The coronavirus pandemic dealt a significant blow to America's small-business community, but thanks to successful vaccination efforts driven by private-sector innovations, there are signs of light beyond this dark chapter in our history.
It’s important to recognize that without a secure, well-functioning card payment system, many more businesses likely would have gone under.
A recent op-ed in these pages, “
The small businesses that are now looking to move beyond the pandemic were saved by a combination of unprecedented government relief, community support for neighborhood businesses, and the maturity of the modern e-commerce sector.
Unfortunately, calls have grown for proposals that would harm e-commerce dynamism, including those that would severely hinder low-income Americans' ability to access credit markets.
On the heels of an unprecedented pandemic, as workers and businesses hope to get the economy booming again, it's more important than ever to strengthen the way that credit markets have benefit consumers and entrepreneurs everywhere.
Card networks are an integral part of our payment infrastructure, as they are required to facilitate transactions between merchants and bankcard issuers. Thanks to billions of dollars’ worth of innovation and investment by banks and card companies, many businesses were still able to serve their customers without interruption. Almost overnight, online commerce, which has doubled in the past year, became the preferred transaction method among small businesses and their customers.
For businesses such as restaurants or clothing stores, modern technology was a key driver of revenue during the early days of the pandemic. Restaurants and bars in many cities, for example, were prohibited from offering indoor dining and had to rely mainly on third-party food delivery and pickup orders. Unlike paying the tab during a sitdown dinner, payment over DoorDash or Uber Eats wouldn’t be possible without that unseen payment network. If these businesses refused to accept cards, they would have been locked out of the delivery-based economy.
According to an April 2020 survey by the Strawhecker Group, small- and medium-sized businesses that were open during the pandemic “have a 10% higher debit/credit card payment acceptance rate than those that are closed.” The movement towards ubiquitous acceptance of cards isn’t a result of government pressure, but rather a conscious decision by business owners and consumers that card acceptance is good for business.
If a business accepts cards as payment, they clearly recognize the benefits of doing so outweighs the cost associated with fees they pay. Naturally, the op-ed neglected to mention the total cost to merchants has declined by more than 20 basis points in the last decade, according to the Nilson Report.
The most off-base assertion is the comparison of American card companies to OPEC — the cartel of oil-producing countries that essentially set the sale price of oil.
If card companies were guilty of colluding to fix prices, the Federal Trade Commission would have acted long ago to protect merchants and consumers from this anticompetitive behavior. Yes, there is a case to be made that the U.S. credit card industry is dominated by major credit card issuers, such as American Express, Visa, Mastercard and Discover.
But a few big players isn’t indicative of market failure. After all, the creation, maintenance, and innovation of card networks is capital-intensive with a high barrier to entry — a barrier made all the higher by taxes, regulations and, ironically, government price caps on debit interchange. All of these artificial costs make it more difficult not only for current service providers but also startups to break into the market.
The presence of many big players in a market indicates that competition is still manifesting itself in varied ways. Different companies offer different benefits, whether it be annual charges, a diverse menu of rewards programs, or a range of interest rates. Additionally, this competitive market puts downward pressure on interchange rates. American Express for example, lowered their rates in 2018 and this year Visa and Mastercard both decided to keep merchant fees flat, as they did in 2020.
It’s unclear whether the trends brought upon by COVID-19 will stick around, but let’s hope that the acceptance of cards, which generate billions in rewards to consumers and billions in higher sales to merchants, will stay. Widespread card acceptance was key to keeping small businesses afloat during the pandemic and will be crucial to helping consumers and businesses get the economy booming again. Ubiquitous acceptance will continue to lead to expanded competition among card companies, which will no doubt result in better outcomes for merchants, consumers and innovators.
