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    Banks say conditions for loans to businesses and consumers will keep getting tougher

    The Fed’s closely watched Senior Loan Officer Opinion Survey, released Monday, showed that while credit conditions got stricter, demand declined as well.
    On the issue of consumer lending, banks “reported having tightened standards for credit card loans and other consumer loans,” the survey said.

    The U.S. Federal Reserve Building in Washington, D.C.
    Win Mcnamee | Reuters

    Lending conditions at U.S. banks are tight and likely to get tighter, according to a Federal Reserve survey released Monday.
    The Fed’s closely watched Senior Loan Officer Opinion Survey showed that while credit conditions got more strict, demand declined as well.

    Those results are important as economists who expect a recession believe that the most likely source will be from the banking system, which has had to respond to a series of 11 interest rate hikes as well as a momentary crisis in March when three midsize institutions failed.
    “Regarding banks’ outlook for the second half of 2023, banks reported expecting to further tighten standards on all loan categories,” the Fed said in a survey summary. “Banks most frequently cited a less favorable or more uncertain economic outlook and expected deterioration in collateral values and the credit quality of loans as reasons for expecting to tighten lending standards further over the remainder of 2023.”
    On the issue of consumer lending, banks “reported having tightened standards for credit card loans and other consumer loans, while a moderate net share reported having done so for auto loans.”
    Banks also said they are raising the minimum level for credit scores when giving personal loans and are lowering credit limits in the $1.9 trillion consumer-loan space.
    In the critical $2.76 trillion commercial and industrial lending segment, the survey noted that a “major” share of banks said they have seen lower demand for loans amid tightening standards across all business sizes.

    Commercial real estate also saw a large share of banks saying they have put more restrictions on standards along with weaker demand.
    Fed officials say they are aware of conditions in the banking sector, though they continue to raise interest rates to try to bring down inflation.
    At his-post meeting news conference last week, Fed Chair Jerome Powell said he expected the loan survey to be “consistent with what you would expect.”
    “You’ve got lending conditions tight and getting a little tighter, you’ve got weak demand, and you know, it gives a picture of a pretty tight credit conditions in the economy,” Powell said.
    The Fed hiked its key interest rate another quarter percentage point at the meeting, taking it to a target range of 5.25%-5.5%, the highest in more than 22 years. More

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    Stocks making the biggest moves midday: SoFi, ON Semiconductor, Disney, Sweetgreen and more

    Pedestrians walk by the SoFi Technologies headquarters on February 22, 2022 in San Francisco, California.
    Justin Sullivan | Getty Images

    Check out the companies making headlines in midday trading.
    SoFi Technologies – Shares of the fintech company popped 19.9% after it reported second-quarter results and lifted its full-year guidance. SoFi Technologies posted a narrower-than-expected loss of 6 cents a share on a GAAP basis. Analysts surveyed by FactSet had expected a 7-cent loss per share.

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    ON Semiconductor — The chipmaker’s shares jumped 2.5% after it posted an earnings and revenue beat for the second quarter. The company reported $1.33 earnings per share, excluding items, on $2.09 billion in revenue. Analysts polled by FactSet had estimated $1.21 earnings per share and $2.02 billion in revenue.
    Disney — Disney climbed 3.2% after the Financial Times reported that the entertainment giant brought back back former executives Kevin Mayer and Tom Staggs, both of whom were once considered potential successors to Bob Iger.
    New Relic — Shares jumped 13.4% after a private equity consortium announced it would take the software company private. The all-cash deal values the company at nearly $6.5 billion and offers $87 per share.
    Spero Therapeutics — Shares ascended 14.8% after the company announced it reached an agreement with the Food and Drug Administration to have a special protocol assessment in its phase 3 trial for a urinary tract infection drug.
    Sweetgreen — The salad chain’s shares jumped 6.9% Monday after an upgrade from Piper Sandler. The firm raised its rating on the stock to overweight from neutral, saying that the tide may be turning for the company.

    XPeng — The Chinese electric vehicle maker tumbled 10.6% following a downgrade from UBS to neutral from buy. UBS said the company’s near-term gains may now all be priced in after shares more than doubled in price this year.
    Hasbro — The toymaker rose 4.1% on the heels of Bank of America’s upgrade to buy from neutral. Bank of America said Hasbro could beat earnings expectations when it reports on Thursday, due in part to the success of its cards set tied to “Lord of the Rings.”
    GoodRx – The digital health-care platform’s shares surged about 36.9% after Cowen upgraded them to outperform, saying the company’s pharmacy benefit management partnerships – like Express Scripts and CVS Caremark – help generate a new revenue stream but also solidify the company’s position in the health-care ecosystem. Cowen raised its price target to reflect about 78% potential upside.
    Adobe — The software stock jumped 3.3% after Morgan Stanley upgraded the shares to overweight from equal weight. The Wall Street firm said while Adobe may have been “late to the party,” the company still stands to gain from artificial intelligence integration across its line of products. Morgan Stanley’s $660 price target represents nearly 25% upside.
    Chevron — The oil giant advanced 3% after Goldman Sachs upgraded the stock to buy from neutral. The firm said it sees a cash flow inflection for the company.
    New York Community Bancorp — Shares of the regional bank traded 1.5% higher after Deutsche Bank upgraded the stock to buy from hold, citing good execution.
    CSX — The railroad stock shed 1.4% after RBC downgraded shares to sector perform from outperform despite noting fluid operations and positive performance in recent quarters.
    Wayfair — Shares popped 6.5% after Piper Sandler upgraded Wayfair to overweight from neutral and raised its price target. The Wall Street firm said Wayfair is improving sales and taking back market share as the home furnishings industry stabilizes.
    Salesforce — The cloud company saw its shares dip 0.3% after Morgan Stanley downgraded the stock to equal weight from overweight. The Wall Street firm said Salesforce’s near-term catalysts, including margin expansion and price increases, are now in the “rear-view mirror.” The stock has gone up 68% this year.
    — CNBC’s Hakyung Kim, Yun Li, Sarah Min, Tanaya Macheel and Samantha Subin contributed reporting More

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    Francisco Partners & TPG to take New Relic private in $6 billion all-cash deal

    A private equity consortium will take software provider New Relic private at $87 a share, the company announced Monday.
    The all-cash deal values New Relic at $6.5 billion and will see the company return to private ownership nearly nine years after it first debuted on the New York Stock Exchange.

    Lew Cirne, CEO, New Relic
    Scott Mlyn | CNBC

    A consortium led by Francisco Partners and private equity group TPG will take software provider New Relic private in an all-cash, $87-a-share offer that values the company at nearly $6.5 billion, New Relic announced Monday.
    New Relic shares rose 13% in morning trading, to nearly $84. The offer represents a 26% premium to New Relic’s 30-day volume-weighted average closing price, the company said. New Relic builds software to help websites and applications track performance.

    The deal is expected to close by early 2024, the company said. It will return New Relic to private ownership nearly nine years after it first debuted on the New York Stock Exchange in 2014.
    “We are pleased to partner with Francisco Partners and TPG, who are committed to continuing to build upon New Relic’s strong foundation and achieve its full potential,” New Relic founder and Executive Chairman Lew Cirne said in a release.
    Reuters reported in May that Francisco Partners and TPG had ended deal talks after failing to secure enough debt financing to meet New Relic’s desired valuation. The resurrected transaction was announced concurrently with New Relic’s earnings report.
    Since that report, the private equity groups were able to obtain financing and meet New Relic’s valuation requirements. Major shareholders, including Cirne and activist hedge fund Jana Partners, have signed off on the deal.
    Under the terms of the agreement, New Relic will have a 45-day “go-shop” period, during which it can entertain offers from other qualified bidders.

    TPG is an alternative asset manager with investments around the world, including Airbnb, Box and Zscaler.
    Francisco Partners is a technology-focused private equity firm with past investments in Barracuda Networks, On Semiconductor and K2. In recent years, the firm has taken other cloud and IT companies private, including in a $1.7 billion deal for Sumo Logic and a 2018 deal for payment technology company Verifone.
    Correction: Sumo Logic was taken private in a $1.7 billion deal. A previous version misstated the valuation of the deal. More

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    SEC sues entrepreneur, alleging $1 billion in unregistered crypto sales and multimillion-dollar fraud

    Richard Schueler, also known as Richard Heart, defrauded investors out of millions through his Hex cryptoasset, the SEC alleged.
    Schueler used proceeds from the $1 billion offer-and-sale to purchase high-end watches, real estate, and jewels, it said.
    Schueler faces three civil charges in the Eastern District of New York.

    SEC Chairman Gary Gensler participates in a meeting of the Financial Stability Oversight Council at the U.S. Treasury on July 28, 2023 in Washington, DC.
    Kevin Dietsch | etty Images

    The Securities and Exchange Commission on Monday filed charges against a U.S. citizen it alleged raised more than $1 billion through the unregistered offer and sale of crypto securities before pilfering millions to fuel a high-status lifestyle and the acquisition of luxury goods, including the largest black diamond in the world.
    Richard Schueler, also known as Richard Heart, operated three crypto-asset offerings: Hex, PulseChain and PulseX. The SEC alleged he touted the investments as a “pathway to grandiose wealth.”

    The offerings were made through Hex tokens, which were marketed as an ethereum-based “Certificate of Deposit.” But the SEC alleged that the 38% annual return that Schueler touted was nothing more than cover for an elaborate scheme.
    Schueler faces three charges of securities fraud in civil court.
    Schueler, who was born in the United States but resides in Finland, surreptitiously defrauded his investors, the SEC alleged, by generating hundreds of millions of dollars worth of wash trading activity on his platforms, “creating the false impression of significant trading volume and organic demand for Hex tokens.”
    Schueler misappropriated at least $12 million of investor funds, the SEC alleged, to purchase a 555-carat black diamond, high-end vehicles, and luxury watches. A $550,000 Rolex Daytona, an $800,000 Rolex GMT Master II and another unspecified $1.38 million Rolex watch were among his watch purchases, the SEC said.
    In March, Schueler began to pare back his social media presence, deactivating his Instagram profile to “show more humility and respectfulness.”
    The charges against Schueler were filed in the Eastern District of New York. More

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    Stocks making the biggest moves premarket: Hasbro, Adobe, GoodRx, SBA Communications and more

    A Hasbro Monopoly board game arranged in Dobbs Ferry, New York, Feb. 6, 2022.
    Tiffany Hagler-Geard | Bloomberg | Getty Images

    Check out the companies making headlines before the bell:
    Adobe — The stock gained 2.4% before the bell after Morgan Stanley upgraded shares to overweight from equal weight and boosted its price target, citing artificial intelligence tailwinds.

    Chevron — Shares rose 1.6% after Goldman Sachs upgraded Chevron to buy from neutral and hiked its price target. Analysts said the oil giant is due for a breakout.
    Ford Motor — Shares declined 1.1% after Jefferies downgraded the stock to hold, citing weakness in Model E guidance.
    Walt Disney — The stock rose 0.7% after Disney reportedly brought back two former executives who were previously considered potential successors to Bob Iger, according to a Financial Times report citing people familiar. The two are Kevin Mayer and Tom Staggs.
    XPeng — The U.S.-listed shares of Chinese electric vehicle maker XPeng fell 2% in premarket trading. UBS on Monday downgraded the company to neutral from buy after the stock’s extraordinary run-up, saying it expects near-term upside has been priced in. The stock is up 135% this year.
    Hasbro — The toymaker added 2.9efore the bell after Bank of America upgraded the stock to buy from neutral. Bank of America said the company should beat expectations for earnings when it reports on Thursday given the strong demand for the Lord of the Rings Magic set.

    United Parcel Service — Shares fell 1% after Credit Suisse downgraded UPS to neutral from outperform, citing labor concerns.
    GoodRX — The digital healthcare platform saw shares rise more than 8% premarket after Cowen upgraded the stock to outperform, saying its pharmacy benefit management partnerships – like Express Scripts and CVS’ Caremark – help not just generate a new revenue stream but also solidify the company’s position in the healthcare ecosystem. Cowen also raised its price target to reflect about 78% potential upside.
    SBA Communications — Shares fell 1.6% in premarket trading. The real estate investment trust involved in wireless communications infrastructure is set to report its second-quarter results after the close Monday.
    ON Semiconductor — The chipmaker’s shares gained 1.9% ahead of second-quarter earnings. ON Semiconductor is projected to report earnings of $1.21 per share on revenue of $2.02 billion, according to analysts polled by FactSet. It’s set to report results Monday morning.
    — CNBC’s Alex Harring, Hakyung Kim, Tanaya Macheel and Samantha Subin contributed reporting More

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    Robinhood rival eToro agrees $120 million share sale at discounted valuation

    EToro offered early employees and angel investors a chance to sell their shares to some of its institutional investors, according to a memo to employees obtained by CNBC.
    The share sale totaled $120 million and gave the company a slightly lower valuation than the $3.5 billion it earned in a primary funding round earlier this year, according to CNBC sources familiar with the matter.
    It comes after eToro last year scrapped its plans to go public in a merger with a blank-check company, Fintech V.

    The eToro logo is seen during the 2021 Web Summit in Lisbon, Portugal.
    Pedro Fiúza | Nurphoto | Getty Images

    Stock trading platform eToro agreed to a $120 million secondary share sale, giving the company a slightly lower valuation than the $3.5 billion it was valued at in a primary funding round earlier this year.
    The Israeli digital brokerage, which offers users trading in stocks, crypto, and contracts for difference, gave early employees and angel investors a chance to sell shares to some of eToro’s existing investors, according to a memo to employees obtained by CNBC.

    The round is a secondary share sale, meaning the company hasn’t issued any new shares and won’t net any income from the transaction. However, it’s an indicator of the price investors are currently willing to pay to own shares of the firm.
    It comes after eToro last year scrapped its plans to go public in a merger with a blank-check company, Fintech V.
    The deal would have valued the company at $10 billion, but a downturn in equity and crypto prices threw a spanner in the works, as investors reassessed their exposure to tech and retail brokerages suffered a slump in trading activity.

    “As a business which continues to demonstrate sustainable, profitable growth we are considered an attractive investment opportunity by many investors,” Yoni Assia, eToro’s CEO and co-founder, said in the Monday memo to employees. 
    “This secondary transaction will give existing shareholders in eToro and veteran employees who have vested options the opportunity to sell a proportion of their shares to these purchasers.”

    “This is not a primary i.e. eToro is not raising money — rather it is a moment for some long standing shareholders and employees to take some liquidity. As always, please maintain confidentiality and do not share any details of this potential transaction with anyone. Employees with eligible options will receive an email with further details.”
    EToro most recently raised $250 million from investors at a $3.5 billion valuation, far lower than the $10 billion it was seeking in its bid to float via SPAC.
    Investors in that round included SoftBank Vision Fund 2, ION Investment Group and Velvet Sea Ventures. The investment came in the form of an advance investment agreement, which is where investors pay in advance for shares that will be allocated at a later date, sometimes at a discount.
    EToro agreed it would convert the investment to equity on the condition that the SPAC deal doesn’t go ahead — which it didn’t. 
    Earlier this year, eToro signed a partnership with Twitter, now known as X, allowing users of the social media platform to access stock and crypto trading by searching for so-called “cashtags,” which are searchable by adding a dollar sign before the ticker symbol of a stock or other asset.

    EToro said it is looking to expand its partnership with Twitter, or X, in a number of ways. The company’s CEO recently met with X CEO Linda Yaccarino in New York to discuss working on expanding their partnership.
    EToro, like many online wealth management platforms, benefited from the surge of demand during the Covid-19 pandemic when people were stuck indoors and had more time — and in some cases money — to splash a bit of their excess cash on stocks and other assets.
    GameStop, and several other so-called “meme” stocks, skyrocketed in response to heightened retail investor demand which put pressure on short-selling funds.
    More recently, online brokerage platforms have had a tougher time. The rising cost of living has made it tougher for consumers to part with the cash they were flush with during the days of Covid. Freetrade, the U.K. brokerage startup, slashed its valuation by a whopping 65% in a crowdfunding round, citing a “different market environment.”
    Read the full memo eToro CEO Yoni Assia sent out to staff below:

    Dear eTorians,
    As August approaches I wanted to take a moment to acknowledge the many achievements of H1 and share an outlook for H2.
    As outlined in July’s AHM, we had strong business performance in the first half of the year resulting in EBITDA (profits) of over $50 million. Funded accounts now stand at almost 3 million and our assets under administration (AuA) are $7.8 billion. This positive start to the year was driven by the rally in equity markets  (in June we saw the highest volume of equities trading since 2021) plus a recovery in crypto markets. We have also maintained our focus on costs to ensure sustainable, profitable growth. 
    2023 to date has been very busy in terms of product development, launches and partnerships with highlights including: the significant upgrade to our charts via a partnership with TradingView (more coming soon), an ISA with MoneyFarm, major milestones in terms of UX optimization including the new AI assistant, the launch of the amazing new eToro Academy, the launch of extended hours trading, expanding our football sponsorships to include women, adding more assets and so much more. 
    I also want to update that we were recently approached by several existing investors who have shown an interest in buying more shares in eToro.  As a business which continues to demonstrate sustainable, profitable growth we are considered an attractive investment opportunity by many investors. [Please note this is not financial advice!]  This secondary transaction will give existing shareholders in eToro and veteran employees who have vested options the opportunity to sell a proportion of their shares to these purchasers. This is not a primary i.e. eToro is not raising money –  rather it is a moment for some long standing shareholders and employees to take some liquidity. As always, please maintain confidentiality and do not share any details of this potential transaction with anyone. Employees with eligible options will receive an email with further details.
    For those of you taking a well-earned break in August, enjoy your vacation and I hope you come back refreshed and energized for an exciting second half of the year.
    Best,
    Yoni More

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    A.I. is on a collision course with white-collar, high-paid jobs — and with unknown impact

    About 1 in 5 American workers have a job with “high exposure” to artificial intelligence, according to Pew Research Center. It’s unclear if AI would enhance or displace these jobs.
    Workers with the most exposure to AI like ChatGPT tend to be women, white or Asian, higher earners and have a college degree, Pew found.
    Technology has led some to “lose out” in the past, largely when their job is substituted by automation, one expert said.

    Tomml | E+ | Getty Images

    The notion of technological advancement upending the job market isn’t a new phenomenon.
    Robots and automation, for example, have become a mainstay of factory floors and assembly lines. And it has had various effects on the workplace, by displacing, changing, enhancing or creating jobs, experts said.

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    Artificial intelligence — a relatively nascent and fast-moving type of technology — will undoubtedly do the same, experts said. However, it’s likely such tech will target a different segment of the American workforce than has been the case in the past.
    “AI is distinguished from past technologies that have come over the last 100-plus years,” said Rakesh Kochhar, an expert on employment trends and a senior researcher at Pew Research Center, a nonpartisan think tank. “It is reaching up from the factory floors into the office spaces where white-collar, higher-paid workers tend to be.”
    “Will it be a slow-moving force or a tsunami? That’s unknown,” Kochhar added.

    About 1 in 5 American workers have ‘high exposure’ to AI

    In basic terms, AI is built to mimic a human’s cognitive ability — i.e., to think like a human. It lets computers and machines perform tasks by themselves, Kochhar said.
    ChatGPT — an AI chatbot developed by San Francisco-based OpenAI — went viral after debuting to the public in November 2022, fueling a national debate as millions of people used the program to write essays, song lyrics and computer code.

    Such technology differs from robots, which generally perform physical tasks like lifting or moving objects.  
    In a new Pew study, Kochhar found that 19% of U.S. workers are in jobs with high exposure to AI. The study uses the term “exposure” because it’s unclear what AI’s impact — whether positive or negative — might be.
    More from Personal Finance:Don’t keep your job loss a secretYou can use A.I. to land a job, but it can ‘backfire’The job market is still favorable for workers
    The high exposure group includes occupations like budget analysts, data entry keyers, tax preparers, technical writers and web developers. They often require more analytical skills and AI may therefore replace or assist their “most important” job functions, the report said.
    Workers with the most AI exposure tend to be women, white or Asian, higher earners and have a college degree, the report said.
    “Certainly, there could be some [job] displacement,” said Cory Stahle, an economist at job site Indeed. However, AI could also “open new occupations we don’t even know about yet.”
    “The jury is still out,” he added.

    Conversely, 23% of American workers have low exposure to AI, according to the Pew report.
    These workers — like barbers, dishwashers, firefighters, pipelayers, nannies and other child care workers — tend to do general physical activities that AI (at least, in its current form) can’t easily replicate. The remaining share of jobs — 58% — have varying AI exposure.
    In 2022, workers in the most exposed jobs earned $33 per hour, on average, versus $20 in jobs with the least exposure, according to the Pew study, which leveraged U.S. Department of Labor data from the Occupational Information Network.

    Which workers may win and lose with AI

    onurdongel | E+ | Getty Images

    Fear of technology and its ability to destroy jobs has been around since the Industrial Revolution, said Harry Holzer, a professor at Georgetown University and former chief economist at the federal Labor Department.
    “To date, these fears have been mostly wrong — but not entirely,” Holzer wrote recently.
    Over time, automation often creates as many jobs as it destroys, added Holzer, the author of the 2022 book titled “Shifting Paradigms” about the digital economy.
    Technology makes some workers more productive. That reduces costs and prices for goods and services, leading consumers to “feel richer” and spend more, which fuels new job creation, he said.
    In advanced economies like the U.S., new technologies have a negative short-term impact on net jobs, causing total employment to fall by 2 percentage points, according to Gene Kindberg-Hanlon, a World Bank economist. However, the impact swings “modestly positive” after four years, he found.

    Will it be a slow-moving force or a tsunami? That’s unknown.

    Rakesh Kochhar
    senior researcher at Pew Research Center

    However, some workers “lose out,” Holzer said. That group largely includes workers who are substituted by technology — those directly replaced by machines and then forced to compete.
    “Digital automation since the 1980s has added to labor market inequality, as many production and clerical workers saw their jobs disappear or their wages decline,” Holzer said.
    Business owners, who generally reap more profit and less need for labor, are often the winners, he said.
    The “new automation” of the future — including AI — has the potential to “cause much more worker displacement and inequality than older generations of automation,” perhaps eliminating jobs for millions of vehicle drivers, retail workers, lawyers, accountants, finance specialists and health-care workers, among many others, he said.
    It will also create new challenges and needs like retraining or reskilling; those may have knock-on effects, like child care needs for disadvantaged workers, Holzer said.

    Indeed data suggests there’s been a “pretty significant uptick” in the number of employers looking for workers with AI-related skills, Stahle said.
    For example, about 20 jobs listings per million advertised by Indeed in July 2018 sought some type of AI skill. That figure had swelled to 328 jobs per million as of July 2023.
    This remains a small share of overall Indeed job ads but is noticeable growth from “basically zero” five years ago, Stahle said. And most of the growth has occurred in the past year, likely tied to the recent popularity of ChatGPT, he added.
    The growth has largely occurred in two camps: Workers building AI technology and those in more creative or marketing roles who use those A.I. tools, Stahle said.
    Jobs in the latter group will be an especially interesting area to watch, to see how artificial intelligence might disrupt roles as varied as marketing, sales, customer service, legal and real estate, he added. More

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    The fight over a bill targeting credit card fees pits payment companies against retailers

    A bipartisan push in Washington to clamp down on credit card fees is pitting retailers like Walmart against network payment processors such as Visa.
    Bipartisan support for the Credit Card Competition Act has surged since it was introduced last year.
    “It’s time to inject real competition into the credit card network market, which is dominated by the Visa-Mastercard duopoly,” Sen. Dick Durbin, D-Ill., said.

    Visa Inc. and Mastercard Inc. credit cards are arranged for a photograph in Tiskilwa, Illinois, U.S.
    Daniel Acker | Bloomberg | Getty Images

    A bipartisan push in Washington to clamp down on credit card fees is pitting retailers against network payment processors — and both sides are working hard to gain the attention of consumers.
    The Credit Card Competition Act was reintroduced last month in both the House and the Senate, after not being brought up for a vote in either chamber during the previous Congress.

    The measure aims to bolster competition for credit card processing networks by requiring big banks to allow at least one network that isn’t Visa or Mastercard to be used for their cards. This would give merchants who pay interchange fees a choice they otherwise rarely get. 
    Amazon, Best Buy, Kroger, Shopify, Target and Walmart are among the list of nearly 2,000 retailers, platforms and small businesses urging lawmakers to pass the bill. Retailers in support of the legislation argue credit card processing costs are hurting consumers by driving up the cost of business, and, in turn, the price shoppers pay at checkout.
    On the other side of the fight, major credit card processing networks like Visa, Mastercard, Discover and Capital One say the bill will actually hurt consumers by diminishing popular credit card rewards programs and lessening fraud protections.
    Bipartisan support for the bill has surged since it was introduced last year. As of now, there is no vote scheduled on the measure in either chamber of Congress, but there are indications a vote could come by year-end.
    Doug Kantor, a member of the Merchants Payments Coalition executive committee, remains “optimistic” that the Credit Card Competition Act could end up as an amendment attached to a larger piece of legislation at some point.

    “It’s time to inject real competition into the credit card network market, which is dominated by the Visa-Mastercard duopoly,” Sen. Dick Durbin, D-Ill., said in a statement to CNBC. He’s a sponsor of the bill and one of its most outspoken advocates.
    Visa and Mastercard account for 80% of all credit card volume, according to data from the Nilson Report, a publication tracking the global payment industry. Durbin says the legislation would “help reduce swipe fees and hold down costs for Main Street merchants and their customers.”
    Swipe fees are often built into the price consumers pay for goods and services and have more than doubled in the past decade, hitting a record $160.7 billion in 2022, according to the Nilson Report. On average, U.S. credit card swipe fees account for 2.24% of a transaction, according to the Merchants Payments Coalition. That’s why some businesses add a surcharge to bills for customers paying with debit or credit cards to encourage cash transactions. 
    The new legislation would require banks with assets over $100 billion to provide customers with a choice of at least two different payment networks to process credit card transactions. The bill also stipulates that Visa and Mastercard can only account for one of the choices as a way to prevent the two largest networks from being the only options offered to merchants. 
    “Interchange fees are effectively attacks on commerce,” said Shopify president Harley Finkelstein. “We began to notice that these fees kept climbing and climbing and climbing, and we felt that something was up.”
    The e-commerce platform known for helping businesses create their own custom digital stores, operates in 175 countries worldwide. “”Relative to every other country Shopify operates in, interchange fees are the highest in America,” Finkelstein said.
    Larger platforms and retailers like Amazon, Shopify and Walmart, as well as payment processors like Capital One, Discover and Visa, are funding efforts to pass or block this bill. In total, 26 organizations have mentioned the Credit Card Competition Act by name in their 2023 first-quarter lobbying reports, which were filed before the legislation was reintroduced last month, according to data from Open Secrets, a nonprofit group tracking campaign finance and lobbying data. 
    The Electronic Payments Coalition, a group representing big banks, credit unions, community banks and payment card networks said the legislation “would add billions of dollars to the bottom lines of mega-retailers every year while eliminating almost all the funding that goes towards popular credit cards rewards programs, weakening cybersecurity protections, and reducing access to credit,” in a June 9 post on its website. 

    Simon Dawson | Bloomberg | Getty Images

    CNBC reached out to major credit card processors including Visa, American Express, Discover and Capital One. All declined to comment or referred us to the Electronic Payments Coalition. Mastercard did not provide a response despite CNBC’s multiple attempts to get one.
    Shares of Visa and Mastercard are up more than 12% each this year as of Friday’s close.
    “Interchange revenue will dry up,” according to Aaron Stetter, the executive director of the Electronic Payments Coalition. 
    Stetter describes the bill as a “bait and switch that harms consumers,” because it “ultimately gives the decision-making of where the transaction is going to be routed to the merchant” instead of the card issuer or consumer. 
    Opponents say the bill misleads consumers who may think that their Mastercard or Visa credit card is being processed over the Visa network but could actually end up being routed over a separate cheaper network with fewer fraud protections and little to no customer rewards programs, according to Stetter.

    History repeats itself?

    In 2010, lawmakers passed the Durbin amendment as part of the Dodd-Frank Act, which sought to tighten financial regulation in the wake of the 2008 economic crisis. The amendment was supposed to cause a trickle-down savings effect, where merchants would pass along debit card processing savings to customers in the form of lower prices for their goods and services.
    But a 2015 survey conducted by the Richmond Federal Reserve found the Durbin amendment did little to lower costs for consumers and merchants. Just 1.2% of the surveyed merchants reduced prices, and 11.1% said their debit card processing costs declined. Nearly one-third of respondents reported even higher debit card swipe fees, according to the survey. 
    Brian Kelly, founder of the travel blog The Points Guy, referred to Durbin as the “grim reaper of debit card rewards” during his July 11 appearance on CNBC’s “The Exchange.”

    “When he passed that amendment over a decade ago, not only did we see fees go up, but consumers could no longer earn rewards on debit cards,” Kelly said. ThePointsGuy.com is compensated by credit card companies for the card offers listed on its website, according to a disclosure at the bottom of the webpage.
    But a new research paper from the global payments consulting firm CMSPI argues the new bill won’t have the kind of dire impact Kelly is warning about. “Credit card rewards are unlikely to disappear based on current issuer margins on rewards and experience from other markets,” according to the CMSPI paper.
    The same firm also estimates the new legislation would save merchants and their customers more than $15 billion a year in swipe fees. That savings would be nearly 70 times the amount of any expected reduction in rewards, according to the new study.

    Innovation and lower fees

    Sheldon Cooper | Lightrocket | Getty Images

    Businesses are trying other ways to cut fees, regardless of legislation.
    Tandym, a startup offering e-commerce brands the chance to create a private label debit and credit card, similar to big-box retailer-branded credit cards, is tackling the problem of high interchange fees through technology.
    Before founding Tandym, CEO Jennifer Galspie-Lundstrom worked at Capital One for seven years. She believes the Credit Card Competition Act would take years and cost billions of dollars to execute, calling it a “massive resource drain.” Instead, she said innovation will provide the answer to lower fees. 
    “We do not ride the Visa, Mastercard, American Express or Discover rails,” she said. “We’ve created essentially an alternative network where we can connect directly to a merchant.”
    Tandym’s interchange fees are typically 80% lower because it is not using the revenue to fund its own cash back incentives or rewards programs. Instead, Tandym helps small digital businesses like online bike retailer Jenson USA build integrated loyalty programs with the savings.
    Jenson started offering Tandym as a payment option to customers earlier this year. Orders processed over Tandym’s network cost about 2% less compared with Visa and Mastercard, according to Jenson’s director of IT, Jeff Bolkovatz. Those savings are now being used to help fund a 5% rewards program for Jenson USA’s customers. 
    “We basically just turned the savings that we got by using Tandym and gave it back to the customer to entice them to use it. The goal is to get them to be more loyal,” he said.
    Customers seem to like the program. Each shopper has placed an average of two and a half orders since Jenson USA started offering Tandym as a payment option, Bolkovatz said.  More