Introduction:
E-commerce giant eBay has announced that it will no longer accept American Express (AmEx) as a payment option due to the high processing costs associated with the credit card company. eBay claims that credit card transaction fees continue to rise without meaningful competition, despite advancements in technology and merchant investments in fraud capabilities and customer protections. This move by eBay highlights the need for greater competition among card networks to reduce transaction costs for merchants and customers.
High Credit Card-Processing Fees:
Credit card-processing fees are a significant operating cost for retailers, second only to labor. The National Retail Federation (NRF) estimates that swipe fees for credit card transactions can range from over 2 percent to as high as 4 percent for certain cards. These fees are a burden for retailers and can impact consumer prices, with the NRF stating that they contribute to an annual increase of over $1,000 for the average household. Higher prices lead to reduced retail sales as customers become hesitant to spend more.
eBay’s Decision and American Express’ Response:
eBay’s decision to drop American Express as a payment option is not aligned with its goal of increasing competition at the point of sale, according to AmEx. The credit card firm argues that the processing costs for AmEx are comparable to other networks used by eBay in the United States. Furthermore, AmEx highlights that eBay represents less than 0.2 percent of its total network volume, suggesting that the financial impact on the company will be minimal. AmEx expresses concerns that eBay’s decision limits customer payment choices and removes the security and rewards offered by the company.
The Need for Increased Competition:
Lawmakers have recognized the need for more competition within the credit card industry. The Credit Card Competition Act, introduced by bipartisan lawmakers in June 2023, aims to enhance competition and choice in a market dominated by the Visa-Mastercard duopoly. Visa and Mastercard hold 83 percent of general purpose credit cards in the United States. These networks have the power to impose high fees on merchants, totaling $93 billion in 2022. The fees ultimately affect consumers, who bear the costs through higher prices for goods and services. The act proposes requiring big banks to allow customers to use at least two payment networks for credit card transactions, encouraging competition among the networks.
Industry Opposition and Concerns:
While the Credit Card Competition Act seeks to promote competition, it faces opposition from major credit card companies like Mastercard. The company argues that electronic payments empower customers by providing access to credit, protection against fraud, rewards, and zero liability for faulty purchases. Mastercard claims that the act would undermine these benefits and hinder competition in the credit card industry. Additionally, banking groups oppose proposed actions against late fees in the industry, arguing that regulations could reduce competition and increase the cost of credit.
Conclusion:
eBay’s decision to no longer accept American Express highlights the ongoing issue of high credit card-processing fees faced by retailers. The need for increased competition in the credit card industry is evident, with the Credit Card Competition Act aiming to address this concern. However, opposition from major credit card companies and banking groups suggests that finding a balance between promoting competition and protecting consumer benefits remains a challenge. As retailers and consumers continue to grapple with high transaction costs, regulatory actions and industry changes will play a crucial role in shaping the future of credit card payments.
