Needing Dollars, Iran-Backed Militias Turn To Visa and Mastercard – WSJ
“Needing Dollars, Iran-Backed Militias Turn To Visa and Mastercard”
In case you missed it, that was the headline of a May 31 news story from the Wall Street Journal.
The story makes a number of revelations, including:
- The market for Visa and MC in Iraq was relatively minor until in 2023 it “exploded to around $1.5 billion in April that year, a 2900% increase almost overnight.”
- Why the sudden increase? “Iraqi militia groups figured out how to squeeze dollars on an industrial scale from Visa and Mastercard’s payment networks for themselves and for their allies in Iran.”
- “The U.S. payment giants helped fuel the boom by signing up Iraqi partners to issue Mastercard and Visa-branded cash and debit cards, offering them financial incentives to boost transaction levels.”
- “Yet after being informed by Treasury of the armed groups’ involvement, the card companies took months to significantly rein in the transactions.”
- “The result has been a booming business for Iraq’s powerful militias, which arose with Iranian backing two decades or more ago and remain under U.S. sanctions because of attacks on American forces in Iraq and Syria. Mastercard and Visa have also profited, through charging 1% to 1.4% on cross-border transactions or more in some high-risk markets.”
- “Iraqi cardholders engaging in the scheme are estimated to have made around $450 million in profit in 2023 alone, and the foreign card networks are estimated to have taken in nearly $120 million between them.”
- “The Iraqi militias acquired huge quantities of Mastercards and Visas loaded with funds, transported the cards to the United Arab Emirates and other neighboring countries and withdrew the money, Treasury officials informed the card companies last fall.”
- “U.S. and Iraqi officials said warnings to Visa and Mastercard about the militias’ role in the soaring cash- and debit-card payments went mostly unheeded for months.”
- “In recent days, Treasury formally asked the Iraqi central bank to block the more than 200,00 cards used by militia members due to fraud concerns.”
What does all this have to do with credit card policy in the United States?
- For one, it shows that protecting Visa’s and Mastercard’s duopoly status makes no sense. Reducing their market share through competition would reduce the risk of large-scale problems.
- It also shows the hollowness of Visa/MC’s fantasized arguments that they are better on security and fraud prevention. They’re not.
- Domestic competitors to Visa and MC on debit cards in the U.S. are much better at protecting against problems like fraud.
- According to the Federal Reserve, those smaller U.S.-based competitors have rates of fraud on a per transaction basis that are 8 times less than Visa/MC. See it here at Table 10 page 36.
- And the same Fed data shows those competitors’ fraud rates have been falling over the past two years while Visa/MC’s have been rising. Compare the data above to the previous Fed report in Table 10 at this link.
Visa and Mastercard have proven they repeatedly put profits above security. Competition will give them financial incentives to do better as both banks and merchants value lower fraud and better security (because they both pay the consequences).
COMPETITION IS BETTER FOR EVERYONE
IT'S TIME TO PASS THE MARSHALL-DURBIN AMENDMENT