The Credit Card Contest Demonstration of 2022.

The Credit Card Contest Demonstration of 2022 Meets Its Greatest Adversary: Market Rivalry

How things have changed. Think about 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.

The Credit Card Contest Demonstration of 2022.

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, Visa V +0.3% 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 middlemen, we needn’t worry about a lack of competition. Profits are a lure for the latter, or as AmazonAMZN 0.0% founder Jeff Bezos once put it, “your margin is my opportunity.” In the real world of commerce, profits always and everywhere attract competition for the same. Amazon looms large here.