Congress Strikes Again! | B2B Vault | Episode 174

Yo, what's up everybody? It's Justin live from B2B Vault, the payment technology podcast sponsored by Nationwide Payment Systems, hosted by this guy, the Don Shula of payment processing himself, Allen Kopelman. And we'll be providing you educational information about fintech, payment processing, small business, and the technology businesses are using in the world today. And in today's podcast, we'll be talking about the Credit Card Competition Act again, as Allen is, uh, you know, adamant, uh, and very passionate about this topic. Um, so yeah, man, get into it, brother.

Yeah, a lot of stuff's been coming at it about over the weekend, but how was your weekend?

Hot and rainy, something like that, something like that. Very short.

The humidity was very intense.

Yep. I don't know, I wasn't— I would stay inside.

I walked Rocky, I was soaked. It was, uh, Rocky was passed out after.

Yeah, and I wasn't outside much, buddy.

But there was, uh, a lot of activity going on, um, the last part, I would say Friday And then again over the weekend and this morning, there's a big act— there's a very active discussion going on on LinkedIn about this. And then I saw quite a few different articles coming out, and I figured, hey, let's jump into the, into the fray with this thing. We've tried to, you know, put out the information and talk about it before. What this Credit Card Competition Act, the problems with it is Durbin is trying to have like add more to what he already did with what he did the first time, Durbin Amendment in 2010. Uh, you know, all the promises were that businesses were going to lower prices because they're going to save all this money, and that never happened. Then he asked for this third network and there is no third network. We're 2010, we're in 2023, we're 12, 13 years down the road, and there is no other network. And in that time, Discover and American Express both basically partnered with Visa and MasterCard, and they're not— then, you know, they weren't looking to be the third network, you know.

Okay.

And, uh, You know, so that, you know, so that happened. And, you know, so here we are, and now he's trying to go at it again. But what's upsetting me is, is that there's tons of articles coming out showing how this is going to be harmful to consumers because banks make billions of dollars from interchange. We make no money from interchange as a processor.

Right.

We do not benefit from interchange whatsoever. In fact, we try to use interchange busting techniques as much as possible by making sure that businesses are assigned the correct SIC code so they can get the best rates possible. Like, you don't want to be a doctor and be set up as a retail store. You want to be— or let's say you're an insurance company, you want to have the insurance SIC code so that you're getting the best interchange fees. Since we don't benefit from it, why do we care? Same thing, like you're a non-for-profit, if you're set up retail, not under nonprofit, then you're not getting nonprofit interchange fees. So the, you know, and also, so you know, Durbin is not looking out for the— he's not looking out for the little, the banks. The banks, everybody, nobody likes the banks these days, you know, right? And the banks, if they lose money, like they— so what happened last time was we used to have rewards on your debit card. I mean, I don't know if you remember that.

Not really.

2010, you would use your debit card, you would get points and rewards. That all went away with Durbin.

For what?

When you made purchases, just like you do with credit.

I know, but give me an example. I don't—

like, you would get cash back from the bank.

Okay, I do remember, just like you get— I remember that.

Yeah, you would get cash back from your bank, you would earn points, and then you could get gift cards and stuff, just like you do with your credit card now, the same kind of benefits. Now, when they did this, when they did this in Australia and they capped the interchange fees Prices didn't go down in Australia, and then people's ability to get credit was severely impacted. So people, uh, let's say you had a $10,000, um, line of credit on your credit card, they probably— they've cut that down. And then they also started adding monthly fees on your bank account, monthly fees to your credit card. So you had to pay, you know, a monthly fee or an annual fee. I mean, they're predicting that if you got out of this, your annual fee on a credit card might be $300, $400, $500 to have a credit card.

That's insane.

Because the bank's not going to get any money from interchange. So where are they going to derive income from? You know, every time you see the federal government mess with private businesses, they can't just go, oh, we're not gonna— we'll Oh, so what? We're not going to make this billion dollars anymore, right?

Right.

So now we can't do that. It'd be the same thing if they said, okay, uh, Justin, you're a website designer. Oh, you can't charge people for hosting anymore because we have a new law. Everybody gets hosting for $5, so you can't charge people for hosting. And then all of a sudden you're gonna say, thank God.

No, I'm just saying, but I can't stand managing hosting.

No, no, but I'm just saying, let's say that was a business you know, a line item of— a line item.

Oh, it would suck.

I get it.

No, it was—

now all of a sudden you go, well, I was charging $50 for hosting, now I can only charge $5. Well, I need to make $45 up. Maybe I have 100 customers, that's $4,500 a month I'm going to lose. Well, you're going to add some kind of charge somewhere else, right? And that's what's going to happen with this. Consumers are going to get screwed over big time. And last time with Durban, the only— I wrote an article about this in the Green Sheet— the businesses, the big businesses who had large tickets, you know, like $100 tickets, like grocery stores, Target, Walmart, Amazon, and all that, they're saving tons of money because they're getting the point, a lot of 0.05 and 22 cents on the, on the Durban interchange.

Right.

And then the little stores, because their average ticket might be low, they're paying much higher rates because the 0.05 and $0.22 is a lot higher than— I think it was like around 1.2% and like $0.05 a transaction. There's a big difference. The $0.22 a transaction is choking the small businesses. You know, you have a smaller ticket, right? At 22 cents, you know, adds up. So, you know, especially in places where the average sale might be less than $15, they're getting killed.

Yeah.

You know, if the co— if the government wanted to help businesses, they would tell Visa and MasterCard they got to put back small ticket interchange. That would help businesses a lot. Especially small and medium-sized businesses, right? Okay, that would help them, and that would, you know, that would kind of alleviate things of what's going on. And the other thing, if they wanted to do something, they could put a cap on all these rewards cards, you know, these business cards and rewards cards. Instead of the rates that the interchange fees on those are pretty high, and the mid— you know, some of them start at like 2.2%, and then they go all the way up to 3.5%. Well, you know, you could cap those. There's a lot of interesting ways they could do things without putting the chokehold on the consumer, right?

Got it.

You could cut back on the amount of rewards people are getting, right?

Okay.

But not eliminate them completely. What do you think about that? I mean, I think there's a compromise.

Just got to— there's always a compromise, right?

But they're not looking at that. They're looking at an all-or-nothing scenario of, yeah, let's just choke out Visa and MasterCard, and then that's just going to choke out the banks because you can't take billions of dollars off the table. These banks are already teetering around, you know. We've seen a whole bunch of bank failures in the last year, right? You know, with Silicon Valley Bank, Cornerstone Bank, a few other banks. And then they're always writing about how these banks are unhealthy And then, you know, look at banks now. They're finally, you know, in the current situation, they need to keep money in the banks, which they weren't really doing because they weren't concerned about it. Now they became concerned about it. So all of a sudden, you know, interest rates are up on CDs, interest rates are up on money markets, right? But still, people are removing money out of the banking system and going to companies like Betterment and online banks who are offering a little bit more interest. You know, Betterment is at 4.5%, and you know, some, you know, so, but you know, imagine like small credit union if all of a sudden they were giving out credit cards to people, you know, or community banks, and they were depending on that interchange income, right? That's helping subsidize the bank in essence. Right, that income. Now that's gone. What are they going to do?

Everything's going to get more expensive, right?

Everything's going to get more expensive. And the last time, it was already proven. All these companies— there was a website that a guy had. I remember showing it to this guy from MasterCard one day on my phone. Happened to meet him at a, uh, at a meeting. And I said, oh, you work for MasterCard? And I said, yeah. So there's a website, I Didn't Get My, uh, Debit Discount, right? And it had lists of all the companies who said they were going to lower their pricing from 7-Eleven, Walmart, Kmart, you know, down the line, right? And none of them went— lowered their pricing because this— the savings is— I don't want to say it's minuscule, but you know, if you said let's say they were paying on a $100 ticket $2, and now they're paying— now they're paying, let's say, on the 0.05, they're paying, let's say, 40— let's say 30-something cents, right? Let's say 35 cents or 40 cents on that same ticket, right? Instead of paying the— instead of paying $2. Sure, they saved the $1.60, right? But then how many items did somebody have in their cart, you know? How many items was in the cart? 50 items. And how do you divide that up? It's a few pennies, right? So the impact of— the impact on interchange, right, is not going to affect the price of items, right? Right. You know, and all that. So then, you know, the other thing that really upset me is you got the National Federation of Independent Businesses which is supposed to be for small and medium-sized businesses, and they're right there for this Credit Card Competition Act, which makes no sense. And you got the National Restaurant Association. So I actually posted their article on LinkedIn and I said, hey, what are you guys doing? There's tons of restaurants that use Square, right, and use Toast, and they don't give interchange pricing to of merchants interchange pass-through pricing, that flat rate pricing, right? They're not going to lower their price. So how is that going to help all these restaurants that you think Square and Toast and Stripe and all these companies, you think they're going to lower their prices? No, they're just going to charge. They're going to make more money because they'll just pass through the same price that they're passing through now.

Sounds about right.

I mean, so how is this going to help anybody?

What do you—

I mean, what's your thoughts on it?

I like, man, I think that you have enough to say for the both of us. Okay. I mean, I don't think it's— I don't think that Dick Durbin understands what he's going to do to small businesses or he really— I don't think he cares. I don't think any politician cares about small business in general or the little guy. So, I mean, yeah.

So the middle class is going to get—

there's no such thing as middle class.

Okay.

Well, people in the lower end of the economy are going to end up suffering because we're already suffering tremendously hard with the inflation and the price of food and everything else, the cost of living. So like, everyone who's not making $100,000 or more a year is shit out of luck right now. So it's—

and it's hard to look at when you see that, you know, it's hard to— it's hard to look at what's going on in the economy and, and everybody's struggling. Businesses are struggling, people are struggling in the economy, and then they want to take this and that's going to turn the economy upside down. All of a sudden you're going to go to your bank's going to say, oh, well, we don't make money from interchange. Sorry, your bank account costs $50 a month now, or $25 a month. I mean, that's—

isn't it already like that?

Um, some banks have free checking, or it's very limited, $10.

It's pretty much already like that though.

It's not as high as it is. But then let's say you have a credit card. Now they're going to say, oh, well, we want a monthly fee and/or an annual fee or both. And then what's that going to do? I mean, I read a story the other day about how they want to stop— like, Dick Durbin's not doing anything to stop this. You have tons of people in the economy now are basically using buy now pay later because their money's lasting till Wednesday, and then to get to third through Thursday to Friday, they're They're using buy now, pay later at the grocery store, and it's just creating, you know, instead of do, you know, they could just, uh, drill for oil. I read another story today about electric cars, right? So they're talking about all these electric cars, oh, that, you know, they're pushing all the manufacturers. Well, now there's almost a year's worth of electric cars sitting out on some car lots because they can't sell the electric cars because they're so expensive, and the interest rates at the bank are 6, 7, 8% to get a car loan.

It's crazy, man.

Yeah. So that, you know, so this Credit Card Competition Act, it's a hot mess. I mean, I just don't, I don't get it where he thinks that, you know, that that's going to work. You know, in another story today, Digital Transactions Magazine say, you know, is it time for Congress to dump the Credit Card Competition Act, modify the Durbin Amendment? So they, you know, he's been trying to stuff it into every bill known to mankind, and he'll get lucky once. I hope not, because it'll be a, it'll be a really big problem, because here they wrote in 2012, merchants shielded their customers And, you know, the data backs it up that, you know, while cost rose 9.4%, you know, customer cost only went up 4.3% because we had a good, you know, decent economy at the time. And saying, you know, they, they say in their study— the study was from— let me find the company so we don't mess it up. The Credit Union National Association of Credit Unions, and they're saying that reduced income for cards will force banks to slash services associated with credit cards. American Bankers Association itself announced a few years after debit reform, free checking was over.

Can I just say something?

Yeah.

As, as much as like, yeah, I get like we're saying, sitting here talking about how this is going to affect the consumer, at the end of the day, poor people don't have credit cards. Okay, so, you know, like, who is this really going to affect? Um, I'm not really certain. Um, but yeah, man, it's going to affect banking services.

This is the whole point.

And poor people don't bank.

Well, they use some kind of banking.

Yeah, Cash App, Venmo.

Well, those companies are going to get hurt.

I mean, all I'm saying— yeah, but they— the, the people that are going to get hit by this are going to be people that can afford to be hit by this.

I don't think so.

I'm just— I think so.

Well, if it's going to make— it's going to make the cost of banking go up. The cost of credit to go up, the cost of, you know, all those things that you're mentioning is things that people who have money have. I don't know about that. I think that people, everybody is affected. If the cost of banking goes up, then it makes it harder for people to get even established credit. If you're graduating college or something, you want to establish credit, all of a sudden now it's going to be a huge bill to do that. If you go out, I think it's a huge bill to do it now.

I've been trying to establish my credit for the past 3 years.

Okay, it's all— it's hard because of the things that they're doing in Congress is making it harder on everybody in this economy. I mean, this Credit Card Competition Act, believe me, the cost of banking goes up, it's going to cause a big problem if you have the cost of banking go up because now you're going to have You're gonna have costs go up in, in some areas. The cost of something else is going to go down, but the price the consumer pays is not going to go down in the store. Walmart and everybody is not lowering their price. They're not going to lower the price of gas. And then the— and then credit card processing. Let's say I'm a business owner and I have to process credit cards. Credit card company is going to say, well, now they lowered interchange. So now Visa and MasterCard might say, okay, well, we're going to charge everybody a monthly fee to process credit cards, maybe based on your volume. I mean, it's— you think you can't just go to a private business and go, oh, you can't charge for that anymore. That'd be like saying to McDonald's, oh, well, you, you charge $5 for hamburgers. Well, now we have a new hamburger tax that's going to be $1 on every burger. Right? And now you gotta— well, but we don't want you to raise the price. What's McDonald's gonna do? It's gonna charge another dollar for the hamburger because they have to pay. They, they— it's got to come from somewhere. They can't just absorb it.

I agree.

And the government just doesn't understand that. They don't understand, like, oh, you're gonna put all these taxes on people, just like crypto.

I don't think he's— I don't— the government understands very clearly what they're doing. They do not care about what this will affect or who it'll affect. They don't care. You're using the wrong terminology, sir.

Well, what do you think we should—

I don't know what we should— I don't have the answers. I think that they start a revolution, be more like France, before— like France, burn this place to the ground and let's start over. Well, I think that I would— I'm down, call me @jroings if the internet is still working.

I think that the Durbin Amendment needs to get blown up and they need to take a look at other ways to, other ways to control the credit card costs. But at the same time, I think they need to figure out some much deeper things that are going on in the economy on how to get, on how to get prices down because They need, they need to, you know, figure it out. I mean, I can tell you what they need to do. They need to drill for some oil.

I mean, that's not the answer.

Well, the other thing in the news was they sent Janet Yellen over to China and they said, oh well, we need, uh, we want to make semiconductors in the United States. We need you to release more of these minerals to us, right, so we can make semiconductors. And China basically said no, we're not doing that.

They control the market.

It's crazy. No, I'm just saying this is the position that we're getting put in with all these different things, and we're not addressing—

Look how we've been bullying every other country for the past 100 years, bro.

I wouldn't say we're bullying people. We financed most of these countries.

Proxy wars? No, I don't know. I don't want to talk about politics. I know nothing.

Okay, you know, I think Durbin needs to just rethink the whole thing because they can't— they're, you know, what they're going to do is going to basically mess up the whole banking system, mess up credit card processing. There is no third network coming to the rescue on the Durbin FedNow.

What are you talking about?

Well, FedNow's— how are they going to process the credit cards?

FedNow? I don't know, they're going to piggyback the Cash App network, probably.

You know, that's, that's one thing that could be going on, is maybe that's what they want to do, take down the banking system and get rid of Visa and MasterCard.

I mean, they've been forcing banks to close all year, and it's, it's a scary situation when you think about it, because then what would happen to money?

And businesses and things like that.

Man, I had a very slick comment to say right there, but I'm gonna hold it in.

But it's— let me tuck that. I think it just needs to be rethought on the whole thing, the Durbin Amendment. I think it just needs to be completely rethought. I mean, if you want to control what's going on with Visa and MasterCard, I mean, sure, they can— they, they need to— there's things that they could fix You know, like me and Justin, we met a guy at the convention, right? He was in card issuing. He said, oh, there's things they could do with the card issuing. And I believe that with card issuing, there are things that they could do. They could control what— how much the— you know, what's going to be the cap on these charges for rewards cards and, and all these other cards that are way above 2%, and say, hey, that needs to be reduced. And And then let's create some small-ticket interchange and things like that. I mean, Visa, MasterCard talk a big game. They had this program for small businesses. Nobody knows what it is, that they get some break on interchange. I looked at it, it was like a joke. It was like 0.2 basis points or something. That's not going to help somebody's business, 0.2 basis points. If they want to help businesses say, oh, you do less than $10,000 a month in credit cards, okay, well, we'll give you this additional discount off interchange, maybe 20 or 30 basis points. Maybe it's for businesses, uh, $15,000 and under. There's things that they could do that would help businesses and stimulate the economy at the same time. Small ticket interchange, small business program like what I'm talking about. You know, they're going to have to address the other big elephant in the house, which is all these pay facts like Stripe, Square, PayPal, you know, QuickBooks, Shopify, Toast, who are processing for hundreds of thousands of businesses, maybe millions, right, at a fixed rate. And how are they going to address those companies? Those companies were just a drop in the bucket when Durbin was in 2010 doing the Durbin Amendment, they were on a very low level, right? On a very low level. Now they're up much higher. There's more and more of those companies coming into the market. They just put a fixed rate on credit cards. Well, what are you going to do about that? I don't think that Congress has put enough thought into how what they need to do to put some controls on this stuff. Because I could come out with a new thing. I could say, oh, I'm having the whatever, Gadilly PayFac, right? I'm going to charge everybody 4%, but we're going to take every time— we're going to let you sell anything that you want, no underwriting, right? You could sell 4%. Well, who's going to stop that? So that's what I'm saying. Like, I think they need to put a lot more thought into what they're doing and have a much better understanding of the payments industry from a whole, of where it is now, where was it when 2010, 2012 with Durbin, where is it going, what are the trends right now, and what can they do to help instead of saying, oh, we're just gonna Smack, you know, take Visa and MasterCard and smack them. You know, I press the bullshit button on Dick Durbin. You know, you just want to smack, you want to smack Visa and MasterCard upside the head, and American Express and Discover and the banks. You want to smack everybody around, but you're not coming up with a good solution. So I propose, Dick Durbin, you call me on the phone The phone number is easy to find, or somebody from Congress, and I'll give you some suggestions. Suggestion 1: small ticket interchange. Suggestion 2: come up with a, a price point, whatever it is, $10,000, $15,000, $20,000, $25,000 on small businesses where Visa, where all the interchange, they get like a 20 basis point rebate. Right? Come up with, come up with, uh, you know, rewards cards— a cap on these rewards cards. Come up with a cap. Why do they have to go from 2, 2.2% all the way to 3.5, 3.5% for some of these cards? I don't know who had— I don't have any card that gives me like 3.5%. I'll take less cash back because what we need to do is come up with a way to stimulate the economy help small businesses and get them rolling. And those things would help small businesses, it would help consumers, and it would help, you know, what Durbin is trying to do with this Credit Card Competition Act. He needs to change the name of it because there's not going to be a third network unless the government is going to say, oh, FedNow is now the way you're going to pay for everything, and we're going to become China with WeChat. And, and we're gonna have the government monitoring what we spend our money on.

Now, I don't agree with that, where it's headed.

Well, I don't agree with it, but I don't, I don't, I don't think most people would like that. So I think there are ways for the government to rein in the credit card processors a little bit, help the banks, not kill them, not, not put the onus of this back to the consumers. Because ultimately, if they cut interchange, the consumer is going to get hurt, the banks are going to get hurt, and the economy is going to be the worst we've ever seen. I think if they did all that, we might see like an actual like revolution in the United States when people realize what's going— when people wake up and figure out what's going on. But I think there's a better way for them to do this. So that they help small businesses, help, um, you know, but they're gonna have to, you know, rein in the rewards cards, and then they're gonna have to address the big elephant in the room. Because I'm sure Square, PayPal, Stripe, Shopify, whoever's all behind all these companies is probably giving a lot of donations to, uh, politicians. But they're gonna have to figure out how to rein in some of those companies and the fees that they charge. I mean, Toast charges 2.79% and 10 cents, and then if you do an online order, it's 3.5% and whatever, like 15 cents. That's super high. If you got an inter— if you got a merchant account from Nationwide Payment Systems and we go, oh, it's a restaurant, 20 basis points and 10 cents a transaction, you know, over interchange, you're going to be in the you're going to be in the low 2s, right? At 2.79, you made like, let's say, 2— I looked at somebody's the other day that's on 20 basis points and 10 cents. They're at like 2.2%. Another one was like close to 2%. You're gonna have a much more— that's a lot of money. Let's say you're doing, uh, $100,000 a month, $100,000 a month, and you're— and you save 70 basis points. Right? That's $700. That's, you know, that's money in the bank. $700 of savings, you know. And that's what we need to figure out is how to— is how to do all that. So Dick Durbin, call me up. Marshall, any of the other guys who are on board with this, let me provide you with some educational information on interchange, how you can actually help small businesses rein in the cost of credit card processing and not harm consumers so much. Because I'm very worried that we're gonna do some harm to the consumers in the United States, and it's going to be horrible. It's going to be very, very horrible. That's what I have to say about this Credit Card Competition Act. And peace out, everybody.

Follow us on YouTube, B2B Vault. Turn on notifications, subscribe to the channels, smash the like button, leave a comment, you know, all that happy stuff. Peace.

Where's my button on there for the— my Durban? F Dick Durban! Peace out, everybody.