The winners and losers from this legislation will look much different than supporters of the CCCA realize.

Winners if the CCCA Passes

• Large merchants: Large merchants are the clear winner if the CCCA passes because any decrease in interchange expense can be used to boost net income. One only needs to examine how merchants responded to the original Durbin Amendment capping debit card interchange. A University of Chicago Law School study determined that merchants did not pass all of these savings to consumers in the form of lower prices.¹

• Flat-rate merchant acquirers: Merchants continued to pay the same percentage rate for transaction processing after the Durbin Amendment cap on debit cards and will continue paying the same rate after any decrease in credit card interchange to banks. A lower interchange rate will create a higher spread for flat-rate merchant processing fees, resulting in higher income for these organizations.

• Card-issuing banks and credit unions with under US$100 billion in assets: About 30 banks and credit unions are large enough to be affected by this legislation, which could negatively impact credit card profitability and their ability to support rewards. This could allow the remaining banks and credit unions to offer greater rewards and benefits to cardholders than their larger competitors and gain a competitive advantage for co-branded card relationships and BIN sponsorships.

• Discover and American Express card networks: The CCCA requires a secondary credit card network, and Discover and American Express are the most obvious choices. If the CCCA passes, these card networks will be added to millions of credit cards almost overnight.

• Any bank with a card network: The CCCA carves out an exception where card networks that are also issuers are not required to have a secondary card network (and are also not precluded from having one). This exception could motivate a large bank to launch a proprietary credit card network. Achieving the merchant coverage of the four largest credit card networks would be challenging. However, a loophole may exist for banks to issue XYZ-Bank-labeled credit cards with another major card network as the secondary network.

Losers if the CCCA Passes

• Consumers:  According to research sponsored by Wells Fargo, seventy-one percent of U.S. consumers have at least one credit card with rewards.² History from other jurisdictions that capped interchange shows that rewards dry up quickly. In many cases, incremental fees hit consumers as issuers seek ways to backfill the lost interchange revenue and maintain marginal profitability. Consumers are also unlikely to benefit from lower prices because merchants are not charities. Management, especially at publicly traded companies, are obligated to act in the best interests of their shareholders, which means any expense savings will benefit their bottom lines and not pass to consumers in the form of lower prices.

• Small merchants: Small merchants will lose the most if the CCCA passes. Not only are they unlikely to benefit from lower interchange rates compared to larger merchants, but multiple studies have found credit card rewards to influence consumers to spend more than cash or non-rewards cards. This means small merchants could see the ticket size for credit card sales decrease as those consumers are less motivated to spend more.

• About thirty banks and credit unions: Some will argue that the CCCA will impact all banks and credit unions, and perhaps it could. However, this contradicts the proposal language and what Dick Durbin has stated publicly. As written today, this legislation will only require FIs with over US$100 billion in assets to add a secondary card network (of their choosing) to the card. This change is expected to decrease their interchange income and be expensive to implement.

• The U.S. gross domestic product: Multiple studies have shown that credit card rewards cause consumers to spend more than they would with cash or non-rewards cards, and this higher spending will likely outweigh the savings the CCCA may offer merchants. Therefore, any reduction in rewards will result in a decrease in consumer spending.

• The environment: Thirty banks and credit unions may sound small, but they represent millions of credit cards in the market. Adding another card network will require the replacement of those cards because they impact the EMV chip and contactless antennae in the physical card. In other words, the CCCA will push tons of PVC waste to landfills around the U.S. and force the industry to introduce tons of new PVC plastic into the market.

No Impact From the CCCA

• Small businesses with a flat-rate merchant processing agreement: Many micro and small businesses have flat-rate merchant processing agreements (e.g., US$0.10 plus 3% of the transaction) that will remain unchanged no matter how low interchange rates fall.

• PIN networks: PIN networks would love to be a secondary card network. However, given their history of driving interchange as low as possible with new products like online and offline PINless, it is unlikely any bank or credit union will choose them as a secondary network.

For more information on this topic, contact me here.

1. David S. Evans, Howard H. Chang, Steven Joyce, “The Impact of the U.S. Debit Card Interchange Fee Caps on Consumer Welfare: An Event Study Analysis,” The University of Chicago Law School, October 2013, accessed November 10, 2023, https://chicagounbound.uchicago.edu/law_and_economics/652/ ︎
2. “New Study: Americans Lean Into Credit Card Rewards to Offset Rising Costs – Including Travel,” Wells Fargo, August 2, 2022, accessed November 3, 2023, https://newsroom.wf.com/English/news-releases/news-release-details/2022/New-Study-Americans-Lean-Into-Credit-Card-Rewards-to-Offset-Rising-Costs–Including-Travel/default.aspx ︎

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These environmental priorities can be hard to reconcile with the world of finance, however, even for individuals. Plastic cards are made with PVC, and modern cards include an EMV chip, which only increases the complexity involved in recycling.

Most expired banking cards end up in a landfill, and with 3-4 cards per adult in some countries, that’s literally billions of cards taking up space and adding to humans’ already sizeable carbon footprint.

Sustainable Card Options

Fortunately, banks and credit card companies are taking steps to reduce the impact payment cards are having on the environment. Sustainable physical card options exist in a variety of forms: recycled plastic, recovered ocean-bound plastic, PLA, biodegradable, metal, and compressed wood.

In addition to sustainable card materials, tools are emerging that can help consumers track the carbon impact of the items they are purchasing with the cards. For example, purchasing gas for a vehicle will likely have a higher carbon impact than buying vegetables at your local farmer’s market.

A couple of challenger banks are taking a more direct hand at offsetting the carbon footprint created when consumers use their cards. Aspiration, for example, guarantees customers that purchases never fund oil or coal, and it offers an option to plant trees based on consumers’ purchasing behavior.

Similarly, Treecard offers a sustainable debit card made from a mix of wood and recycled plastic. Merchants are charged a small fee every time the card is used, which then goes toward planting trees in 15 countries through more than 20 tree-planting projects. Challenger banks like Aspiration and Treecard are likely to attract environmentally conscious consumers away from traditional banks and credit unions.

Actions by Traditional Financial Institutions

Challenger banks aren’t the only financial institutions making changes. Incumbent institutions of all sizes are prioritizing eco-friendly practices and consumer options. Last month, Bank of America announced that starting in 2023, both its debit and credit cards will be made from at least 80% recycled plastic.

U.S. Bank is also making an effort to reduce its environmental impact. The bank has launched an eco-friendly debit card that is made from recovered ocean-bound plastic; reportedly, for every one million of these debit cards produced, over one ton of plastic is diverted from entering the world’s oceans.

Another sustainable option a growing number of financial institutions are offering took deeper root after the emergence of the COVID-19 pandemic: contactless and mobile payment. While most consumers still report a desire to have a physical card, 85% of consumers expect digital options to available during in-person shopping.

Consumers, especially those in younger generations, are increasingly seeking out eco-friendly options in all areas. Banking products are no exception, whether that means using an eco-friendly card, contactless payment, or a challenger bank’s sustainability-focused option.

Financial institutions of all types will need to make changes that benefit the environment if they want to remain competitive. To learn more about how financial institutions are working to make payment cards more eco-friendly, read my report Eco-Friendly Card Material: Bringing Sustainability to Card Issuance or reach out to me at dshipper@datos-insights.com.

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