The Fed Is Behind The Credit Card Merger

It’s an obvious point, but credit cards in America generate a lot of cash for banks. In 2022, I wrote up how the business works, with the observation that the industry generates close to a quarter trillion dollars a year in revenue. This revenue comes from fees for connecting merchants and banks, as well as fees charged to consumers for access to credit.

Every credit card network is also a data sieve, connected to advertising data brokers, anti-fraud features, and analytics firms. In addition, being able to reject someone from the payments system is a core sovereign power, and the stated reason the right is so afraid of a central bank digital currency.

There are many barriers to entry in the credit card business, and significant pricing power among incumbents. As the Consumer Financial Protection Bureau (CFPB) found, margins for credit cards are persistent, increasing, high, and tilted towards the larger firms in the industry. (And this is true even when you take higher interest rates into account.)