Four contenders are routinely hyped as poised to disrupt the reigning global payment system: (1) stablecoins backed by fiat currencies—principally dollars, but also gold and other assets, (2) unbacked cryptocurrencies, (3) Central Bank Digital Currencies (CBDCs), and (4) shared ledgers enabling near-instant atomic exchange between national payment systems. They’ve attracted public and private capital, as well as evangelists and skeptics.

Not all digital-money innovations are created equal. They differ in governance, trust models, regulatory posture, and real-world utility and adoption.

For consumers and businesses in most countries, however, private-sector dollar stablecoins will be the most consequential near-term. Dollar stablecoins can immediately serve multiple compelling payments use cases worldwide, boost King Dollar, and improve the lives of billions of people today relying on weak national currencies and inefficient payment systems.

Global demand for dollars is enormous. As the IMF observes, “Dollar demand is underpinned by the strength of the US economy, the quality of its institutions, and the depth of its financial markets. These dynamics are reinforced by strong network externalities—as users benefit from using the same currency—and strategic complementarities across the dollar’s various international functions.”

Cryptocurrencies not backed by real-world assets or claims debuted with Bitcoin in 2009. Since 2014, over half of the 24,000-plus cryptocurrencies launched have failed. As of February 2026, only five of them had market capitalizations greater than $50 billion (BTC, ETH, BNB, XRP, and SOL). They’ve struggled to find compelling mainstream payment use cases and a path to network critical mass. They are too volatile in value, face a hostile regulatory environment, lack trustworthy and accountable governance, and often suffer from inferior technical performance. Consequently, none has found a critical mass of people willing to pay with them or merchants willing to accept them—the fundamental prerequisites for payment network relevance and value.

More than 130 countries are exploring, have launched, or are piloting CBDCs. They’re a government solution in search of a problem.

The first retail CBDC, the smartcard-based Avant, was launched in 1993 by the Finnish central bank. The central bank quickly lost its appetite for running a consumer-facing business and, in 1995, sold Avant to a group of commercial banks. Consumers found Avant inferior to debit cards and cash, and it was shuttered in 2006.

Ecuador’s central bank launched a retail dollar CBDC in 2014. It was distributed by the state’s mobile network operator, CNT, and offered VAT refunds to incentivize use. It was finally shut down in 2018. Over the system’s life, only 42,000 consumers and 7,000 merchants ever used it, totaling a mere $65 million in payments.

Economist Larry White noted, “There is no reason to believe that a national government can run a mobile payment system more efficiently than private firms… If the government sincerely wishes to help the poor and unbanked, it should let private providers enter the competition, which will drive down the fees that the poor and unbanked will have to pay.”

Trust—not technology—was decisive. White added, “Personally, I would find dollar-denominated account credits that are claims on [the leading private mobile phone companies] Movistar or Claro more credible than claims on the government of Ecuador. After all, unlike the government, neither company defaulted on its bonds in the past 12 years.”

Ecuador’s dollar CBDC failed because people didn’t trust the central bank, fearing the system was a Trojan horse to de-dollarize the economy, and because of its reliance on a single distributor—the state MNO.

Recent attempts have fared no better, despite improved technology and broader awareness. Launched in 2020, the Bahamas’ CBDC, the Sand Dollar, makes up less than 0.5% of currency in circulation and has achieved minimal use. Nigeria’s eNaira debuted in 2021; it’s not trusted and usage is de minimis. Jamaica launched its JAM-DEX in 2022. Thus far, it has been used as a government transfer mechanism, but consumer payments are negligible. The Eastern Caribbean Central Bank shut down its initial DCash platform and is currently in “reboot.”
The ECB is promoting its digital euro as critical to competing with US-domiciled payment networks like Mastercard and Visa, as well as digital wallets such as PayPal, Apple Pay, and Google Wallet. ECB President Christine Lagarde warned that Europe must not rely on foreign payment systems for critical payments infrastructure.

A coalition of academic progressives, financial reform NGOs, and inequality scholars captures the euro-zeitgeist, arguing a digital euro is essential to protect European sovereignty. The signatories are largely economists critical of—if not outright hostile to—private-sector banking, payment systems, and US-domiciled financial institutions.

Policymakers in Brussels and Frankfurt are mortified by the possibility that the next payment system European consumers and businesses embrace will be dollar stablecoins.

While no wholesale CBDC is yet commercially relevant, they may have promise. Project Helvetia III is a pilot between the Swiss National Bank and SIX Digital Exchange providing instant swaps of wholesale Swiss Franc CBDCs for banks trading securities on the SIX exchange. The Banque de France has built a proprietary blockchain (DL3S) to enable the Eurosystem to settle tokenized assets, but it is not yet live.

Meanwhile, private-sector deposit tokens are already operating. JPM Coin runs on a permissioned public blockchain, and Citi’s Deposit Token Services runs on a private chain. Both are enabling early-stage instant, 24/7 cross-border and domestic funds transfers.

Several initiatives aim to make CBDCs and national banking systems instantly interoperable across borders. If widely adopted, they could improve cross-border payments. But dollar stablecoins and Mastercard’s and Visa’s instant credit-push systems already operate globally.
The BIS-led Project Agorá is a collaboration between the Fed and the central banks of the UK, Japan, France, Switzerland, South Korea, and Mexico, along with the dominant global cross-border interbank payment-messaging network Swift and over forty financial institutions. Its goal is to establish a common ledger enabling near-instant exchange of CBDCs and commercial bank deposit tokens—a radical upgrade to the existing system.

In contrast, mBridge aims to bypass the reigning dollar-anchored global system. Developed initially by the BIS, it enables China’s PBOC—first among equals—and the central banks of Hong Kong, Thailand, the UAE, and Saudi Arabia to settle payments.
In October 2024, tellingly, the BIS disassociated itself from mBridge. The official reason was project maturity; the reality was because the platform was being positioned as a means to evade Western sanctions.

The IMF has proposed its XC platform, a centralized or distributed ledger that would be used to support the atomic cross-border exchange of tokenized CBDCs, bank reserves, and foreign exchange assets.

Competition isn’t based primarily on these systems’ technical merits. They only need to be “good enough.” Governance, trust, and having compelling real-world use cases matter more.
Mastercard, Swift, and Visa already provide governance, rules, and trust for payments worldwide. Each, therefore, has a powerful platform on which to support the real-time interoperability of value exchange between national systems. There is risk they’d cannibalize their existing business, but it is always better to cannibalize yourself and dominate a new space than cede it to competitors.

Many policymakers in Brussels, Frankfurt, Beijing, Moscow, Caracas, and even Washington, D.C., fear private money will erode state control over payments. Yet consumers and businesses already rely principally on private commercial bank money. Private stablecoins—operating across dozens of public blockchains—will be far more responsive to market needs and will out-innovate the Fed.Multiple systems supporting instant cross-border interoperability between national systems may eventually find a path to network critical mass. But governments shouldn’t privilege CBDCs.

A dynamic mix of competing currencies and payment systems—chosen by consumers, businesses, and banks—maximizes value. Dollar stablecoins enabling instant payments anywhere, anytime, will have a major near-term impact. Longer term, platforms enabling instant atomic exchange of value between public and private national systems may also play meaningful roles.

Judge Virginia Kendall’s February 10^th, 2026 decision upheld Illinois’s right to impose price controls on interchange fees.  However, she permanently enjoined the state from enforcing its data-usage restrictions on national banks and federal savings associations. Kendall’s injunction was extended to payment networks and processors to the extent they’re carrying out functions on behalf of exempt banks, but not when acting independently. She conceded it was a close call. Her ruling disappointed the payments industry, which had hoped to have the Interchange Fee Prohibition Act struck down as preempted by federal law. That would also have forestalled a host of other states assaulting the payments industry with their own interchange price controls. Complying with the IFPA alone will be enormously costly. Facing a nationwide battery of state-specific interchange price controls would bring the payments industry to its knees.

Kendall reasoned that the payment networks, not banks, set interchange fees and that, consequently, laws preempting national banks from much state regulation did not apply. While the ruling is a victory for merchant lobbies keen to eliminate interchange fees brick by brick, it is hardly the last word. The banks and credit unions challenging the IFPA have powerful preemption arguments, and the Seventh Circuit will have reason to hear their appeal and scrutinize the district court’s reasoning.

The OCC called the legislation “ill-conceived, highly unusual and largely unworkable.” It isn’t the first law that’s ill-conceived, but that’s not illegal.

The IFPA is the first state law curbing interchange fees. If it stands, it won’t be the last. It prohibits interchange fees on portions of a transaction attributable to sales tax and gratuities, and restricts the use of transaction‑level data. It was written to appear modest. But it’s an assault on a core pricing mechanism used to balance participation on both sides of the payments system and maximize total value. Interchange revenue compensates issuers for fraud risk and credit losses, and funds grace periods, authorization infrastructure, customer service, risk management, rewards, fee-free accounts, and issuer innovation.

Complying with the IFPA will impose a massive burden on the banks and payment networks worldwide, on payment processors and merchants operating in Illinois, and ultimately on cardholders in terms of payment enhancements deferred or scrapped, and benefits trimmed.

Banks and credit unions filed a notice of appeal with the U.S. Court of Appeals for the Seventh Circuit on February 13, 2026. The substantive appeal itself—the opening appellate brief containing the detailed legal arguments outlining exactly why the district court’s decision should be overturned—has not yet been submitted. It is likely to center on federal preemption, where their arguments are strongest. National banks derive their powers from the National Bank Act, and state laws that “prevent or significantly interfere” with those powers are preempted. They reiterate what their complaint made clear, that the IFPA does exactly that: it restricts the fees national banks may charge for card transactions and limits their ability to use transaction data for fraud detection, reconciliation, and compliance functions—activities squarely within federally granted banking powers.

The same logic applies to federal savings associations under HOLA and to federal credit unions under the FCUA. Each regime provides a uniform national framework precisely to avoid a patchwork of state‑level restrictions on core financial operations. The Prairie State’s own parity statutes extend those preemption protections to Illinois‑chartered institutions, meaning the state cannot selectively burden out‑of‑state banks or credit unions without running afoul of the dormant Commerce Clause. The plaintiffs will argue that Kendall gave insufficient weight to these structural constraints.

A second promising appellate focus will be the IFPA’s extraterritorial effect. Payments are routed through global networks; interchange, typically, is set at the network level; and issuers operate across state lines. A single state dictating the permissible components of interchange fees imposes operational and compliance burdens far beyond its borders. The dormant Commerce Clause has long been hostile to such state‑level attempts to regulate interstate financial flows.

Finally, the plaintiffs probably will emphasize the statute’s operational difficulty. Covered interoperating bank issuers, payment networks, and processors can’t easily capture and separately price sales tax and gratuities at the transaction level. Nor can they selectively suppress data flows without weakening fraud controls. Kendall’s ruling, by accepting Illinois’s assertion that these burdens are manageable, at least invites appellate scrutiny of whether the court adequately considered the technical realities of payment processing. The enormous cost burden of complying with the IFPA is real and a strong political argument for its repeal. The legislation, however, is indifferent to the financial havoc it creates.

While Illinois and foes of payment fees won the first round, the challengers’ preemption and constitutional arguments remain formidable. The Seventh Circuit will now decide whether one state may rewrite the economics and data architecture of the national card‑payments system.

The payments industry should not solely rely on the courts. State legislators need to be educated to the value that the industry delivers and reminded that market prices best allocate resources. But they also need to feel the heat. They need to pay a political price for supporting bad policy.

A mix of market forces, law, regulation, and public and private litigation has determined the price of payments acceptance on both sides of the Atlantic. Their relative importance, however, differs markedly. While private antitrust suits have had a significant impact in the US, in Europe private litigation hasn’t directly reduced interchange fees.

In 2003, as part of the settlement of the Visa Check/MasterMoney antitrust lawsuit – aka the Walmart case – Mastercard’s and Visa’s debit interchange fees were reduced by one-third for five months. The latest settlement proposal in the multi-decade antitrust lawsuit against Mastercard and Visa in the US over interchange fees and acceptance rules (“In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation” MDL1720) highlights the difference. It would reduce credit interchange fees by 10 basis points for five years.

The European Model: Regulation as the Primary Driver

In stark contrast, in Europe, regulatory action and law were the primary forces bringing down interchange fees. In its initial salvo in 2000, the European Commission objected to Visa’s interchange fees. Europe’s largest retail payment network bent the knee. In 2002, Brussels issued an exemption decision valid for five years under which Visa reduced intra-EU cross-border interchange fees to 70 basis points, agreeing to a public utility model recouping approved costs.

Mastercard fought back, but ultimately lost. Following the EC’s 2007 prohibition on its cross-border fees, in 2009 Mastercard agreed to temporarily reduce cross-border credit and debit interchange fees to 30 and 20 basis points, respectively, creating the benchmark that would become law.

In 2009, the EC took another bite at the apple with Visa, charging it with violating EU competition law.  Brussels forced Visa to reduce debit and credit interchange to 20 and 30 basis points in 2010 and 2014, respectively.

In 2013, EU Internal Markets Commissioner Michel Barnier chillingly branded Mastercard’s public criticism of interchange price controls as “unacceptable.”

EU legislation in 2015 put a permanent ceiling on consumer credit and debit interchange fees of 30 and 20 basis points, respectively. In 2019, the EC jawboned the global card networks to align interchange on in-person payments made with non-EEA cards to the same levels as EEA-issued cards. For e-commerce, it allowed interchange fees of 150 and 115 basis points for credit and debit, respectively.

Beyond the EU, the UK has taken its own regulatory path.

The UK’s Payment Systems Regulator (being folded into the Financial Conduct Authority) appears to have the statutory authority to cap interchange fees between the UK and EU by regulatory diktat. It also suggested there’s a problem with card scheme acquirer fees, observing that they’d increased over 25% in real terms from 2017 to 2023, and were not directly linked to costs.

Private lawsuits exacted a different toll, principally in the UK. In a pivotal 2020 UK Supreme Court ruling (Sainsbury’s et al. v. Visa & Mastercard), the court said multilateral interchange fees set by the schemes restricted competition. That opened the floodgates for retailers to sue for damages.

For centuries a fundamental precept of Anglo-American law has been that the burden of proof lies with the accuser. In the realm of payment network competition, however, in 1984 the EC turned that principle on its head. It ruled banks’ Eurocheque interchange fees were price fixing, and that any agreement between banks to set a standard fee was automatically illegal unless proven otherwise. To keep them, interbank payment systems’ fees must pass an “indispensability” test proving that the system would completely collapse without them.

That created an impossible burden of proof for payment systems relying on asymmetric interchange fees to balance participation on both sides of the network to maximize total value. While it’s grossly suboptimal, a payment network can function without interchange fees.

The U.S. Litigation Path: From Walmart to MDL 1720

Even in the US where the rules are more favorable for antitrust defendants, the global payment networks have often sought to avoid going to trial.

Nobody is delighted with the proposed settlement of US merchants’ longstanding antitrust suit against Mastercard and Visa, except, perhaps, the merchant plaintiffs’ attorneys. However, that’s the nature of settlements. Nobody gets everything they want.

Merchants detest the two-sided payment networks’ asymmetric pricing where merchants pay more to accept, and consumers are paid to make, payments. Consumers, of course, love it.

If the landmark settlement is greenlighted, it will give US merchants modest economic relief and additional tools to pressure the credit card networks and issuers on fees, while the leading open-loop payment card networks would eliminate a massive legal risk.

To stand up in court, antitrust violations require abuse of market power harming consumers. Mastercard and Visa have a righteous defense against the antitrust charges levied against them. Nonetheless, storied trial attorney Lloyd Constantine’s framework for thinking about Mastercard’s and Visa’s risk obtains.

In 2004, at a UBS conference in New York City, Constantine likened Mastercard and Visa at trial to defend themselves against an antitrust lawsuit to playing Russian roulette. Reasonable people could disagree on how many chambers the revolver had. Mastercard and Visa, however, know there would be a catastrophic outcome in at least one chamber.

In June 2024, Judge Margo Brodie rejected the last proposed settlement because it didn’t address the honor-all-cards doctrine. She also deemed the agreement’s interchange-fee reductions and surcharging liberalization insufficient. To satisfice her objections, the leading open payment networks sweetened their offers, weakening the honor-all-cards doctrine, increasing the credit interchange reduction a tad, and loosening surcharging restrictions.

The reigning general-purpose credit and debit card systems provide guaranteed payments for the majority of merchants’ sales while generating incremental sales. Sellers take for granted that, every year, interoperating and competing payment networks, processors, issuers, and fintechs will deliver improved services.

However, in the merchants’ dream world, card acceptance would be free, or, better yet, generate fees. They can’t get free acceptance in the market, in settlement of their class-action antitrust lawsuit, or thus far on Capitol Hill and in state capitals.

Elsewhere, when retailers have had the power, they’ve forced banks to pay them to accept payment cards. Indeed, for several decades, Australia’s national EFTPOS debit network had negative interchange fees.

Enormous Value

Imagine a counterfactual in which American and European cardholders were indifferent between half a dozen payment cards in their leather and digital wallets, a world where merchants wouldn’t lose sales by aggressively preferencing a particular payment product. Interchange fees would plummet, and likely go negative. But consumers in the Old and New Worlds have payment preferences.

Mastercard and Visa deliver enormous value to consumers and merchants, value that’s taken for granted. Their concessions to US merchants will destroy value.

The settlement proposes the networks’ credit interchange fees on a weighted basis systemwide be reduced by 10 basis points for five years. On standard cards, the reduction would be considerably more, to 125 basis points for an eight-year period. Retailer Goliaths enjoying custom interchange rates would receive proportionate reductions for the lesser of five years or the term of their deal. Joseph Stiglitz and Keith Leffler, the plaintiffs’ economists, estimated these interchange cuts would save merchants $38 billion in fees by 2031.

The Economics of Two‑Sided Platforms

Two-sided open payment networks like Mastercard and Visa use interchange pricing to optimize participation on both sides of the platform to maximize total value. Interchange fees fund rewards, grace periods, fee-free accounts, robust consumer protections, and a host of neobank and fintech innovations.

Moreover, two-sided, semi-open payment systems like American Express also price asymmetrically. The epic Supreme Court’s 5-4 “Ohio et al v. American Express” decision in 2018, penned by Justice Clarence Thomas, held AmEx’s antisteering provisions didn’t violate federal antitrust law, and recognized that general-purpose payment card networks are two-sided platforms and that competition and value must be viewed holistically.

It held that the plaintiffs’ focus on one side of the market – on merchants’ transaction costs – was flawed. It noted Amex used higher merchant fees to fund “a more robust rewards program, which is necessary to maintain cardholder loyalty and encourage the level of spending that makes it valuable to merchants.”

Large retailers’ profitable two-party and cobranded credit card programs similarly incentivize use by offering cardholders hefty benefits.

Many two-sided-platform businesses employ asymmetric pricing. Job boards charge employers, not jobseekers who have more elastic demand. Internet search is free for consumers, as advertisers pay for it. Bars sometimes offer women free drinks. If Google charged for search and paid advertisers, it would lose share to Bing and Yahoo. A bar that gave men but not women free drinks wouldn’t last long.

Shackling interchange prices by lawsuit, law, or regulatory fiat reduces payment-platform value.

Forced interchange cuts harm cardholders.

Across the pond, the EU’s draconian 30-basis-point credit interchange price cap means European credit card reward programs are sclerotic by U.S. standards. Consequently, Europeans have less incentive to use credit cards. While credit cards accounted for a paltry 8.8% of EU card payment volume in the first half of 2025, they represent a majority of US card payment volume.

Under the settlement, credit card rewards that U.S. Mastercard and Visa issuers offer would be trimmed, but would still be robust compared with Europe. To offset reduced interchange fuel for the system, Mastercard and Visa could hike network acquirer fees and slash issuer fees, and even make them negative. After the EU’s interchange price caps took effect in 2015, card networks increased acquirer network fees.

Greenlighting Surcharging

Merchant lobbyists in the US have long demanded the right to surcharge. Permitting it is part of the price of ending vendors’ decades-long antitrust lawsuit. The agreement would permit surcharging up to the lesser of 3% or sellers’ acceptance costs, defined as interchange and network fees. For purposes of the settlement, acquirers’ (net) fees are excluded from acceptance costs.

Sellers could surcharge Mastercard and Visa credit cards without surcharging American Express and Discover. AmEx bans surcharging unless all competitor cards – including debit – are surcharged. Since Mastercard and Visa prohibit surcharging on debit, merchants can’t meet AmEx’s requirement. Thus, the settlement offers a significant concession: surcharging credit without triggering AmEx’s parity rules.

Surcharging hurts cardholders. That’s why, historically, the global card networks banned the practice. That’s why 10 states, including New York, California, Texas, and Florida, once prohibited it. Connecticut, Massachusetts, and Puerto Rico still ban it. And laws in California, New York, and Maine render surcharging nearly impossible for merchants.

Ironically, while the EU’s PSD2 largely banned surcharging on consumer cards to protect the user experience, this U.S. settlement would encourage more surcharging. Like a handful of U.S. states, EU regulators, for all their faults, recognized that surcharging is anti-consumer.

Many national and state regulators and lawmakers understand surcharges are anti-consumer and often abused. They’re increasingly viewing them through the lens of unfair and deceptive practices. Even where surcharging is permitted by payment-network rules and state law, unfair or deceptive acts or practices laws still require they be disclosed clearly, prominently, and early enough in the purchase flow that consumers can reasonably anticipate them.

Regulators have repeatedly framed hidden or late-breaking fees as “junk fees” or “drip pricing,” emphasizing the problem is not just the fee, but consumers being misled about the ultimate price.

Surcharging is already widespread and widely abused. Because the settlement would make it easier, more merchants will surcharge. That will alienate consumers and shift spend to debit, cash, Zelle, ACH, private-label cards, American Express, and perhaps Discover.

‘A Poisoned Chalice’

Ominously, the agreement would weaken the honor-all-cards rule. US merchants could accept, or not, each of four categories of Mastercard and Visa payment cards: commercial, premium, and standard credit, and debit cards.

The leading credit networks, however, likely wager this concession has no teeth. The honor-all-cards doctrine is fundamental to their value proposition. For consumers, Mastercard’s and Visa’s brands convey the promise of universal acceptance. Eviscerating that promise would destroy value for everybody.

While EU regulation permits merchants to accept consumer cards while declining commercial ones, this right is rarely exercised in practice

Strictly speaking, Mastercard’s and Visa’s U.S. honor-all-cards rules – or more accurately, honor-all-products rules – ended in 2003 as part of the Walmart settlement when debit and credit acceptance were unbundled. However, only a tiny percentage of merchants accepts Mastercard and Visa debit but not credit cards.

The right to decline more expensive premium credit cards would be a poisoned chalice for retailers. It would be operationally challenging, and, critically, would provoke the ire of their best customers—a penny-wise, pound-foolish strategy if ever there was one.

Some 55.5% of U.S. general-purpose card spend is on credit cards. A majority of that comes on premium cards. Issuers would migrate more cardholders and payment volume from standard to premium credit cards, making it even more difficult for merchants to decline or surcharge premium cards.

American Express—whose cards are priced like the leading open payment networks’ premium credit cards – isn’t part of this settlement. Declining or surcharging Mastercard and Visa premium credit cards would push profitable payment volume to AmEx. It also might create an opening for the distant number-four credit network, Discover (now part of Capital One), to up its game and start to take share.

If merchants refuse to accept Mastercard and Visa premium credit cards, that would harm cardholders. Cardholders haven’t had a seat at the table. They want richer, not diminished, rewards. They don’t want to be surcharged or declined at the point of sale because their card has generous rewards.

Paid to Pay

The dynamic U.S. payments system isn’t broken. It’s fiercely competitive and innovative at every stage in the value chain. The nature and intensity of that competition and innovation continue to evolve.

The more competitive the system, the more – to a point – consumers are paid to pay.

The U.S. has four general-purpose credit networks, a dozen general-purpose debit networks, a range of two-party retail credit and debit card networks, digital-wallet-anchored payment networks like PayPal, a raft of burgeoning BNPL systems, open-banking-initiated payments, P2P payment systems spilling into retail like Cash App, Venmo, and Zelle, and emerging dollar stablecoins and deposit tokens.

How the market works and is defined matters in antitrust.

Judge Barbara Jones said in her epic 2001 ruling that Mastercard and Visa banning member banks from participating in Amex and Discover was illegal “[b]ecause Visa and Mastercard have large shares in a highly concentrated market with significant barriers to entry, both defendants have market power in the general-purpose card network services market, whether measured jointly or separately.”

But the competitive field in payments is expanding. The broader market definition used by Judge William Hoeveler in deciding the first US antitrust suit against Visa’s asymmetric interchange pricing is relevant.

In 1979, Nabanco contended Visa’s interchange fees involved price fixing and were anticompetitive. Hoeveler held that the relevant market was “the nationwide market for payment systems,” in which Visa didn’t have market power. He concluded that interchange fees were pro-competitive and promoted “efficiency and competition,” and that prohibiting them would “undermine interbrand competition.”

Not a Done Deal

The current case stems from more than 50 antitrust lawsuits consolidated into MDL 1720. A $7.25-billion proposed settlement was overturned in 2016 because merchants seeking damages and those seeking changes to the system’s rules didn’t have the same interests and therefore weren’t adequately represented by the same counsel.

MDL 1720 was split into damages and injunctive-relief cases. The damages case settled for $5.5 billion in 2018 and was upheld on the final appeal in 2023.

The proposed settlement of the injunctive-relief suit isn’t a done deal. It’s subject to a preliminary hearing this year and a fairness hearing, presumably, late this year or early in 2027. The National Retail Federation, the National Association of Convenience Stores, Walmart, Circle K Stores and 7-Eleven, have sent Judge Brian Cogan, who replaced Brodie, a barrage of objections.

An imperfect negotiated settlement between private parties is better than a solution imposed by politicians or regulatory fiat, albeit not as good as outcomes determined in a competitive free market. It would preserve, albeit with constraints, the leading credit networks’ ability to use interchange to balance participation across the ecosystem. Moreover, it would complicate the passage of the Credit Card Competition Act, notwithstanding President Trump’s endorsement, and make it more difficult to advance legislation regulating interchange fees at the state level.

If Cogan approves the settlement, Mastercard and Visa would get an armistice with merchants on one front in the forever war over acceptance fees. They won’t, however, be singing kumbaya. The forever war over payment-acceptance fees will continue at the point of sale, on Capitol Hill, in state capitals, and with regulators.

The settlement would nudge the U.S. closer to the European regulatory model – lower interchange, lower rewards and reduced cardholder value, and a less dynamic payments system.

—Eric Grover is principal at Intrepid Ventures

America’s credit card industry is the most competitive in the world and delivers enormous value for consumers and merchants ranging from mom and pops to Goliaths like Walmart and Amazon. There are four national general purpose credit networks Visa, Mastercard, American Express, and Discover. Roughly 3,700 financial institutions issue credit cards. Consumers enjoy a surfeit of choice. More than 300 banks and nonbanks provide payment acceptance to merchants. In spite of that, the credit card industry is in Washington’s cross hairs and value consumers and merchants take for granted at risk.

With the midterm elections looming, the “affordability crisis” has become a major political battlefield in Washington. President Trump has weighed in with a vengeance seeking to vilify America’s credit card industry by attacking fees consumers and merchants pay.

But credit cards aren’t the villain.

Consumers across the socio-economic spectrum have credit cards giving them grace periods, a broad range of rewards, robust consumer protection, the option to instantly draw down revolving credit, record keeping, and secure convenient payments worldwide in-person and online.

In September 2024, at a Long Island presidential campaign rally, Trump first floated imposing a temporary 10% cap on credit card interest rates. In a social media post on January 9th 2026, he returned to his idée fixe, calling for a 10% cap for one year and ordering banks to comply by January 20th 2026.  Trump doesn’t, however, have the statutory authority to impose interest rate price controls by fiat. Director of the National Economic Council Kevin Hassett suggested banks could voluntarily issue “really great new Trump cards” with 10% interest rates. Banks didn’t bend the knee. At the World Economic Forum in Davos on January 21^st, 2026, Trump doubled down on his demand and asked Congress to act.

On Capitol Hill, the left and populist right have railed against the credit card industry. Last year, that populist, fiery critic of credit card issuing and network giants Republican Senator Josh Hawley and Democratic Socialist Senator Bernie Sanders introduced the “10 Percent Credit Card Interest Rate Cap Act.” It went nowhere. Most Republicans and even many Democrats are leery of price controls. While it’s still a heavy lift, the President’s resuscitated its prospects.

Populist Republicans and progressive Democrats on Capitol Hill are singing from Trump’s hymnal, framing interest rate caps as vital to rein in rapacious banks and help beleaguered Joe and Sally Sixpack. At a congressional hearing on January 13^th “Delivering for American Consumers: A Review of FinTech Innovations and Regulations,” the committee’s ranking member firebrand Maxine Waters gushed about Trump’s proposed price control.  Politics can make strange bedfellows.

Consumers should be alarmed. Very alarmed.

Credit cards give consumers across the socio-economic and credit-risk spectrums access to unsecured revolving credit. Putting a ceiling on credit card interest rates below market rates would simultaneously increase credit demand and shrink supply, particularly for riskier consumers whom progressives and populists loudly profess to want to help. The credit needy would be driven to other sources of credit including the black market.

At Davos, Jamie Dimon, CEO of the largest Visa credit card issuer, Chase, pushed back. He warned it would be an “economic disaster” and force banks to stop lending to 80% of the population. Dimon observed if banks can’t price for risk, they wouldn’t lend to riskier borrowers. Jane Fraser, CEO of the largest Mastercard credit card issuer, Citi, said “Caps do the opposite of what you think they would do – they restrict access to credit.” That’s not rocket science. Politicians forcing down the price of revolving credit for headlines will reduce its supply.

While decrying credit interchange and network fees, merchants have noticeably been quiet about proposals to force down credit card interest rates. They too should be alarmed. Credit cards generate incremental sales for retailers.

Attacking the other side of the market – fees merchants pay, Trump endorsed the Credit Card Competition Act (CCCA) “…to stop the out of control Swipe Fee rip-off…”

The CCCA isn’t price controls. It would be a government intervention fundamentally changing the nature of credit card network competition. It would provide merchants with a powerful ratchet – a choice between two networks for every transaction, to pressure credit interchange and network fees. Interchange fees fund credit card rewards, grace periods, free cards, and innovation. Network fees fund the credit networks.

Critics warn that credit card rewards Americans love, and take for granted, would be at risk. However, as long as large credit card issuers like BofA, Chase, Citi, and Capital One have alternative networks to choose from, they could keep those networks in check. If a second network attempted to compete by slashing interchange fees, the issuer could simply replace them. Policing the leading – and CCCA-targeted – open credit networks: Mastercard and Visa from reducing interchange fees would be more difficult. Still credit card issuers could shift share away from Mastercard or Visa to the other if either slashed interchange fees to win credit transaction routing.

Trump is trying to squeeze the payments industry on both sides – merchant fees and consumer finance charges. It’s political theater, not a serious effort to improve the lives of American consumers.

The storied European payments consolidator Worldline’s stock is down a mind-bogglingly 96% from its April 2021 high. The market is worried about its lack of growth and sources of revenue. It cries out for an intervention. Worldline’s new CEO Pierre-Antoine Vacheron has a short window of opportunity to change its trajectory. If he doesn’t, private equity or a trade buyer(s) will acquire Europe’s largest payment processor in whole or more likely in pieces to boost its portfolio of payment-processing assets’ performance.

The European payment giant’s rich 2021 valuation apogee was predicated on the idea the pandemic would increase electronic payments growth, it had revenue and cost synergies with acquisitions and processing across the payments value chain in multiple geographies, and, therefore, that management could and would deliver robust, profitable organic growth. That story hasn’t panned out.

The electronic payments market is healthy. While the French processing behemoth’s management cited a difficult economic climate in Europe as a reason for revenue decline, Europe’s electronic payments market is growing much faster than the more mature US market. And Worldline has attractive but not enough beachheads outside Europe.  In 2024, card payments in Worldline’s main served markets, the EU, increased 11.1% yoy. In 2024, purchase transactions for the global general-purpose “card” networks increased 12.4% yoy worldwide. However notwithstanding growing European and global payment markets, the beleaguered French payments consolidator is shrinking.

In 2022, CEO Giles Grapinet said Worldline’s top-line growth should be from 9 to 11% from 2022 through 2024.   It delivered in 2022, generating 10.7% organic revenue growth. Thereafter, it didn’t. Organic growth in 2023 was 6%. It slid to a paltry .5% in 2024, which in real terms was negative. And in the first half of 2025, Worldline shrunk an alarming 4.4%. This is particularly worrisome because most of its banks’ and merchants’ payment volumes should be growing with economic growth and electronic payments continuing to take share from cash. Absent pricing concessions and/or client attrition, revenue should increase naturally.

Compounding its problems, regulators and media in multiple markets have cast doubts on the sources of its revenue. The French payments behemoth has been dogged by allegations of lax compliance serving reputationally-challenged merchants. On July 26, 2023, Germany’s Federal Financial Supervisory Authority banned its German subsidiary Payone from processing transactions for high-risk merchants. In 2024, Worldline terminated risky merchants accounting for €130 million in annual revenue. The Brussels Public Prosecutor’s Office is investigating its Belgian unit. And in June 2025, press reports alleged Worldline was still doing business with high-risk merchants in Germany and the Nordics. Serving legal but reputationally-challenged business can be highly profitable. The company says “high brand risk” merchants only account for about 1.5% of its acquiring volume. The sources of Worldline’s revenue like Caesar’s wife must be above suspicion.

With over fifty years of relentless M&A, Worldline built massive scale, expanded markets served, and enriched its product suite. Acquisitions of Banksys, Equens, and Six, gave it dominant payment-processing positions in Belgium, the Netherlands, and Switzerland, respectively. Picking up Ingenico in 2020, it declared it was creating Europe’s leading payment processor. Integrating acquired processors has been in its wheelhouse. Based on its history of acquiring and integrating payment processors, when it acquired Ingenico Worldline touted the “certainty of synergy delivery.”

Worldline like Fiserv, FIS, Global Payments, Nexi, and other payment-processing consolidators has promised cost and revenue synergies with acquisitions.

Rationalizing duplicative platforms, operations and administrative overhead eliminates costs and enables processing economies of scale to be realized. However, there’s a large cost and larger opportunity cost of dedicating resources to identifying functionality differences between platforms, replicating functionality, and converting merchants and banks.

They’re cross-sell opportunities, but revenue synergies while more appealing are difficult to bank on.

Moreover, complexity management diseconomies have frustrated Worldline and other acquisitive payment processors. After picking up acquirer Worldpay in 2019, FIS reversed course and spun it off in 2024. In quest of a narrower and simpler business, Global Payments too did a 180, selling its card issuer processing business Total Systems – acquired in 2019, prepaid card business Netspend, healthcare software provider AdvancedMD, and its gaming and payroll businesses.  Worldline sold the pos terminal business it acquired with Ingenico to Apollo Funds and is selling its Mobility and e-Transactions Services business to Magellan Partners.

Vacheron must quickly take stock of the flagging payment-processing giant’s considerable portfolio of payment processing and network assets, and act to change its trajectory. He needs to restore organic growth and confidence in the quality and sources of its revenue, and confidence with existing and prospective bank and merchant clients.

It won’t be easy.

The payments market is hypercompetitive and traditional and nimbler “modern” competitors aren’t standing still.

Worldline is an industrial-strength payment processor relied on by financial institutions and merchants.  It understands how to compete with traditional bank and nonbank processors. It doesn’t, however, match up so well against more aggressive and nimbler fintechs and modern processors, and has been relatively weak in critical and sizzling-hot e-commerce and integrated payments.

Culture matters. Payment processors like Adyen, Shift4, and Stripe, can fairly be described as having enterprising can-do cultures. Those aren’t adjectives that jump to mind describing the lumbering French processing behemoth. Changing the culture and course of a huge, bureaucratic multinational processor can’t be done on a dime.

Most delivery system costs are fixed so Worldline, with scale on both sides of the payments ecosystem, in principle, enjoys significant operating leverage. But unlike Adyen, which operates off a single platform worldwide and has eschewed acquisitions, under the hood Worldline has multiple platforms. They diminish its operating leverage and clients’ ease of integrating across multiple markets.

Worldline has advantages over fintechs and smaller processors.

While not as big as the US payment-processing colossus Fiserv, Worldline has enormous scale in transactions and accounts processed.

Its suite of issuer, merchant, and interbank processing services have benefited from decades of enhancements informed by clients.

Its broad and deep delivery footprint in core European markets should help serving multinational banks and merchants.

Worldline often touches transactions from end-to-end, and, consequently, should be able deliver more value for merchants, banks, and cardholders. It’s in a position to support campaigns to consumers generating additional sales. If a processor generates sales for merchants and payments for banks, there’s more revenue for everybody, less pressure on fees, lower attrition, and it will be easier to win new clients.

The French processing behemoth has powerful traditional distribution channels. Its joint ventures with BNP in Italy, Axepta, with Credit Agricole in France, CAWL, with Eurobank in Greece, with the German Savings Banks, Payone, and with ANZ in Australia, extend its reach.

Europe’s payments industry is heavily regulated. Worldline management has talked up their understanding of and appreciation for heavy-handed and directive EU regulation, intimating that’s an advantage over American competitors. All processors should stay within the legal and regulatory guardrails. But that’s not a competitive advantage. Worldline would do better to have a laser focus on delighting customers, besting competitors, and maximizing shareholder value, not signaling euro-piety, which the market doesn’t value.

The shrinking processing giant’s underperforming but valuable assets with good management should produce predictable annuity streams of fees. In the first half of 2025 its revenue was $2.588 billion. But, with a market cap of $850 million, Worldline is valued at a dismal.16x revenue. In contrast, its US payments consolidator peers Fiserv, FIS, and Global Payments are valued at 3.66x, 3.56x, and 2.15x revenue, respectively. European peer Nexi trades at 1.11x revenue

High-growth Adyen serving six continents is valued at a heady 18.2x revenue. The Dutch phenom grew 20% yoy in the first half of 2025. Private Stripe generates roughly the same revenue as Worldline but is valued at a whopping $106.7 billion. It grew payment volume roughly 40%, 22%, and 28% in 2024, 2023, and 2022, respectively. The market likes credible high-growth and global stories.

While the struggling French payment-processing giant isn’t going to generate organic growth north of 20%, it should aim to at least beat market growth and for a valuation comparable to its payment consolidator peers.

Worldline isn’t greater than the sum of its parts. It should be.

Cash use by country varies enormously. While its use has been falling on both sides of the Atlantic, Europeans use considerably more cash than Americans. Higher taxes and greater tax avoidance, culture, and lower consumer incentives to use electronic payment systems, contribute.

The ECB’s “Study on the payments in the euro area 2022” reported that 59% of consumer payments in the euro-zone at the physical point of sale were made in cash. Seventeen percent of payments in the euro-zone in 2022 were online. Assuming they were largely electronic, roughly 49% of consumers’ payment transactions in the euro-zone were in cash. Across the Atlantic, the Federal Reserve’s “2024 Findings from the Diary of Consumer Payment Choice” reported that only 18% and 16% of all US consumer payments in 2022 and 2023, respectively, were made in cash.

People do more of what they’re rewarded for and less of what they’re penalized for. Incentives in the EU and the U.S. differ.

The Tax Foundation’s Center for Global Tax Policy’s “International Tax Competitiveness Index 2023” scores U.S. consumption taxes as lower than every EU country in the Organization for Economic Cooperation and Development. And, the U.S. has lower individual income taxes than most major EU countries. One of the reasons more Europeans than Americans pay in cash is to avoid higher taxes.

Every country has an informal economy of activities hidden from government to avoid taxes and regulation, or for institutional reasons. If people want to avoid paying sales, value-added, and income taxes, they don’t pay with or accept credit and debit cards. They pay in cash.
With the exception of Switzerland, Europe’s shadow economies are larger than America’s, most far larger.

Economists Leandro Medina and Friedrich Schneider’s fascinating research “Shedding Light on the Shadow Economy” estimated the size of informal economies in countries worldwide. There’s enormous variation. They estimated that at the extremes, Switzerland’s and Bolivia’s shadow economies in 2017, were 5.4% and 55.8%, respectively, of the total.

Medina and Schneider estimated that in 2017 America’s shadow economy was 5.7% and, in the euro-zone, Belgium’s, Greece’s, Italy’s, Portugal’s, and Spain’s shadow economies were 16.5%, 24.8%, 19.8%, 16.1%, and 20.3%, respectively, of the total. Northern European countries’ grey economies while larger than America’s, aren’t as much larger.

Cultural attitudes matter. Francis Fukuyama in Trust: The Social Virtues and The Creation of Prosperity observed most countries are “low-trust,” meaning that people don’t trust those outside their families or inner circles. Cheating on taxes is more culturally acceptable in low-trust societies. America is a high-trust society. Much of southern and eastern Europe is low-trust.

When tax avoidance is widespread, law-abiding taxpayers have to pay more. Making the use of electronic payment systems more attractive, would make it more difficult for individuals and firms to operate in the shadow economy, and, thereby, potentially, enable law-makers to reduce tax rates.

Irrespective of the relative tax burdens, incentives to use electronic payment systems are greater in the U.S. than in Europe. American cardholders are richly rewarded for paying with credit cards. A more robust revolving-credit market and market interchange fees funding a buffet of benefits and rewards make credit cards a more compelling consumer proposition in the U.S. Consumers pay with cards for convenience, record-keeping, and because often they’re rewarded handsomely for doing so. In 2023, 57.3% of US general-purpose card payments value and 40.3% of transactions were credit. Whereas in the first half of 2023, only 8.8% of EU general-purpose card payments value and 8.1% of transactions were credit.

The EU has reduced people’s incentives to pay electronically. Interchange fees paid by merchants fund cardholder rewards and benefits, and fee-free accounts. Brussels imposed punitive price caps on credit and debit interchange fees of 30 and 20 basis points, respectively. In 2022, the average US market debit-interchange fees for politically sympathetic bank issuers with under $10 billion in assets of Discover, Mastercard, and Visa debit cards were 141, 137, and 143 basis points, respectively – roughly 600% higher than the EU’s di minimis price control. Some U.S. premium-credit interchange rates are 800% higher.

Because of interchange price controls, European programs rewarding card use, to the extent they exist at all, are stingy. That accounts, at least in part, for why credit-card use is much less prevalent and cash use is higher in the EU.

Enabling the payments industry to more richly incentivize Europeans to make card payments won’t eliminate cash or the grey economy, but it would reduce both.

Capital One is the trailblazer that larger banks like BofA, Chase, and Wells Fargo should follow to move their debit businesses to a freer market enabling enormous value creation for their customers and shareholders. With Capital One’s $35 billion all-stock acquisition of Discover, it will own two national debit networks and thereby free itself from value-stifling debit-interchange price controls.

Interchange fees are the principal revenue source for debit cards and DDAs. They fund fee-free accounts, a range of benefits and rewards, and issuer and fintech innovation. They’re neobanks’ lifeblood.

The 2010 Dodd-Frank Act’s “Durbin Amendment” subjects politically unsympathetic banks with over $10 billion in assets that “route” transactions over third-party debit networks like Mastercard and Visa, to punitive debit-interchange price controls. All banks using third-party debit networks are required to provide at least two unaffiliated networks on each card for merchants to choose between. Lawmakers’ idea was to force down merchants’ debit-card-acceptance costs. But one has to consider the entire payment system end-to-end. The unacknowledged consequence was higher consumer fees for debit cards and DDAs, the elimination of benefits and rewards, and suffocating innovation.

Congress tasked the Fed with implementing its debit-interchange price controls. Under the Fed’s proposed reduced cap, covered debit issuers would earn 17.7 cents in interchange on the average $50 transaction or 35.4 basis points.

In 2022, the average market debit-interchange fees for Discover, Mastercard, and Visa were 141, 137, and 143 basis points, respectively, which is 300% higher than the new proposed ceiling. Brand-neutered traditional pin-debit networks have lower interchange fees. Average market debit interchange fees for Accel, Jeanie, NYCE, Pulse, and Star in 2022 were 57, 44, 75, 74, and 49 basis points, respectively.

Banks unfettered by the cap would earn vastly more interchange revenue.  Plus, banks owning their own debit network would earn roughly 16 basis points in network fees from merchants. On the cost side, they would save a few basis points in network-issuer fees currently paid to third-party networks. The economic lift would be compelling and banks’ shareholders and customers would be the chief beneficiaries.

J.P. Morgan Chase looked at acquiring Discover, but passed. Perhaps Chase wasn’t interested in some of Discover’s nonnetwork businesses.

In 2023, BofA, Wells Fargo, and Chase debit cardholders did $468.1 billion, $467.6 billion, and $467.3 billion of purchase volume, respectively.  Capital One debit cardholders did considerably less – only $66.7 billion. By acquiring its own debit network, each of America’s three largest retail banks, therefore, has an opportunity to realize incremental revenue and cost savings roughly seven times greater than the Capital One/Discover combination’s gain.

Other than Mastercard and Visa, Discover has the best debit network in terms of acceptance and a trusted brand that a debit-issuing titan could acquire to free itself of the Durbin Amendment’s shackles.

There are, however, other debit networks they could try to buy. Processors Fiserv and FIS own the Accel and Star debit networks, and the NYCE and Jeanie networks, respectively.  Alternatively, banks might seek to buy and build out a smaller cooperative debit network such as Shazam or Co-op Pay.

The tier-two debit networks have interrelated weaknesses, all of which a BofA, Chase, or Wells Fargo could fix. Their brands are near worthless; they have weaker merchant acceptance than Discover, Mastercard, and Visa; they do little to incent incremental cardholder use; and they have lower interchange than the leading debit networks, making it more difficult to fund cardholder benefits.

In retail payments, brands convey the promise of acceptance and guaranteed payment. Tier-two debit networks ride in the slipstream of Visa’s and Mastercard’s brands. For instance, if Star’s enabled on a Visa-branded debit card, its brand is rarely on the card. At best it’s displayed with a small bug on the back of the card. When transactions are routed over Star, cardholders and merchants assume it’s a Visa transaction.

BofA, Chase, and Wells Fargo have powerful, trusted brands. Using their brands on their networks’ debit cards and as acceptance would strengthen the network. A stronger network brand begets greater acceptance, spend, and interchange revenue.

Traditional pin-debit networks Accel, Jeanie, NYCE, and Star don’t enjoy ubiquitous acceptance in-person, much less online. Nevertheless, each of them has acceptance at most of the nation’s largest retailers.  Critically, banking giants would boost their networks’ acceptance, directly and through partners.

BofA, Chase, and Wells Fargo in a joint venture with Fiserv, have acquiring businesses that provide payment acceptance to merchants. They would use their own and third-party acquirers to expand their debit networks’ acceptance and thereby their debit volume reaping market interchange revenue. Greater acceptance begets greater use and interchange revenue, and bolsters the brand.

Retail-bank colossi have the wherewithal to create rich reward-and-loyalty programs boosting use. Greater cardholder spend increases acceptance, enables higher interchange, and strengthens the brand.

And, broader acceptance, a brand consumers and merchants recognize and trust, and meaningful rewards and greater spend, enable higher interchange, which enables richer rewards. There are powerful flywheel effects.

Debit-issuing giants would only earn market interchange where their network is accepted. Elsewhere they’d be subject to Congress’s interchange cap and have to support a second unaffiliated debit network. Initially banks with their own debit network would have to cobrand debit cards with Discover, Mastercard, or Visa to ensure maximum acceptance, while investing to build acceptance parity.

While the U.S. debit-network market is the most competitive in the world, it’s dominated by global payment networks Visa and Mastercard. Nonetheless, if several major debit issuers owned their own debit network, competition would intensify. It would drive a stake into the heart of the Durbin Amendment’s manacled market. They’d slash or eliminate retail-banking and debit fees and offer consumers a rich buffet of rewards. That’s pro-consumer. Being pro-consumer is a good growth strategy.

America’s retail-banking behemoths don’t have to continue to be straitjacketed by the Durbin Amendment. They haven’t put their political shoulders behind repealing it. They owe their customers and shareholders more. Capital One is showing them there’s another path to escape its restrictions and create value for customers and shareholders.

The Cato Institute’s Nicholas Anthony warned that the Biden administration is waging “a war on (payment industry) prices.” The payments industry provides services funded by a range of fees paid by consumers and businesses. Demagogic regulators and politicians pillory industry fees as exploitative, as “junk fees” and “a tax.” These assaults are made in a steadily worsening political climate. Despite the increasing number and severity of attacks, the payments industry has been reactive, resisting each assault it occurs, and treating it as a one-off.

Whoever frames the terms of the debate has the high ground. It’s imperative that the payments industry get off its backheels and make an affirmative case in the public square for the value it delivers and for the freedom to compete and innovate. Consumers and businesses need to be reminded of that value and alarmed about the threat Washington mandarins imposing restrictive regulations and price controls pose to payments value and innovation that they take for granted.

Finance charges are the credit-card industry’s largest source of revenue. Introducing the Capping Credit Cards Interest Rate Act Republican Senator Josh Hawley declared “exploiting people through high interest rates is wrong.” Hawley’s bill would limit credit-card interest rates to 18%, which would reduce the number of Americans approved for credit cards and average credit limits. While Hawley would piously trumpet his good intentions, in what universe would this help Joe and Sally Sixpack?

Singing from the same hymnal, the CFPB accusatorily reported that large credit-card issuers’ median interest rate for cardholders with good credit was 28.2% compared with 18.15% for small issuers and said large issuers were three times more likely to charge an annual fee. The CFPB is trying to socialize the introduction of credit-card price controls. It blamed higher rates on a “lack of competition.” One would be hard-pressed, however, to find an industry where consumers and businesses have more choice than with credit cards.

Vilifying the payments industry makes for strange bedfellows. Progressive CFPB Director Rohit Chopra and populist Republican Hawley both threaten the payments industry and credit cardholders

Credit cards are a fabulous product providing most Americans with a convenient, secure means to pay worldwide in-person and online, access to cash, record keeping, rewards, and the option to instantly access credit.

If a national cap was imposed on credit-card interest rates, revolving credit would become less available, particularly to riskier consumers with less access to financial services, consumers many industry critics say they want to help.

Interchange fees paid by merchants are the credit-card industry’s second largest revenue source and debit cards’ and neobanks’ primary revenue source.

The 2010 Dodd-Frank Act imposed price controls on debit interchange fees for politically-unsympathetic large issuers. The Fed was charged with implementing interchange caps reasonable and proportional to debit issuer’s incremental processing costs. In 2011 debit interchange revenue for covered issuers was cut by over 50%.

Debit-issuer processing costs have fallen by roughly 50% since the Durbin Amendment was implemented. The Fed is, therefore, going to slash the debit-interchange price cap by ~ 28%.

Lower debit-interchange price caps will further advantage programs where community banks enjoying market interchange have partners with the resources and reach to fully capitalize on their massive revenue edge. PayPal’s Venmo card, the Cash App card, and Chime’s debit card, are well-positioned to take debit share from Goliath banks like BofA, Chase, and Wells Fargo, which are shackled by debit-interchange price controls. Further cutting giant debit issuers’ debit economics will also ensure a huge advantage for Capital One’s debit cards and DDAs, which would also enjoy market interchange fees, if it acquirers Discover.

Senators Durbin, Hawley, Welch, Reed, Vance, and Marshall’s Credit Card Competition Act targets Mastercard and Visa and politically-unsympathetic credit-card issuers with more than $100 billion in assets. It aims to make credit-card networks invisible utilities and enable merchants to ratchet down network and interchange fees.

Like Americans, Canadians love their credit-card rewards. Like in America, they’re at risk. The Canadian government jawboned Mastercard, Visa, and Canadian banks into slashing credit-card interchange and disingenuously declared that credit-card rewards wouldn’t be affected. As interchange fees fund rewards, the only way they won’t be affected is if Canadian banks introduce new fees or accept lower profits.

Penalty fees also provide revenue for credit and debit issuers and encourage consumers to behave responsibly.

An absolutist CFPB plans to slash late and overlimit fees.

Late fees encourage cardholders to pay their obligations on time and compensate issuers for risk and servicing costs. The Card Act directed the Fed to ensure that late fees were “reasonable and proportional” to the violation. A fee that is fully disclosed and accepted by the buyer is reasonable.

The bureau proposes capping late fees at $8 and eliminating inflation adjustments. That will cost credit-card issuers more than $10 billion in lost revenue, increase delinquency, boost revolve rates, cause issuers to tighten credit underwriting criteria and reduce credit lines, and ultimately hurt consumers the CFPB claims to want to help.

The U.S., Fort Worth, and Longview chambers of commerce, the American Bankers Association, the Consumer Bankers Association, and the Texas Association of Business are suing the CFPB to stop it from slashing late fees, charging its proposal is lawless and asking the court to issue a preliminary injunction to keep its proposed $8 late fee from taking effect.

The CFPB also proposes gutting overlimit fees for banks with over $10 billion assets by treating them as finance charges. Paraphrasing George Orwell, in the CFPB’s view, all banks are equal, but some banks are more equal than others. It’s curious and rawly political that the CFPB views overlimit fees assessed by large banks as harmful, but not those assessed by community banks.

There are two challenges to the administrative state before the Supreme Court that bear watching that might curb absolutist financial agencies’ power.

The Community Financial Services Association contends that the CFPB self-appropriating from the Fed is unconstitutional.

And herring fishermen (Relentless versus the Department of Commerce and Loper Bright versus the Department of Commerce) are challenging the Chevron Doctrine and thereby the enormous deference the CFPB and other agencies regulating financial services enjoy and exercise.

It’s tempting but short-sighted for payments firms not to worry about price controls they’re not directly impacted by or that in the short-term they may profit from.  In the face of hostile politicians and regulators, the payments industry needs to heed Benjamin Franklin’s admonition to hang together or, assuredly, risk being hung separately.

Capital One’s $35.3 billion acquisition of Discover will be a thunderclap for the debit-card, retail-banking, and payment-network markets. The Discover network has long been the number five retail-payment network in the US, after Visa, Mastercard, American Express, and PayPal, and since its acquisition of Diners Club from Citi in 2008, has struggled as a weak, aspiring global payment network. Capital One’s acquisition of Discover will improve its prospects.

Economic activity and innovation move away from price controls and prescriptive regulation to freer domains.  With Discover, Capital One has a signal opportunity to disrupt Senator Durbin’s shackled US debit market

In 2011, Durbin’s price controls were imposed on debit-interchange fees politically-unsympathetic large banks earn. Price controls reduced fee-free banking, debit rewards, and innovation. Politically-sympathetic but resource-and-reach-constrained community banks enjoy market interchange but have had difficulty capitalizing on their advantage. However, collaborating with players with greater resources and reach, like PayPal, Block, and neobank Chime, they’ve enjoyed some success taking debit-payment share. Threatened, large banks lobbied the Fed to extend debit-interchange price caps to these programs, thus far unsuccessfully. They should instead put their shoulders four-square behind repealing Durbin’s price controls.

When Capital One’s debit-card portfolio is converted from Mastercard to the Discover network, it will benefit from higher market interchange and not have to offer merchants one of its network competitors. Operating as a three-party debit network routing transactions to itself as an issuer, Capital One will be exempt from the Durbin Amendment. Assuming all its debit transactions are Discover (some will be Pulse), its debit-interchange revenue will increase roughly 300% for a $50 payment. Capital One Mastercard-branded debit cards would earn 17.7 cents per payment under the Fed’s proposed debit cap of 14.4 cents per transaction, 4 basis points, and 1.3 cents for fraud-prevention recovery. Capital One Discover debit cards will earn 71 cents per transaction reaping interchange of 110 basis points and 16 cents per transaction.

Fueled by higher interchange, it will offer consumers richer value propositions than behemoths like BofA, Chase, and Wells Fargo, fettered by Illinois’s senior senator’s handiwork, can.

Capital One has an online and bricks-and-mortar retail bank, which will be bulked up by Discover’s digital bank. With its prowess crafting and executing strategies to originate cardholders and incent use, honed since its days as an aggressive monoline credit-card issuer, it will win share from banks straightjacketed by Durbin’s price controls.

America already has the world’s most competitive debit-network market. Competition will intensify. Bolstered by Capital One, Discover will become a more formidable competitor for Visa, Mastercard, Fiserv’s Star, and FIS’s NYCE.

Progressive heartthrob and financial-services-industry nemesis Senator Warren hyperbolically warns the merger “threatens our financial stability, reduces competition, and would increase fees and credit costs for American families,” is “dangerous” and “will harm working people.” Joe and Sally Sixpack, however, might not view fee-free banking and richer debit rewards – say 1% cashback, as harmful.

In 2021 56.2% of U.S. debit transactions were subject to interchange price controls. The percentage of debit transactions subject to price caps will fall precipitously, which will be good for consumers.

Debit-network and DDA competition and value for consumers will increase because of Capital One’s acquisition of Discover.

Strengthening Discover’s credit-card network will be more challenging.

Notwithstanding a patchwork of reciprocal-acceptance relationships with foreign payment networks, Discover has much weaker acceptance than Mastercard and Visa, and paltry issuance, abroad. Its reciprocal-acceptance network is handicapped by a lack of co-branding and co-signage at the pos.

While Capital One will keep a huge portfolio of Mastercard and Visa credit cards, tens of millions of credit cards it migrates will add heft to the Discover network.

Capital One will earn network acceptance licensing and processing fees instead of paying them to Mastercard and Visa. And, it will no longer pay issuer licensing and processing fees on cards converted to Discover.

In many countries issuers enable a national network for domestic payments and Mastercard or Visa for payments abroad. Chinese banks often co-brand CUP cards with Mastercard or Visa. French issuers co-brand all Cartes Bancaires cards with Mastercard or Visa. Capital One might seek a similar arrangement to provide acceptance worldwide. However, Capital One, Mastercard, and Visa would all have reservations. For Capital One a hybrid card might hamper enhancing Discover’s brand. And for the global networks while they’ve done it with CUP, they’d have reservations about strengthening a competitor.

To boost its value the Discover credit-card network most needs third-party issuance and greater acceptance abroad. If Capital One’s converted portfolio prospers, giants issuing Mastercard, Visa, and American Express cards will be easier, albeit still difficult, to persuade to offer Discover as well.

Community banks currently issuing Pulse and retailers with co-branded credit cards may be easier prospects for Discover than a U.S. Bank or Citi.

Capital One’s acquisition of Discover can only increase competition. Consumers, Capital One and Discover shareholders, and policymakers, should applaud the deal.

Some spheres of activity like defense and law enforcement are naturally provided by the state. They’re public goods. Most goods and services, however, are best supplied by the private sector.

Payment systems like Visa, Mastercard, American Express, PayPal, Discover, Zelle, Cash App, Swift, Fedwire, and cash are essential for commerce, indeed for modern life. People take them for granted. They can be operated by government, the private sector, or both.

The US payment system is mixed. Retail, person-to-person, and bill payment systems are run by the private sector. The Fed plays an important albeit less visible role serving banks.  It operates interbank payment systems such as ACH and Fedwire, which compete with banks’ cooperative processor The Clearing House, which, ironically, is regulated and supervised by the Fed. It also issues cash (Federal Reserve Notes) distributed by commercial banks.

In 2023 the U.S. central bank will launch an instant-payments system FedNow, which will compete with TCH’s RTP, Visa, Mastercard, Zelle, Fiserv, FIS, and Discover. The Fed’s offering banks up to 2,500 fee-free payments per month to incent use. The Monetary Control Act requires the Fed to recover its costs “over the long run,” but the long run is whatever the Fed decides it is. While the Fed has typically measured long-run cost recovery for mature services to be over ten years, it declared “it expects FedNow “to achieve its first instance of long run cost recover” beyond 10 years.  Private capital doesn’t enjoy that kind of luxury.

If a private-sector payment system offered free payments to build network critical mass, all well and good. However, unlike private payment networks the Fed enjoys unlimited resources and can’t become insolvent.

Nobody assumes government should make wine, mobile phones, airplanes, or movies, or run restaurants, gyms, and hotels. While a case can be made for it to operate payment systems, the bar should be set high. The Fed should only play roles that the private sector cannot, and it shouldn’t be permitted to use unlimited government resources to unfairly subsidize its offerings in competition with the private sector.

Concerns over national security, systemic importance to the financial system and economy, efficiency, or needs the private sector can’t address, might be used to justify government running payment systems.

No government wants to rely on payment systems subject to control by potentially hostile powers. Governments may, therefore, operate critical payment networks, insist they’re run by national players, or if they’re foreign networks, that they process in-country.

After Putin’s 2014 Ukraine invasion, Russia was subjected to limited financial sanctions including US-domiciled Mastercard, Visa, and PayPal cutting off Crimea, but not Russia. Reminded of its vulnerability Moscow mandated foreign networks process domestic payments in-country and its central bank launched a national card network Mir.

China and India mandate foreign payment systems process in-country. China’s payment policies are baldly autarkic.  Notwithstanding Beijing’s 2001 WTO commitment to open up its domestic payments market by 2006, the Middle Kingdom’s prevented global networks like Mastercard and Visa from competing in its domestic market. While Delhi favors national players, its payments market is open and competitive.

Greater efficiency may be an excuse for a public payments utility. The idea a single well-designed state system would be more efficient than multiple competing private-sector systems with redundant costs is superficially appealing. Policymakers are more likely to argue greater efficiency justifies a single government or regulated private payment-system for core infrastructure. Even core payments infrastructure, however narrowly defined, benefits from competition-driven innovation and market discipline and intelligence.

Central planners can’t match the market’s vast dynamic distributed intelligence. Competing systems’ inherent dynamism, innovation, and continuous reallocation of resources to players delivering better value, have enormous benefits.

A monopoly card network or digital wallet run by the post office or the Fed wouldn’t deliver better value, be more innovative and accountable to customers than Visa, Mastercard, American Express, Discover, PayPal, Apple Pay, or Google Pay.  The market is the most ruthless regulator of value, not enlightened government bureaucrats superintending payment systems.

Where scale advantages are significant, markets will naturally consolidate. A monopoly, however, is never optimal. But, private-sector monopolies are rarely if ever sustainable unless privileged by the state.

The contention some payment systems are so systemically important government must run them doesn’t bear scrutiny. Critical national payments infrastructure owned and operated by the private sector can be regulated as such, subject to prudential reviews of capital adequacy, ownership, and management. Bank-owned The Clearing House, operates an ACH system, an interbank large0value funds transfer system, CHIPS, and an instant-payment system RTP. The Clearing House is regulated as a systemically-important financial market utility.

Central banks’ contention only they can deliver certain payment systems should be viewed through the lens of Nobel Laureate James Buchanan’s Public Choice Theory which holds self-interested public bureaucrats act to maximize their own utility, prestige, and power. They are rarely the indispensable actor.

The Fed insists only it can and will equitably serve all banks. The ECB on its own prerogative decided to build an instant-payment system TIPS, on the premise only it could adequately provide instant payments across the euro-area. And Brazil’s central bank contended only it could provide instant-payments ubiquity. Yet the private sector provides instant payments in the US, EU, and Brazil.

The Fed regulates and supervises TCH and also competes with it. The EU central bank oversees EBA Clearing’s shareholding banks and payment systems like RT1 with which it competes.

Central banks aren’t subject to the same financial constraints and often can use regulation to privilege themselves.

Brazil’s central bank used its authority to kneecap a competitor. Facebook has roughly 147 million WhatsApp users in Brazil.  In June, 2020 it launched WhatsApp Pay. It was fee-free for P2P payments and charged merchants 3.99%. The central bank put the kibosh on it. And, Brazil’s antitrust regulator Cade blocked WhatsApp’s partnership with processor Cielo because of competitive concerns.

Lo, in November, 2020 Brazil’s central bank launched its instant-payments system Pix. It mandated that large payment service providers participate, a prerogative for building network critical mass and therefore value and relevance that no private-sector payment system enjoys.

In less than two years Pix enrolled 126 million individuals and 11 million businesses, and surpassed the number of debit-card transactions.

After Pix had picked up a head of steam, in March, 2021 the central bank greenlighted WhatsApp Pay, but only for P2P not retail payments.

The central bank competing with the payments industry (and further regulating and supervising that very same industry) is a bald conflict of interest and a deterrent to private-sector investment. Nobody wants to compete with their regulator or a central bank with unlimited resources.

The National Payments Corporation of India, owned by state and private-sector banks, and guided by the central bank, operates a national card network Rupay and the major national interbank payment systems including real-time payment systems IMPS and UPS.

China’s central bank (PBOC) forced private payment systems like Alipay and WeChat Pay to use its clearing system Netsunion. Protected monopoly card network UnionPay is owned by state and commercial banks, run by PBOC alumni, and takes direction from the central bank.

Payment systems run by the Fed, ECB, Banco Central do Brasil, and PBOC aren’t subject to the same financial constraints as even private-sector titans, which can fail and go bankrupt. Central banks print money and can’t become insolvent.

Central banks’ electronic payment systems could be spun off with regulatory guardrails.

Private-sector payment systems have enormous advantages.

While individual players may disappoint, private sector payments systems must ultimately satisfy the market to remain in business. And even if individual players fail, the self-correcting private payment system continuously improves.

The payments industry is more adaptive than public utilities. The most brilliant central planners can’t design a perfect payment system, much less adapt it to changing conditions.

There’s no payments infrastructure that wouldn’t benefit from genuine competition, and ruthless regulation by the market rather than by the administrative state or politicians.

Private-sector systems dynamically self-correct.

In competitive free markets incumbents and challengers vie for share by trying to deliver better payments. The market continually votes on what’s better. Resources are allocated away from payments enterprises that don’t satisfy or delight their users, to those that do.

Payment systems run by central banks, no matter how thoughtfully-engineered and successful out of the gate, aren’t subject to the same market discipline, nor enjoy private systems’ innovative vigor. Underperforming government systems often get more resources.

Most payments innovation comes from the private sector, which invented cash, checks, interbank clearing, credit cards, global bankcard networks, electronic bill and P2P payment systems, e-wallets, and digital currencies.

In the 9^th century Chinese merchants invented paper money. In the 19^th century Scottish banks created two-sided banknotes.

In 1950 NYC financier Frank McNamara invented the general-purpose payment card Diners Club. US banks created global bankcard networks Mastercard and Visa. In 1981 fitness club operator Pete Kight launched what became America’s leading electronic bill payment system Checkfree. In 1998 Peter Thiel started PayPal. In 1999 radio DJ Steve Streit created the first general-purpose prepaid card.

Computer scientist David Chaum invented the first digital currency Digicash. Entrepreneurs Jeremy Allaire and Sean Neville with Circle and Brock Pierce and Craig Sellars with Tether, were stablecoin pioneers.

Pony Ma’s Tencent developed digital currency Q Coin and WeChat Pay. Jack Ma’s Alibaba created Alipay. Competing against stodgy state banks and state-protected monopoly card network China UnionPay, given latitude by Chinese regulators, such as liberalizer PBOC governor Zhou Xiaochuan, Tencent and Alibaba revolutionized payments in China. While the Sino-liberalization window is closed, Alipay and WeChat Pay are well-established and many outside China seek to emulate their “super-app” model.

It’s assumed central banks issuing cash is the natural state of affairs, notwithstanding historically in many countries competing commercial banks issued banknotes (cash). While cash issuance could be returned to commercial banks, in most countries it would be politically difficult.

Digital fiat currencies bring the issue of state versus private-sector payment systems to the fore. More than a hundred central banks are working on digital currencies. Central banks are predisposed to issue CBDCs, have vast resources, and often regulate potential private-sector issuers of digital cash.

There’s a danger central bank digital currencies will stifle development of and innovation in private digital currencies by banks and fintechs.  A Fed digital dollar would reduce if not eliminate banks’ and fintechs’ appetite for issuing and innovating in stablecoins – effectively digital banknotes.

New government payment systems should bear a high burden of proof. Existing state-run payment systems should be privatized, unless there’s a compelling national interest not to.