The National Retail Federation is welcoming the open banking regulations issued this week by the Consumer Financial Protection Bureau, saying the new rules could lead to an alternative to credit card “swipe” fees that cost merchants and customers billions of dollars each year.
“Retailers need to pay close attention to developments with open banking and the potential it offers as an alternative to the costly way payments are currently processed,” NRF Chief Administrative Officer and General Counsel Stephanie Martz said.
“Retailers pay the card industry tens of billions of dollars to process credit and debit card transactions, driving up prices for American families on every purchase. Open banking could cut out these middlemen and create competition that would benefit small businesses and consumers alike. These new rules are an important step toward making that happen.”
The CFPB on Tuesday issued the final version of its Personal Financial Data Rights Rule. Under the measure, banks would be required to share data on bank accounts, credit cards, prepaid cards, mobile wallets, payment apps and other financial products, and would be prohibited from charging to do so.
The regulations are aimed primarily at making it easier for consumers to change banks. But CFPB Director Rohit Chopra said they will also help “accelerate the shift” to open banking, which includes “pay by bank” services where money can be moved directly from a consumer’s bank account to a merchant’s bank account without the need to go through a credit card network like Visa or Mastercard. Consumers could also use innovative “fintech” providers that offer new forms of payment services.
Visa and Mastercard currently control over 80% of transactions, and each centrally sets the “swipe” fees of 2-4% charged by all banks that issue credit cards under their brands rather than the banks competing to offer lower rates. Each also restricts the processing of transactions to its own network even though there are other networks that could do the job for less and with better security.
Credit and debit card swipe fees totaled a record $170 billion last year, according to the Nilson Report, and are most merchants’ highest operating cost after labor. They are too much to absorb and drive up prices by over $1,100 a year for the average family.
The CFPB announcement comes as Congress is considering the Credit Card Competition Act. The bill would require banks with at least $100 billion in assets to enable credit cards to be processed over at least one unaffiliated network like NYCE, Star or Shazam in addition to Visa or Mastercard. Doing so would create competition over fees, security and service expected to save merchants and their customers over $16 billion a year.
