Finance & economics | American payments

Can the Visa-Mastercard duopoly be broken?

It is bad for American consumers and retailers—and it is under threat

|Washington, DC

“It’s like vegas,” says Matt Moore, the owner of a small bike shop in Georgetown, a neighbourhood in Washington. “You know you’re going to get screwed, the only question is how to get screwed the least.” The system of interchange—whereby banks and credit-card issuers charge merchants for collecting payments—is loathed by many retailers. Merchants hand over $138bn in fees each year; according to the National Retail Federation, a lobby group, it is their second-biggest cost after wages. And while shoppers are less likely to have strong feelings about the system, being mostly unaware of it, they also suffer as a result of higher sticker prices.

America is home to the heftiest interchange fees of any major economy—costs are an order of magnitude greater than in Europe and China. That largely benefits two firms: Visa and Mastercard, which facilitate more than three-quarters of the country’s credit-card transactions. Doing so has made them two of the most profitable companies in the world, with net margins last year of 51% and 46% respectively. Rank every firm (excluding real-estate-investment trusts) in the s&p 500 index by their average net-profit margins last year, five years ago and a decade ago, and only four appear in the top 20 every time. Two are financial-information firms, Intercontinental Exchange and the cme Group. The others are Mastercard and Visa.

This article appeared in the Finance & economics section of the print edition under the headline "Pay back"

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