

‘No Impact’

Banga, 56, was asked to respond to Durbin within 30 days, and MasterCard said it’s reviewing the matter.

“This has no impact on merchants’ choice on how they route a transaction,” Jim Issokson, a MasterCard spokesman, said in a statement. “It’s a program we’ve had in place with card issuers that helps ensure we provide our cardholders with the value and benefits of their MasterCard card, even when we don’t process the transaction."

Durbin, 71, the second-highest ranking Senate Democrat, has been an ally for retailers and small issuers and often calls for regulations that require card networks to be more transparent and boost competition in the payments industry. His 2010 amendment directed the Federal Reserve to cap debit-card swipe fees and required that merchants have at least two options for routing debit transactions.

Visa’s fee revenue climbed faster than its total purchase volume in its past five fiscal years, accelerating 53 percent as volume increased 34 percent, company filings show. MasterCard’s revenue from fees climbed 44 percent, compared with a 38 percent increase in payments volume.

Visa shares have climbed more than 600 percent since the firm’s 2008 initial public offering, while MasterCard’s have advanced more than 20-fold since it went public a decade ago.

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