James Shepherd is a fintech entrepreneur and the CEO of CCSalesPro, a publishing and consulting firm focused on helping independent sales organizations compete in the evolving payments space.
The Credit Card Competition Act is one of the most ill-informed pieces of legislation I have ever seen.
The idea is that somehow we're going to try to force competition into the payments industry. The way we're going to do it is we're going to take networks that have spent billions of dollars on security and tokenization technology to ensure cardholder integrity and reduce fraud — things that we all really really care about — and we are going to force these networks to allow other third parties to get in the middle of these transactions. So, last month we ran the transaction one way, but now we’ll run it a different way. So then, you have to create a new token — it's going to be a whole new setup.
When they say for every transaction the merchant has to be able to route that transaction to two other networks, what does that even mean? It's a Visa card. It's a Visa network. It's called point-to-point encryption: We want to make sure that our data is secure, and it runs from one point to the other.
Look at the amount of money these card brands are charging for this tokenization: It’s tiny, tiny, tiny, tiny on each transaction. That's not where the cost is coming from. The cost is coming from interchange fees, not from the card brands and their tiny little fees that they make on every transaction to make sure that they are secure.
So this idea that we're going to create all this competition and force competition by saying Visa and Mastercard, we want you to change the foundational fabric of this point-to-point encryption, and we want you to make sure that you can route these transactions to other networks, and we want you to let other networks have access to the encrypted data, because nothing bad ever happens when you give a third party access to encrypted data, what are we thinking? No no, no, that is not the way to bring competition into the industry.
I don't remember a single outage where the Visa network was down, or the Mastercard network was down, or there was a breach of the Visa network. It's easy to gloss over that, but way to go Visa and Mastercard. That's incredible. Somehow you want us to to let multiple third parties in the middle of that? It doesn't make any sense. How do you do that securely? It's just a huge mess.
Do Visa, Mastercard have too much control over the payments ecosystem? Yes. I've said that for years. I still believe that. But the right way to solve that problem is not to come in and try to legislate that a point-to-point encrypted network needs to allow third parties access to its encrypted data. That is just ridiculous.
Editor’s note: This opinion submission was taken from the transcript of an audio presentation and has been edited for clarity and brevity.