The Road to Innovation and Prosperity

COMMENTARY

When was the last time you bought film for a camera? Or drove to a store to rent a movie? How often do you look to flag down a cab rather than summon a ride using a phone app?

All these industries and many more have been disrupted by technological advances. To look at it from another angle, in 1975, a portable computer (IBM 5100) cost $8,975. That is more than $45,000 in today’s dollars. Did the computer you use today cost that much?

Technology has changed our lives in so many ways that it’s a little shocking to find a pervasive area of the economy where that hasn’t happened. But we don’t have to look far to find one that underlies almost every transaction we engage in — that is, the credit and debit cards we use to make most of our payments.

Surprisingly, payments haven’t changed very much over the years. We still use plastic cards that run over the same networks that have dominated the space for decades. 

Why is that? The lack of change, of course, is the real story.

Truth be told, new payments technologies are out there. Today, for example, most of us can take our phones out of our pockets and, in a few moments, send an electronic payment to a friend on the other side of the country using an app like Venmo. In many places around the world, everyday purchases are made much the same way.

Innovation in payments in the United States, however, has been throttled by two dominant firms — Visa and Mastercard. They’ve done that by organizing virtually all the banks and credit unions around the nation into two monolithic entities that price together, act together and jointly do everything they can to ensure that the way we pay for things doesn’t change and innovation cannot change the fundamentals of this market.

They do that for their own gain. It certainly doesn’t help the American consumer, and it doesn’t help American businesses, which are sagging under the weight of huge swipe fees that the credit card giants set.

Think about it. Running a digital payment is largely about computing power. The amount of that power in the nation has exploded, the price per unit has dropped like a rock (much like that portable computer price), yet the cost of payments has been going up. And that cost hasn’t gone up by a little. It has gone up by a lot. Visa and Mastercard credit card transactions cost U.S. businesses 80% more to accept in 2024 than they did in 2020. That outpaces inflation and the growth of virtually every other business cost.

That is what happens with monopolized markets. Once somebody has a dominant position, their interest prevents change and innovation so they can hold on and reap the benefits of the monopoly as long as possible. That is exactly how Visa and Mastercard have acted. The Department of Justice made that clear in its complaint against Visa relating to debit cards when it wrote that there had not been a single Visa investment in technological innovation in the last decade other than one designed to enhance its own stranglehold on the market.

The high fees and lack of innovation and competitiveness in our payments are problems that should not exist.

The truth is that technology could fix these problems if given a chance. Virtual currencies, for example, provide remarkably cheap and efficient ways to transmit payment information in person or from a distance — even around the world. 

To give virtual currencies and other technological innovations the space to make our entire economy and system of payments better and cheaper, however, we need to do a couple of things. First, we need to loosen the grip that the credit card giants have on the market. As long as they can use the collective market power of financial institutions across the nation as one giant cudgel to stop others from successfully entering the market (which they have since Discover debuted in the 1980s), we will still have a problem. We need to open payments to competitive market dynamics to give innovation room to find a home and thrive.

Second, we need to update our laws to provide regulations that allow new technological players into the space and give people enough confidence to use new payment technologies while knowing that they are protected and won’t be ripped off. Such regulation needs to ensure that the credit card companies, banks and credit unions that dominate payments today are not the only ones allowed to bring new products to market.

Thankfully, answers to both challenges are on the horizon. Legislation, including the Credit Card Competition Act, GENIUS Act and STABLE Act, would work together to open the current market to competition and lay the regulatory groundwork we need for the new market to take flight. 

We hope Congress sees the challenge we have and meets the moment. If it does, it will set up our economy for generations of prosperity by making virtually everything we buy more efficient and cheaper.

Shane Rodgers is chairman and CEO of PDX Advisors, LLC. PDX can be found here.

Doug Kantor is general counsel of the National Association of Convenience Stores. NACS can be found here.