It seems to me that there are only a very small number of credit card network companies with significant market share (e.g. Visa, MC, AmEx).

1) I would have thought new companies would come in and undercut the fees charged to businesses by the credit card companies. Why don't more credit card companies exist and/or have more market share?

2) One could say the reason is that most businesses don't accept more than a few credit card companies. Why is that?

My guess is that is that fraud liability is a barrier preventing small credit card companies from entering. Anything else?

If this is off topic, is there a more relevant StackExchange site for this sort of business/finance question?

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  • Do you consider store cards to be credit cards? There are plenty of those around. – Lawrence Sep 18 '18 at 22:04
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    Are you talking about credit card issuers (Chase, Citi, BofA, etc.) or networks (Visa, MC, AmEx)? – D Stanley Sep 18 '18 at 22:11
  • @DStanley networks (Visa,MC,AmEx) – Smithey Sep 20 '18 at 7:46

The main barrier to creating a new credit card is the size of network chicken and egg problem. The merchants won't want to go to the effort of setting up acceptance of the new card if there aren't a lot of customers that carry it, but the customers won't want to carry it if there aren't a lot of merchants that accept it.

So to set up the SmitheyCard, you are going to need to set up the clearing house that gets the transactions from the merchants, convince a lot of merchants to get the card readers that report to the clearing house and then convince some banks to issue the cards (or figure out how to extend the credit yourself) and then have an advertising blitz to get consumers to use the card.

This is a very tall order and is going to cost you billions of dollars. And is most likely going to fail. And if you do succeed in getting it going, you are now in a competitive business with some very large and well funded entities that will put real effort into stomping you flat.

So why does nobody do it? It would cost really a lot of money to get into a bruising battle that you will likely lose.

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    For an example, take the Discover card. Only a minor player (at least in the US) despite having been around for decades, and being backed by retail powerhouse (at the time it was introduced, anyway) Sears. – jamesqf Sep 19 '18 at 4:10
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    Note that sometimes getting stomped out is still a win, if it means the big players have to lower fees or improve their customer service to compete with you. – user253751 Sep 19 '18 at 4:40
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    @not_a_comcast_employee Only until they've "stomped". Once the small player has been stomped out of existence, they can revert to their "normal" fees. – TripeHound Sep 19 '18 at 8:51
  • I think metaphors like 'stomping' out the competition, 'flooding' the market, and even putting 'pressure' on the price can cause confusion. I think its better to explicit and literal about is meant. For example, established companies might undercut the price of entering companies (rather than "stomp them out"). – Smithey Sep 22 '18 at 9:35

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