Stifling Electronic Payments Innovation Will Burden Already Overburdened Small Businesses

By SBE Council at 30 September, 2021, 1:14 pm

SMALL BUSINESS INSIDER OPINION

By Karen Kerrigan –

If there is one thing that the COVID-19 pandemic has taught us about American small businesses, it’s that they are resilient. Small- and medium-sized businesses (SMBs) have fought tooth and nail to overcome the devastating financial impact of pandemic lockdowns and restrictions. They’ve adapted to new consumer demands, embraced contactless protocols, and in many cases, adopted novel business models. All the while, the electronic payments system has provided these SMBs with the tools, resources, and innovations that are vital to their success.

But that doesn’t mean this transition was easy for small businesses. Over the last year and a half, consumer preferences have shifted dramatically toward prioritizing safety and security, pushing businesses to keep up. Millions of storefronts were forced to adapt to a curbside pickup and e-commerce business model, or risk going under. A recent Visa Back to Business study found that nearly half of all consumers believe offering contactless payment methods is one of the most important safety measures a business can offer.

Electronic payments providers have been investing for years in precisely the type of technology that has enabled this “pivoting” and continuous adoption across the small business economy. Whether it’s contactless transactions, secure remote commerce, biometric authorization, or EMV chips, the industry continues to innovate safe and secure ways to make purchases. Amid that process, these new tools add value for consumers while allowing small businesses to tailor their services and compete with big-box retailers.

Government’s preference, intentional or not, for big box stores during the shutdowns sucked $250 billion in wealth away from small businesses. Main Street businesses had to fight and adapt in order to remain competitive in the face of relentless margin pressure and revenue losses. And that is where technology platforms and advancements in payments technology came to the rescue. Which is why stifling innovation within the electronic payments system would harm the ability of SMB’s to compete and adapt to the unknowns of this pandemic, and the fluid marketplace in general. Elected officials cannot allow any industry, and in this case the large retailers, to rewrite rules in their favor.

Currently, large retailers are urging their friends in Congress to adopt so-called credit routing requirements. These regulations would mandate that more than one payment network be required for each credit card transaction. This would gift giant retailers with the ability to increase their profits further, which may lead to cutting corners and choosing networks to route transactions that don’t provide the same level of security, or the card rewards and benefits customers prefer. We know that these changes would not be beneficial for small businesses because similar regulations have been tried before and failed.

The Durbin Amendment, included in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, established its own routing requirements for debit cards—and the results were quite harmful. As merchants chose cheaper debit routing options, the electronic payments industry was slowly stripped of its financial resources. Consumers saw their debit card benefits dissipate, since those card benefits were no longer economically feasible for certain financial institutions to maintain. But more than that, the debit market itself stagnated; innovation declined. Do we really want to do the same with credit cards?

If passed, credit routing requirements would undermine the very system of innovation that has afforded the small business community a lifeline during the pandemic. It would jeopardize the tools SMBs rely upon to compete, weakening their effectiveness and paving the way for more consolidation and market power. Something the Administration is working to prevent through President Biden’s Executive Order on Competition.

During the COVID-19 pandemic, small businesses have already struggled mightily to adapt to the changes demanded of them. And while they are resilient, they aren’t indestructible. If large retailers succeed in passing credit routing requirements, there will be a downstream impact on consumers and small businesses. In order to successfully recover and dig out of the COVID mess, small business owners need certainty and policy stability. Congress must fully understand the impact and unintended consequences of its regulatory moves before it potentially takes action.

Karen Kerrigan is president and CEO of the Small Business & Entrepreneurship Council.