Endangering Digital Commerce
It takes a stretch of imagination to regard Visa, MasterCard, American Express, and other giants of the digital commerce as small potatoes, but in the context of the financial reform bill, they are. All the attention is on the banks, the credit markets, the $19 billion proposed and then un-proposed special tax, the squirming executives getting their wings pulled off by chortling senators, and stock market disasters.
The only people who focus on the part of the bill dealing with digital commerce (pages 1884 to 1904 of 2315 total), besides the affected companies themselves, of course, are a few academic types who like to think about networks, platforms, markets, and other such dull, albeit crucial, esoterica. See, for example, the recent Mercatus/ICLE conference, or my prior posts here and here.
The fact that there is so much else going on sucks the air of media attention out of the room, which makes it difficult to get traction for the reality that the bill poses serious threats to the evolving system of electronic digital commerce by imposing on it various, almost-random requirements that assorted constituents of Senator Dick Durbin think would help them. The Walgreens effect is mentioned in my Crony Capitalism post, for example, and a special exemption for prepaid cards was included at behest of an issuer of a particularly dubious product.
The bill includes other provisions that will have unknown, but probably serious, impacts on digital commerce. It requires marginal cost pricing for interchange fees, a precedent that should alarm network proprietors everywhere (e.g., telecom); it upsets current contractual arrangements concerning which networks get to process a transaction by allowing merchants to select alternatives, a development that may startle consumers who think that they are relying on the security and efficiency of the brand on their card (perhaps the new financial consumer protection agency will sue those who take advantage of the law), and heaven knows what else is buried there.
One of the realities here is that no outsiders understand the digital commerce system well. Sensible people are humbled by an awareness of their own ignorance, but not Congress, which is in the grip of a massive attack of the Dunning-Kruger effect, the phenomenon whereby incompetent people are too incompetent to be aware of their own incompetence, and thus proceed confidently from one disaster to another.
Since I retain a perhaps naïve view that sunlight and transparency help matters, it seems logical to pull out the provisions of the bill regulating digital commerce and consider them separately. If Congress wants to screw up this important platform, let it at least do so openly and not buried so deep in other legislation that no one knows what is going on.
[Cross-posted at the AEI Enterprise Blog]