Banks Don't Wanna Compete

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Carter Dougherty is Senior Fellow for Antimonopoly and Finance at Demand Progress, a progressive advocacy group and think tank.

Depictions of big banks and rich financiers as a mighty species abound in American society. Tom Wolfe nailed them, ironically, as the Masters of the Universe in his seminal Wall Street novel, The Bonfire of the Vanities. More recently, Jamie Dimon, CEO of JPMorgan Chase, gave architectural form to his bank’s “fortress balance sheet” with a New York skyscraper whose style merges minimalist Art Deco with some mammoth crossbars borrowed from the Death Star. To boot, a fawning industry analyst actually compared Dimon to the superhero Iron Man in a recent earnings call.

But when Wall Street’s lobbyists come face-to-face with a simple change to the payment system, these tough cookies collapse into a toddler’s tantrum that would have stopped my own children in their tracks. “Draconian” and “reckless,” howls Richard Hunt, chairman of the Electronic Payments Coalition. The Kansas Bankers Associated resorted to an all-caps howl of protest — with exclamation point! — in one of Washington’s morning newsletters. 

If only we could calm them with a juice box, a snack and a nap. What has them purple with rage? Something American as apple pie: competition, specifically the Credit Card Competition Act (CCCA).

Sturm und Durbin-Marshall

We’re several years into the debate over the CCCA and its goal is well-known among the nerds community of people who care about the payments system: inject competition into the Visa-Mastercard duopoly by allowing merchants to route credit card transactions over competing networks. It’s no panacea for our too-expensive payment system, but it could save merchants $16.4 billion, ease pressure on consumers, and help with the affordability crisis in the United States today. It would help break up the cozy relationship whereby Visa and Mastercard set credit card fees and impose unfair contracts on merchants that are then shared with banks, primarily the behemoths that dominate that market. 

With this approach to reforming the payment system, the bipartisan duo of Sens. Roger Marshall (R-KS) and Richard Durbin (D-IL) have tapped into the idea that monopoly power should not be the reason companies dominate their respective markets, and that competition is a good thing. The anti-monopoly reflex runs deep and strong in the American psyche. It pops up in many ways, from the Framers of the Constitution pondering an anti-monopoly clause in the nation’s founding document, to the antitrust movement at the turn of the 20^th century, to, yes, the CCCA.

If it can be said that artificial intelligence reflects the proclivities of the people who wrote and trained the code, then today AI, rather than constitutional debates, may very well be giving voice to our collective skepticism of big banks and card networks. A recent query of ChatGPT revealed that credit cards are “less cleanly oligopolistic” than — wait for it — the card networks, which is a “duopoly with fringe competitors.” Ouch. The Visigoths who sacked Rome may have been “less cleanly warlike” than Genghis Khan. But the difference didn’t matter much to their victims, and the difference here doesn’t matter to consumers and merchants, either.

Let’s “Both Sides” This

The main pushback from the networks and big banks is built around a word that sounds vaguely scary and lawyerly — mandate — but is intended to convey the common man’s revulsion at the gummint tellin’ you what to do. (Yes, even bank lobbyists reach into the pocket of their three-piece suits for the populist argument now and then.) But the political calculation is way off. 

The government pushing around JPMorgan Chase (bank size: $4.1 trillion) or Visa (profit margin: 50 percent) would warm the hearts of many voters. Americans don’t like big banks or large corporations in general. And the broader political premise behind the bank lobby’s criticism of mandates — that the voters per se object to red tape or regulation — hasn’t been correct for some time. In fact, the public takes a rather nuanced view of regulation, mildly skeptical but entirely open to sensible safeguards.

Now, to be fair to the bank lobby’s strategy, when they gripe about the gummint, is very narrow: they’re trying to break the still-delicate bipartisan consensus in Washington that monopoly power is a problem by poisoning the idea of competition in credit card payments in the eyes of right-leaning voters. Forcing banks to do anything, they reason, is unpopular. But even that’s a stretch. Groundwork Collaborative and Protect Borrowers recently polled voters about an even tougher measure than the CCCA – credit card caps – and found voters of all political stripes highly receptive, even when peppered with the bank lobby’s talking points. The ground has shifted under Wall Street’s feet.

Also, and this part gets lost easily in the shuffle of Washington debates, the card networks and the big banks love mandates if they preserve the incumbent’s position. How else to interpret their enthusiasm for a (weak) settlement to the long-running antitrust litigation between the card networks and a group of merchants? The very same lobby group that loathes CCCA, the Electronic Payments Coalition, just loves the idea of the judiciary ramming through “a more than 25 percent reduction on standard credit cards, and capped interchange rates across the board.” 

There’s no worry about principle or precedent here. They’ll take mandates and caps as long as they don’t cut into margins.

We Tell the Street We Can Compete

Interestingly, bankers typically maintain a two-faced approach to the legislation, since hyperbolic predictions about the legislation’s impact work less well with its own shareholders, for whom histrionics are a distraction from how banks and networks will grapple with any new reality. 

“We will obviously adapt, and we've shown a pretty remarkable ability to adapt,” Marianne Lake, CEO of JPMorgan Chase’s consumer and community banking told industry analysts. “So, I like our hand.” Visa CEO Ryan McInerney sounded practically blasé about real-time payments, another threat to traditional card-based businesses: “It’s going to get more competitive, but we like our chances to continue to win.” 

Lake and McInerney, forced to justify themselves to people who know their stuff, come off as the adults in the room, and it’s their rhetoric we should take seriously. Despite the child-like outbursts of their lobbyists, Wall Street banks and their payment-network pals know they are perfectly capable of the fair competition that would, in all likelihood, leave them with lower margins. They just prefer the unfair variety.

The opinions shared in this article are the author’s own and do not reflect the views of any organization they are affiliated with.

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