Have a Claim?

Click here for a confidential contact or call:

1-212-350-2774

Antitrust Matters Episode 8: Antitrust Matters in Electronic Payments

Posted  October 20, 2022

Antitrust Matters provides engaging and timely conversations about competition policy in the digital age. Antitrust has always mattered to consumers and businesses, and to antitrust lawyers and economists, but today it also is in the political and public discourse more than ever. From the prices we pay for food, travel, financial services, payments to the way we interact daily using digital apps and platforms, antitrust touches each and every one of us in ways we may not even realize. Antitrust Matters brings you you perspectives of experts and visionaries in the field who discuss where antitrust law has been, where it is going and why it is so important to our current political discourse.

In this episode of Antitrust Matters, we are joined by Doug Kantor, General Counsel of the National Association of Convenience Stores and Ed Mierzwinski, Senior Director of the Federal Consumer Program, at PIRG to discuss competition issues in the payment card space and how they affect consumers.

SUBSCRIBE TO OUR PODCAST
Apple PodcastsSpotifyLibsyn

Episode Transcript and Show Notes:

Jeff Shinder:

Welcome to Antitrust Matters, a Constantine Cannon podcast where we have engaging and timely conversations about competition policy in the digital age. My name is Jeff Shinder, and I’ll be your host.

Antitrust has always mattered to consumers and businesses, but today, it is also in the public discourse more than ever, from how we get our food on our plates to how we travel, to the way we interact daily using digital apps and platforms. Antitrust touches each and every one of us in ways we may not even realize. In Antitrust Matters, we bring you perspectives of experts and visionaries in the field who discuss where antitrust law has been, where it is going, and why it matters today more than ever before.

Welcome back, everyone. We are here for a very special podcast. We’re here to discuss one of the industries that has probably if not the most antitrust attention over the last 40 50 years, and that’s the payments industry, and especially Visa and MasterCard, antitrust, public policy ranging from court decisions, landmark antitrust cases, legislation in Congress, attention from the Federal Reserve, FTC and DOJ. I cannot conceive of an industry that has seen more antitrust attention. There are a few that are close than the payments industry. We’re here to discuss the most recent chapter of that long-running saga which found itself in the halls of Congress recently where the Senate Judiciary Committee met to hold hearings to discuss recent increases in interchange rates by Visa and MasterCard that affect millions, if not tens of millions, of merchants across the United States and, of course, their consumers who ultimately absorb those increases in the form of higher prices or less robust services.

Today, we have the pleasure of having on the pod two of the witnesses who testified at that hearing who bring unique perspectives on this critically important issue. We’re joined by Doug Kantor, the General Council of the National Association of Convenience Stores, and Ed Mierzwinski, the Senior Director of the Federal Consumer Programs at U.S. PIRG. Let me say a word about their backgrounds before we actually get into the discussion. First, Doug Kantor. Before joining NACS, Doug served as a partner at Steptoe & Johnson. In that role, he worked with a range of clients, including of course, NACS, to address public policy issues ranging from fuels to financial services. He also established and administered coalitions of companies and trade associations that share common legislative and regulatory objectives. During his 10 years at Steptoe, Doug served as council to the Merchant Advisory Group, Society of Independent Gasoline Marketers of America, and the National Grocers Association, National Retail Federation, Merchants Payments Coalition, and Main Street Privacy Coalition, among others. So welcome, Doug, to the pod.

Let me just say a word about Ed. Ed has worked at U.S. PIRG since 1989. PIRG’s a member-based non-profits that take on powerful special interests on behalf of their members. Ed often lectures or testifies before Congress, state legislatures, and agencies on a wide range of consumer protection and competition issues, including the Fair Credit Reporting Act, and has been involved in all of significant FCRI policy amendments since 1989. HE’s published reports on numerous consumer issues, including the need for state consumer protection laws, credit card practices, and the Durbin Interchange Fee Amendment, big data’s impact on financial opportunity, the CFPB Public Consumer Complaint Database, internet privacy, identity theft, credit reporting mistakes, and product safety. Ed, thanks for being on the pod.

Let me just set the table and then you guys can start. The Senate Judiciary Committee spent time on the issue of Visa and MasterCard interchange recently. For our listeners, if you could explain what precipitated the Senate Judiciary Committee holding hearings on this issue.

Doug Kantor:

So from my perspective, there are actually a few things that came together to get the Senate Judiciary Committee to take notice. One is that there’s just been a huge, huge increase in the fees due to inflation, due to increases of issuance of more expensive cards, higher rewards cards, those sorts of things, that have hit in the last year. And just a few weeks prior to the hearing, Senator Durbin, who chairs the Judiciary Committee along with some of his colleagues, wrote to Visa and MasterCard about their planned rate increases in addition to the inflationary increases that everybody was already seeing and urged Visa and MasterCard to hold off given what was happening in the economy. Both companies refused, although if you can find in their letter where exactly they refused, you’re very good at reading purposely evasive text. But those things together, I think, led the Judiciary Committee to act, along with the fact that there are outstanding regulatory questions that have been ongoing with respect to this industry for a while. So I really think it was a confluence of lots of different events.

Jeff Shinder:

That’s helpful to set the stage. Let me turn to Ed for a minute here. Ed, you’ve spent a lot of time over the years, decades really, focusing on this issue which culminated in your appearance at the Senate Judiciary Committee to speak to how consumers are impacted by these increases. Can you explain what motivated you to focus on this issue among many others? Your bio indicates a wide range of consumer issues that you’ve focused on over the years. What about this issue has galvanized your attention? And in this moment in time, can you speak to the consumer impact of the most recent increases from Visa and MasterCard?

Ed Mierzwinski:

The unfair credit card practices have always been a large part of my portfolio. In fact, just before the Durbin Amendment was passed, Congress passed sweeping reforms of unfair credit card consumer practices, basically UDAP violations under the consumer part of my portfolio. But competition law has always been important to protect consumers as well, and we got involved in this one early on talking with Senator Durbin’s staff and other members of the Congress who asked us to testify. We looked into it. By the way, the thing that really astonished me was, in the run up to the passage of the Durbin Amendment, I testified before Senator Durbin in his role as a subcommittee chair on the Appropriations Committee back, I think, also in 2010, when the Durbin Amendment passed. At that time, a GAO report had come out, and the GAO report’s main finding was not only can small merchants not negotiate, not only can large merchants not negotiate with the credit card networks, even the United States government has no power to negotiate. And that is something that is right in PIRG’s wheelhouse. We take on powerful, special interests. If you are a powerful special interest that can include the government as the people that you’re putting down and forcing to take unfair pricing, that just did it for me. And so, I’ve been all in ever since.

Jeff Shinder:

Thanks, Ed. You used the term Durbin Amendment. I’ll throw this to you or to Doug. Just for our listeners, what is the Durbin Amendment? And whoever’s going to speak to this, can you speak to Senator Durbin’s interest in this issue, which was on display during the hearings?

Doug Kantor:

Sure. I’m happy to start and Ed can fill in. But the Durbin Amendment was literally an amendment voted on the Senate floor when the Dodd-Frank Financial Reform Bill was considered in the Senate in 2010. And it may be difficult, some of your listeners may not have the full context, but we were in the midst of the financial crisis at that time. Congress knew that there were major reforms that needed to be made to ensure that we didn’t go through another one again. That bill included things like creating the Consumer Financial Protection Bureau. But when it was on the floor, Senator Durbin decided it was time to at least begin to reform the payment system. He started with debit cards on the idea that debit cards are just an electronic version of a paper check. And for 100 years, the Federal Reserve had had this policy that there weren’t, what they called, their exchange fees but a central fee that reduced the amount of the check when it was used in a transaction. Those were illegal according to the Fed. He looked at debit cards and said, “Gee, it’s the same thing functionally, only it’s cheaper than flying a paper check around to the correct Federal Reserve Bank around the country to get that transaction cleared. It ought to be cheaper.”

But because of the lack of competition, the market was more expensive. He proposed that the Federal Reserve have the power to regulate the rates charged on debit cards, at least for those banks with more than $10 billion in assets and that there be some competition among the networks like Visa and MasterCard and the other networks that handle the communication of transaction information across the financial industry so that their fees would have to be somewhat competitive. Those were the major pieces of what was in it. I think it stunned a lot of people that it passed and became part of the bill and part of the law when it was enacted, because the banking industry doesn’t lose too many things that they lobby for in Washington, but this is when they lost and by a large margin.

Jeff Shinder:

So Ed, when we were talking before we started to record today, you mentioned Senator Durbin’s history with this issue and comments he made at the hearing to that effect. You’ve had occasion including what happened recently with the hearing to have talked to him about this issue. Can you, to the extent you’re comfortable, speak to those experiences and your perspective on how Senator Durbin has become a champion for reform and the need to change the American payment system?

Ed Mierzwinski:

Well, I think my perspective has always been that Senator Durbin, Dick Durbin from Illinois, he is the Senate Majority Whip and Chair of the Senate Judiciary Committee right now, has long been a consumer and small business champion. In particular, on the issue of the banks, we have always worked with Senator Durbin. Senator Durbin has always been a champion for underdogs, for small businesses and consumers, whether it’s fighting the banks on student loan, bankruptcy issues, whether it is fighting for the Durbin Amendment to make one of our most anti-competitive markets, the credit and debit card market, fairer. He has always been with us, and I could go on and on with a list.

So I was not surprised to see that he learned about this problem and he immediately started to educate himself about it at the hearings that had been held in 2007, 2008, 2009 in the run up. It was just astonishing that he was able to win the amendment because, as he once said, “The banks own the place, Congress. It was righteous to beat the banks, but it was also because he worked very hard.

Jeff Shinder:

Okay, so let’s talk a bit about the increases that were on the table that are going into effect now that were discussed at the hearings. And Visa and MasterCard’s position, they testified, they sent senior executives. What is their defense? What is their justification for raising rates that were already among the highest in the world? We’ll come back to that a few minutes, the US rates relative to the rest of the world. But already high rates were not high enough, they had to go up even more. What is their justification, if one of you could summarize that?

Doug Kantor:

So their stated justification is that their cards provide a lot of value and that they don’t adjust fees that often. The problem with that is prices don’t happen across the US economy based on value. The fact that we’re having this conversation, frankly, from different parts of the United States, talking to each other simultaneously is a miracle of modern technology. Yet the court still broke up AT&T in the 1980s, and we still passed the Telecom Law in 1996 because it’s not enough for something that value, there has to be a competitive market where those prices come out. Those of us who remember the ’96 Telecom Law where they actually put in place competition, know that long distance rates of more than a dollar a minute suddenly became 10 cents and less a minute. That’s because that’s how people benefit, and frankly, companies that compete with each other benefit and get more innovative, get more efficient in their own operations, all of those things work out really well.

But Visa and MasterCard would rather just say, “Hey, these are great products, so don’t bother us and don’t look into it.” That’s just not a good rationale in the United States. And frankly, most of the world doesn’t buy it either because they’ve taken action to make sure their fees are less. So while their point is it’s valuable, we’ve never disputed that these cards do perform an important service, that’s why this is such a problem, but they really need to have competition in order to play that out and have fair pricing.

Ed Mierzwinski:

I would only add that if you were in the room at the Senate hearing and to see the senators trying to ask questions to drill down into this concept of value, they didn’t have an explanation, and it was pretty astonishing.

Jeff Shinder:

Yeah, if I make comments, full disclosure to our listeners, Constantine Cannon has represented merchants adverse to Visa and MasterCard for decades, including currently. I’m going to keep the polemic from me to a minimum. But as an antitrust lawyer, value-based pricing connotes market power. Only entities that have market power can have the capability to price without regard to costs. A competitive market that costs dictate pricing outcomes, and in an uncompetitive market, which this is, they do not provide value. They are admitting that they do not price the cost, that they can pick it out of thin air whatever their value is and set whatever price they deem fit. And this is an example and some of the struggles for them to justify their rates during the recent hearings typify that.

So let’s talk a bit about the politics of this. You guys were both before Senators from both parties who were asking questions. If you are comfortable speaking to, was there a typical schism across party lines in terms of how this issue was approached? Or is this a rare issue where bipartisan consensus could form? I’d like you both, if you’re comfortable speaking to that, whoever wants to go first.

Doug Kantor:

I’m happy to start. This issue does scramble the normal party lines. Both Democrats and Republicans supported the Durbin Amendment when it passed. Folks from both parties are very interested in what can or should we be doing on credit cards at this point. There’s a sense, especially now, and to a greater extent now perhaps than in the past, that consumers are not well served by this situation, especially given inflation, which I mentioned earlier, that these high costs are really a problem that clearly all of us end up paying for. There does seem to be bipartisan concern. The big hill to climb here is that there are folks who have lots and lots of resources and influence that don’t want change, right, because they benefit from the large fees.

Ed Mierzwinski:

Yeah, I think that’s totally right, and it’s very hard to move the bill through Congress. I’m of the belief that most industry lobbyists are paid not to pass bills but to kill them. It’s an easy way to make a lot of money on Kay Street, which is where all the lobbyists supposedly hang out, although a lot of them are now in flusher parts of Washington D. C. than Kay Street, which is a little bit down market. And a lot of public interest groups have moved in. But it’s easier to block legislation. That’s what most lobbyists are paid to do. So it’s going to be a big lift. But we can talk about it and talk about the way the consumers benefit from it and talk about the way the merchants are being treated unfairly. I think there is a moment to expand the Durbin Amendment and to restore some more competition to the broken payment system markets. Again, Senator Durbin teed up by holding a hearing because Visa and MasterCard said, “We’re going to raise our fees, you can’t do anything about it.”

Jeff Shinder:

Let’s step back for a minute. I want to start with Doug and then I want to go to Ed. We have a broken system. Congress is looking at it now. We’ve talked a bit about the Durbin Amendment. 12 years ago, Congress acted and there are lawsuits, and we’ll come back to some of the lawsuits on this issue as well, but let’s situate for our listeners, what is the underpinning of this problem that has persisted for decades? Why is this market so broken? We’ll start there, and then I’m going to turn to Ed and talk about how this really affects consumers. But Doug, if you could spend a minute explaining from your perspective, what’s the problem here?

Doug Kantor:

Yeah, the basic problem is actually pretty simple. Visa and MasterCard are just networks that connect banks on two sides of a transaction. They connect the bank that gives a consumer their card with the bank that does business with the merchant, or the merchant’s processor, they fill the same role. They’re just running data back and forth, but they’ve taken on a bunch of other roles. The other roles they’ve taken on is, one, setting the prices of the bank that gives the consumer their card and then setting a bunch of what they call rules that insulate the whole system from any actual price competition and often price transparency, and consumers don’t get pricing queues.

That’s the central problem, is there are these gigantic banks, we all know the names, Wells, JPMorgan Chase, Bank of America, Citi, you can go on and on, they are huge businesses, they should be able to stand on their own two feet like other businesses, like the corner convenience store that I represent, and set their own prices. It doesn’t seem like it would be that hard, but instead, they all let Visa and MasterCard do it for them, and they don’t then compete on their pricing. That’s the central problem that causes, as you noted up front, Jeff, this industry to have as much or more antitrust focus than any industry in the United States.

Jeff Shinder:

And just so our listeners understand, the price that you’re talking about is the interchange fee that was discussed at the hearings before Senator Durbin, was the subject with debit regulation, and that’s a fee that the merchant pays to the bank that distributes or issues the card to the card holder. Is that right, Doug?

Doug Kantor:

That is exactly right.

Jeff Shinder:

And so, Visa and MasterCard, they’re not setting the annual percentage rate, they’re not setting APRs or annual fees on credit cards to the card holder. It’s the fees to the merchants.

Doug Kantor:

That’s right. These big banks compete on every other aspect of their business, right? They compete for consumers on rates, fees, on checking accounts, savings accounts, credit and debit cards. It’s just when they turn to the merchants that suddenly they lock arms and say, “No, no, no, we’re not going to compete here. We’ve got other people to set the prices for us this time.”

Jeff Shinder:

And so, that sets up the problem, and now I want to turn to you, Ed, and ask a variant of why has this galvanized you so much, but I’ll ask it in a different way. How does this affect consumers?

Ed Mierzwinski:

Well, it’s a non-transparent, non-negotiable system. Non-transparent to both consumers and merchants partly because of the rules that are imposed on the merchants that Doug could talk about all day and all night, hundreds of pages of rules that lock the merchants in. The merchants cannot signal to consumers that, “Hey, do you want to use cash? Could you use a lower cost card?” Consumers don’t have any idea what’s going on behind the scenes of this system. And as I like to say, this simple explanation is all consumers pay more at the store and more at the pump because swipe fees imposed on merchants are passed through to consumers because their merchants are forced to bake the costs of bank fees into the prices that all consumers pay, including cash customers.

So cash customers, obviously the lowest income probably, consumers at any store because they don’t have a card to pay with, they’re subsidizing rewards, among other things, that mostly what the swipe fees pay for is rewards. And what are rewards designed to do? Rewards are designed to get card holders, to run up bigger balances and spend more money. Ideally, they don’t like transactors. A transactor is a person who uses a card and pays off their balance every month. The banks would prefer that all consumers run up balances and run up credit card interest. But the problem here again is very simple, it’s all consumers are affected, not just cardholders, and we all pay more at the store and more at the pump because of a broken system.

Doug Kantor:

The interesting thing I would just add to Ed’s point, just in the week of the hearing, this group called the Hispanic Leadership Fund put out a study. They found that because of the fees and rewards in the way Ed talked about, how the card networks set these pricing restraints, there’s a transfer of wealth from people who can’t get a card or maybe have a card but not a rewards card. People who make under $75,000 a year in the United States transfer three and a half billion dollars a year to people who make more than $75,000 a year. The majority of that is to people at even higher income brackets, those who make more than $150,000 a year. And that’s all completely invisible to these folks, and unwilling. It happens automatically through the way the credit card system is designed. And this is the third in a series of reports. The Boston Federal Reserve found this. There was another group, the Hispanic Institute, that studied this a decade ago. It’s a clear outcome of the way this system’s been set up by Visa and MasterCard, and it’s not something most of us would think makes sense.

Jeff Shinder:

What I’m hearing you both characterize is a fundamentally regressive system where the forces of competition, at least with respect to merchants, do not exist, do not operate. So that frames the problem. Can you compare the state of affairs in the United States to other major OECD jurisdictions that have looked at this issue? If one of you could speak to the US market versus Europe or Australia, some of the other major jurisdictions that have examined this question?

Ed Mierzwinski:

Well, I was just on the phone… actually on a Zoom call not the phone… with my international colleagues in Europe. We talked quite a bit about competition issues. The European consumer groups cannot figure out why their interchange rates on both credit and debit are less than or approximately one-tenth of the rates that we pay in America. Europe passed in around 2013, 2014, the IFR, the Interchange Fee Regulation that applies to all bank cards. They have a robust credit card marketplace in Europe, and the banks are only getting 10% of the interchange because of reasonable regulation. Australia, same thing. Canada is another place.

If you look at maps of the world prepared by government agencies, by the way, and other consultants, you’ll see that our rates are among the highest in the world. The countries that we are near are not OECD countries, which are industrialized, consumer-based economies. They are mostly surprising countries that we share the rates with. Doug, I don’t know if you have anything to add, naming some of those countries. I don’t have a printout of the list, but it’s astonishing to look at.

Doug Kantor:

Yeah, it’s remarkable that there are a number of countries around the world that have taken regulatory action of one form or another to deal with these fees, reduce them, or make them more competitive, and those countries all have much, much lower fees than we do. But there’s even countries that have done nothing, frankly, whose fees are much lower than they are in the United States. And it just goes to the incredible stranglehold that Visa and MasterCard have over the market here in the United States that they can dictate things that they even to a greater extent than they can elsewhere around the world, and we’ve been slow to react.

Jeff Shinder:

Let’s drill into that a little bit more deeply. So, the US rates, as you guys are describing it, are considerably higher than most comparable countries in terms of their economic structures. Why is that the case? I understood, Doug, you just said that Visa and MasterCard’s stranglehold on the market is greater here. Okay, what explains that, and are there deeper reasons than that that actually explain why this problem persists in a unique way in the United States, notwithstanding its regressive tenor that you guys very nicely described a few minutes ago? So Doug, you start, but also, Ed, I’d like you to comment as well.

Doug Kantor:

I think there’s a couple of things. I think one is Visa and MasterCard started here, and that gave them a head start in building that stranglehold on the market, which they have perfected in ways here that are pretty remarkable. But in addition to that, look, as I said, other nations have taken some actions to try to rein this in because they recognize the way these fees get imposed isn’t competitive and has some problems. The US does tend to be more libertarian on these types of regulatory issues a lot of the time, certainly more so than Europe. And that’s played out here and has meant that US regulators and the Congress I think have been slower to react and have more of a tendency to wait and see how the market plays out. What we’ve seen here is that that hesitation has huge consequences for the way the market develops. If you look at, for example, the difference between credit and debit cards, Visa and MasterCard were able to use a market power position in credit cards and bootstrap debit cards to it to get debit cards to really have a prominent position very quickly here. That’s really been to the disadvantage of merchants and consumers over time. And so, those delays do you have really big consequences.

Ed Mierzwinski:

Yeah, I would certainly say everything that Doug said I agree with, but I would also just say simply that the market power that you talked about, Jeff, earlier, market power translates in the United States into political power. And the banks, they got so out of control they wrecked our entire economy in 2007 and 2008. And still, it was very hard to get the Wall Street Reform Dodd-Frank Act over the finish line. Like I say, it was a lot of work. Even though the banks were down, they still had a lot of political capital, and their political capital has been built up over a number of years. They’re a very powerful special interest. Wall Street thought they were the masters of the universe until they destroyed the financial universe in the United States, but the banks still have a lot of power in this country. That’s really it. We’ve got to fight back, and that’s why I’m pleased that Senator Durbin has reopened political debate on this issue. It’s a perfect time to do it because, as you see, the banks are making money without doing anything because of inflation.

Jeff Shinder:

If I may just tack my own comment on top of what you both said, which I generally agree with, but especially picking up on, Ed, what you just said. I think it’s important when studying the United States market and what marks it is unique is a relationship between a small number of big banks and Visa and MasterCard. It’s important for our listeners to understand, Visa and MasterCard were owned and controlled by the banks from inception. They became public companies, MasterCard in 2006, Visa in 2008, largely to avoid antitrust issues inherent and competing banks owning and controlling them and setting rules that regulated how they competed. Those rules haven’t changed. The banks still basically run them. And it’s a small number of banks, Chase, Bank of America, Wells Fargo, Citibank, Capital One, U. S. Bank. And that differentiates the United States the power of those banks, power of them in Washington that plant their power to basically control Visa and MasterCard and keep the same old, same old going, and they’re addicted to interchange.

They’ve been addicted to interchange for decades. They like their interchange. They don’t have to do anything for it. So let me ask you guys the following. So reframe the problem from the birch into the consumer perspective, what do you think will solve it? What’s necessary at this point? So Congress is looking at this again. There are investigations happening. There are lawsuits happening. It takes a village. It’s going to take a village to slay this dragon or put differently a holistic strategy. What do you think is going to fix this problem? I’d like you both in whatever order you want to take on that question.

Doug Kantor:

Yeah, I think one way or another we need actual competition here, competitive pricing. That’s going to mean changing some of the rules and some of the ways Visa and MasterCard do business. As to how that comes about, I’m not sure there’s one silver bullet. Frankly, look, there’s very significant private litigation that’s been going on for quite a while. There are significant regulatory actions, both at the Federal Reserve and with investigations at both the Department of Justice and at the Federal Trade Commission. And then there’s legislative interest, as shown by this hearing, in having some reforms and perhaps looking more into what they can do.

The answer may have to be pieced together from all of those things. It may be that one of them really comes to the forefront and helps solve this issue more than the others, but there’s so many problems. And frankly, when you look at Visa and MasterCard’s practices, there’s layer upon layer of… I don’t know if there’s more things than belts and suspenders that you can put to make sure there’s no competition in this area. But somehow we’ve got to get through at least some number of those layers so that price queues happen, pricing competition happens, and we have a real market system here for the first time ever.

Ed Mierzwinski:

Yeah, I think that’s totally the right answer. I think it’s probably going to take a lot of different actions to go forward, but I’m encouraged by President Biden’s restoration of antitrust and competition as an issue that’s important to America. He has appointed people to run the Federal Trade Commission and run the Department of Justice and this antitrust division who are revitalizing the work that had been largely stymied for years as those regulatory agencies under both Republican and Democratic administrations in the past. But I’m excited about what’s happening on this issue and many other issues of competition going forward. I think it will take private and government administrative actions in the antitrust. And also, competition is now something that is talked about as something that this administration cares about. That’s important.

Jeff Shinder:

What is interesting in both of your answers is the absence of new technologies slaying the dragon. And if I may make a comment on that, as an antitrust observer, it is often technology is the greatest giant killer of all. But in this industry, you have things like Apple Pay or Google Pay and the notion of a digital wallet coming along. Tremendous companies in terms of their financial wherewithal. They can come into market with something new and interesting, and neither of them are competing against Visa and MasterCard. Instead, they’re essentially acting as so-called pass through wallets, which essentially passes through the same rules, the same fees, and just rides on the infrastructure of Visa and MasterCard, which is extraordinarily telling as to the durable nature of Visa and MasterCard’s market power.

And so, we see all of these changes, the IPOs, which I said before, were supposed to be about avoiding antitrust liability, but no one’s fooled. They were just an act of trickery to keep the same cartels and structure in place. Chip-based cards have happened, that hasn’t changed anything. Rise of digital wallets. Nothing has dented the current system, and here we are back in front of Congress. Let me close with the following question that I want you both to speak to, which is, what’s next? What do you see? Where do we go from here? Hearings happened, what do you see the next big moment in this ongoing fight against Visa and MasterCard and their rules and rate structure?

Doug Kantor:

Look, I think the next big moment could actually come from any of those forums. They’re all at this interesting point. Whether it’s the Fed’s regulations, litigation, legislative, they’re all on the precipice of potential action that could be quite significant. I don’t precisely know what’s next. What I do think I know is that the current system is unsustainable. It is so bad and the problems are so clear that there has to be change. I think there will be several of those forums that will have very significant actions in the near future because the pressure is getting too obvious, the problems are too clear. Look, we didn’t talk about these numbers, but just with inflation and other things, the fees have gone up for some of our folks by 27% in the last year. That’s on top of them being so high that folks were screaming already. So something has to give, and we think it will soon. As to where is anybody’s guess.

Ed Mierzwinski:

Well, I think maybe the catalyst is going to be this outrageous inflation that’s going on in this country and the fact that if we haven’t made it clear yet that the credit card networks, Visa and MasterCard, control interchange and interchange is set on a percentage plus basis. So when gas prices double, and I know they haven’t doubled a lot of times, but they’ve doubled over the last few years, when gas prices double, Visa and MasterCard’s big banks get interchange fees that doubles, because it’s set on a percentage basis. And so, they’re contributing to inflation without making anything new, without creating any new tech, without doing any work. And that’s something that I think is going to be what changes here, because consumers are angry about inflation. And when they find out that they’re paying more at the store and more at the pump but the gas company isn’t getting the money and the merchant isn’t getting the money, the bank is getting the money. We just need to tell that story a little bit better because that’s, I think, a much easier story to tell than a lot of other stories in this broken market.

Jeff Shinder:

Okay. We will end on that note. That’s appropriate that we end with the consumer, because this is ultimately where the impact is most acutely felt even though, Doug, your constituency is dramatically harmed as well. Thank you both for a very interesting discussion. There’s a good chance as time evolves, as this issue continues to percolate that we will have you back. But for now, thank you both, and good day, everyone.

Doug Kantor & Ed Mierzwinski:

Thanks.

Jeff Shinder:

That’s all for our show today. If you like the podcast, make sure to subscribe to Antitrust Matters and leave us comments on how we were doing or on the topics you would like us to cover going forward. You can also follow us on Twitter, or follow the Constantine Cannon antitrust team on LinkedIn. Until next time, be well, and remember antitrust matters.