This is the third in a series of articles on the impact of the presidential election on financial services. Here’s where to read
The environment calls for the ability to quickly adjust to regulations or laws that do not fit easily into the standard blue/red political disposition on government policy that informs regulatory compliance strategies for other industries.
“I think the payment industry is going to have to steel itself for a challenging four years no matter who wins,” said Eric Grover, a principal at Intrepid Ventures.
The primary regulatory issue the payments industry will need to address is
There are at least two initiatives that the next presidential administration and Congress will consider or change that will govern how and how much payment companies can pay to process transactions. These moves have at least some bipartisan support, and both Harris and Trump have at times taken a hard stance on antitrust issues.
“Payment companies will need to make a more aggressive, affirmative public case for the value it delivers and for the freedom to price, to compete and to innovate in the market,” Grover said.
Changing interchange
Card networks set interchange fees, which are a percentage of the payment amount and an additional fixed fee. These fees aren’t static and are based based on the merchant, business category, region or whether a payment is in-store or online.
The card networks and merchants have battled in a series of legal cases over interchange that date back
The position of each potential president will depend on the fate of the legal battle, since a settlement or judge’s ruling could create downward pressure on interchange fees that informs any regulatory action, said Nick Economides, a professor at the New York University Stern School of Business.
In March, Visa, Mastercard and merchant plaintiffs reached a settlement to
But a judge this spring
Visa and Mastercard have expressed disappointment with the settlement’s rejection, though the card networks are hopeful of a settlement being reached before a trial.
“We already have an interchange bill that has been introduced more than once,” Economides said. “Whether that suit goes to trial or is settled will make a big difference on how that bill moves forward.”
In Congress, Sen. Richard Durbin, D-Ill., who wrote the addition regarding payments to the Dodd-Frank Act that followed the 2008 financial crisis, has proposed
When Durbin first floated the cap expansion in 2022, merchant groups ran an ad campaign targeting interchange fee adjustments that the card networks set at the time. Durbin contended the hikes in some interchange fees disproportionately affected lower-income consumers.
Durbin is also the co-sponsor, along with Sen. Roger Marshall, R-Kan., of the
The Credit Card Competition Act, which has been referred to the Senate’s Committee on Banking, Housing and Urban Affairs, has bipartisan support as Durbin and Marshall have leaned into the Trump-era trend toward conservative populism to recruit co-sponsors, including Sens. Josh Hawley, R-Mo., Jack Reed, D-R.I., Peter Welch, D-Vt., and J.D. Vance, R-Ohio, Trump’s running mate and Republican nominee for vice president.
The Federal Reserve Board of Governors has also proposed
Both the Biden and Trump administrations were relatively aggressive on antitrust issues, according to Doug Kantor, general counsel of the Merchant Payments Coalition, noting the regulatory pressure on Visa’s attempted acquisition of Plaid that spanned both administrations and resulted in the deal being scuttled in 2021. And President Joe Biden has pushed
“With the Democrats, there is a willingness to look hard at consolidation in payments,” Kantor said of the concentration of power in the payments industry.
Policymakers recognize the strong public opposition to anything that undermines the modern payments system, said Tom Rosenkoetter, executive director of the American Bankers Association’s Card Policy Council, noting the
How much of a political divide?
The politics of payment policy, including large corporations such as banks and card networks on one side and large merchant chains and e-commerce firms on the other, creates corporate pressure to both rein in payment fees and to give the payments industry more leeway to set processing costs.
The judge that rejected the interchange settlement was Margo Brodie, an Obama appointee, while the Biden administration has pushed against some payment and bank industry fees, referring to them as “junk fees.”
“It’s likely that a Harris administration would be interventionist,” Grover said. “The conventional wisdom holds that a Republican administration would be hostile to price controls and government intervention in and directing markets.”
To some degree, the first Trump term fit that mold, with Attorney General Jeff Sessions ending Operation Choke Point, and other Trump cabinet officers such as Mick Mulvaney and Kathy Kraninger pressuring the Consumer Financial Protection Bureau, Grover said, adding there are some noteworthy exceptions.
“I’m not sure the policies of a Trump administration toward interchange would be different from a Harris administration,” he said, adding Trump isn’t opposed on principle to the government intervening in markets, noting Vance and Hawley’s support for curbs on credit card fees.
As a
Harris has not provided details on these proposals, though merchant groups have deflected the price-gouging proposal to calls
The offices of Harris, Trump and Vance did not return requests for comment by deadline.
In addition to the presidential race, control of Congress is also up for grabs, which could create single-party control or, more likely, split government.
“All eyes are on the Senate,” said Peter Dugas, an executive director at Capco. “The president will set the policy tone, but at the end of the day any fee regulation will be based on the outcome of the Senate races.”
If Trump wins and the Democrats control the Senate, or both houses of Congress, it would limit any deregulation that would give the card brands more leeway to set payment fees, while a Harris administration and a Democratic Congress would make it likely that the credit card competition bill will move forward.
“That would be in line with a general ‘war on fees’ on the Democratic side, whether it be medical debt or predatory lending or overdraft fees,” Dugas said.
In the event of a split government, progress on the Credit Card Competition Act is likely to remain sluggish, Dugas said.
The financial stakes
Any squeeze on interchange fees could impact bank revenue, particularly pertaining to incentive marketing, loyalty or rewards.
Credit card interchange fees are a significant cost for retailers, averaging about 2% of purchase volume. Most of this 2% goes to the bank that issued the credit card used in the transaction, said Guanyu Zhou, a researcher at the Wharton School at the University of Pennsylvania.
“However, our research shows that interchange income isn’t the primary driver of profitability for credit card lenders,” Zhou said, adding that while interchange income has grown to about 7% of banks’ total credit card loans in 2024, a large portion is returned to consumers through rewards. The rewards expenses amount to about 5.5% of total loans, or much higher than collection and fraud-related costs.
The high interchange fees that banks collect help fund these consumer rewards, leaving a net interchange fee of roughly 1.5%. For context, net interest income (interest minus charge-offs and expenses), which is the largest profit component for credit card lenders, is about 10%, Zhou said.
“Therefore, any regulation that caps interchange fees likely won’t have a major impact on banks’ credit card lending profitability,” Zhou said.
“However, since rewards are largely funded by these fees, we might see issuers reduce reward programs for consumers in response,” he said. “It’s the networks like Visa and Mastercard, which rely heavily on interchange fees for their revenue, that would feel the most direct impact from such policies.”