In case you’re following the merger between Capital One and Uncover, you’ve in all probability heard some variation of the declare that the businesses are making to justify the deal: “This merger is nice as a result of it’ll create an actual competitor to Visa and Mastercard.”
All types of journalists and media retailers are parroting the purpose. The implication is that we must disrupt the Visa/Mastercard fee processing duopoly, even when it means lowering what number of choices Individuals have once they’re in search of a bank card.
However is there any upside on the subject of creating competitors with Visa and Mastercard?
No, there isn’t.
First, a little bit of context: Visa and Mastercard are fee processors, or in trade lingo, “networks.” That signifies that Visa and Mastercard aren’t banks like different entities that provide bank cards—reminiscent of JPMorgan Chase, Citibank, or Capital One (or Uncover, which is each a financial institution and a community). Visa and Mastercard can’t lend you cash; all of the others can.
And post-merger, Capital One can be an enormous lender—with roughly 20 p.c market share, it’d turn out to be the most important bank card lender in America. Nonetheless, the argument the businesses need you to concentrate on isn’t how large of a lender it will create. It’s the competitors the Capital One–Uncover merger would carry to Visa- and Mastercard-dominated fee processing.
There are two fundamental issues with that argument.
The primary downside is that it’s irrelevant.
If a merger harms competitors in a single market (for instance, the market that ordinary folks face when they should borrow cash), it doesn’t matter if it helps competitors in a special market (the market of fee processors). A merger is against the law if it might considerably scale back the quantity of competitors in any market, full cease. In blocking Spirit’s Jet Blue acquisition in 2023, the courts made it fairly clear that antitrust isn’t about balancing advantages and harms to shoppers—it’s about stopping criminal activity.
The second downside with the argument is that it’s inaccurate.
Cease to contemplate who the shoppers of Visa and Mastercard are. You, pricey reader, usually are not Visa’s or Mastercard’s buyer, even when you have a Visa or Mastercard credit score or debit card. The shoppers of those fee processors aren’t even the companies that settle for Visa or Mastercard playing cards on the register. The shoppers of Visa and Mastercard are Chase, Citi, Financial institution of America, Capital One, and different banks and lenders. The banks bear (extremely secretive) contract negotiations with Visa, Mastercard, Uncover, and American Categorical to determine which fee community they wish to use for every of their bank card merchandise. Visa’s and Mastercard’s market share are decided by how a lot they enchantment to banks, not how a lot they enchantment to retailers or shoppers.
And the fundamental situation right here is that Chase and Citi need one thing very completely different from what Walmart or your neighborhood bodega need.
Walmart and the bodega need bank card processing charges to go down, or at the least to cease their relentless climb.
In the meantime, Visa and Mastercard are taking part in hen with the remainder of the enterprise group to see simply how far they will increase costs with out companies deciding they’ll cease accepting bank cards, or how far they will push issues with out the federal government intervening. And on this sport of hen, the massive banks are driving in Visa’s and Mastercard’s passenger seats, egging them on. As a result of these banks are negotiating with Visa and Mastercard to see what proportion of the processing charges they’re every going to maintain.
So what occurs when Capital One shifts its playing cards from Visa and Mastercard to the Uncover community? Nothing good!
The brand new Capital One–Uncover has zero incentive to resolve the issue of excessive bank card processing charges, and in reality would in all probability desire to boost the processing charges.
The Kate Middleton Scenario Was a Sideshow. Now It’s Modified the Royals Eternally.
Each Allegation within the Explosive New Docuseries In regards to the Darkish Facet of Youngsters’s TV
My Daughter Let It Slip That She Expects Me to Purchase Her a Home. What?
The Kate Middleton Conspiracy Is Over. There’s a Motive It Was So Efficient.
Media retailers together with Bloomberg, Inc., and the Wall Avenue Journal are asserting {that a} Capital One–Uncover merger would bolster competitors between Visa and Mastercard by triggering extra retailers to just accept Uncover. They appear to have fully missed the truth that 99 p.c of U.S. retailers that settle for Visa and Mastercard additionally already settle for Uncover (up from 96 p.c a couple of years in the past). Widespread sense would let you know Capital One isn’t going to decrease processing charges throughout the board simply to woo over that 1 p.c of holdouts. (I’ll add a caveat that these dynamics are a bit completely different outdoors the USA, the place Uncover’s acceptance is certainly spotty, however the place the regulation additionally caps bank card processing charges at a really low fee.)
To consider the impression of a merger between Capital One and Uncover, contemplate the present largest competitor to Visa and Mastercard—American Categorical. American Categorical costs increased processing charges than Visa and Mastercard, by a major margin.
Ask any small-business proprietor whether or not they’d like a bunch of their prospects to cancel their Visa playing cards and open up an Amex card as an alternative. The reply will likely be a powerful no. A mixed Capital One–Uncover can be like one other American Categorical, however a lot bigger, and due to this fact even higher positioned to hike up processing charges ought to they select.
Alex Kirshner
The Justice Division’s Newest Lawsuit Would possibly Clear up a Nice Rift in Our Society: Inexperienced Textual content Messages
Learn Extra
And better processing charges lead to increased costs for everybody. Sure, everybody who buys something, whether or not they pay on a bank card, on a debit card, in money, or with authorities meals support like EBT or WIC.
Don’t simply take it from me: The Retailers Funds Coalition, a commerce affiliation of outlets, i.e., the individuals who have been complaining nonstop about Visa and Mastercard, has flat-out mentioned they don’t anticipate Capital One’s proposed acquisition to resolve any of their issues.
I can’t say for sure whether or not the “this merger is nice for competitors” speaking level has come primarily from the Capital One PR machine or from journalists who’re mindlessly riffing. In all probability a little bit of each, and both manner, it ought to make you mad. I used to work at Capital One, and in that point, and within the years since, I spotted how terribly efficient banks have been in influencing mainstream sentiment.
We will’t afford to let the banks misdirect us once more. It’ll price all of us.