In Case There Was Any Doubt: Further Proof Debit Card Reform Increased Competition, Didn't Hurt Banks

In case there was any doubt about whether or not debit card reform was a good or bad thing for banks and the overall marketplace, Time.com banking writer Martha White weighed in today with this piece.

The big banks impacted by the Durbin Amendment, which cut debit card swipe fees by half, predicted doom and gloom not just for themselves but also for smaller banks and credit unions, exempted under the amendment.

It didn't happen. The Federal Reserve said it; the Kansas City Federal Reserve Bank said it; the GAO said it; and the FTC said it.

Instead of doom and gloom, banks -- even the big banks -- have been promoting debit cards stronger than ever, writes White.

"After an initial retrenchment, banks now are marketing debit cards as aggressively as ever. They’re even adding back debit card rewards programs, which many had discontinued in anticipation of the hit the regulations would deliver to their bottom lines."

Banks have been promoting debit as fast, convenient and secure and encouraging debit card use for big and small purchases- from a big plasma TV to a pack of gum. (Merchants suffer but banks make out big time on small purchases, charging 24 cents a debit swipe regardless of whether it's $1 or $100.)

"Besides looking for new customers, banks are trying to get current customers to use their debit cards more frequently. “Some banks are encouraging customers to use the card for small purchases,” Susan Wolfe says. After the swipe-fee rule kicked in, certain banks adopted the 24-cent cap as an effective floor as well as a ceiling. Since they earn the same amount if you buy a cup of coffee or a TV, they make out better if their customers use debit cards for lots of transactions, no matter how small."

Banks have even reintroduced rewards programs for debit cards in hopes of boosting fee revenue with increased volume of debit card transactions.

Read the entire article here.

States Need to Make Sure "Nobody Is Swiping Our Lunch"

Merchants refuse to pass constantly growing swipe fees onto customers paying with credit cards even though in most states they are allowed to do so. In today’s highly competitive retail market nobody can afford to push customers away.
 
In many places, like NJ, lawmakers have been very quick to introduce bills that would ban surcharging. In a recent article The Record columnist John Cichowski says such law would be a purely cosmetic fix to a problem that doesn’t exist. It might prevent sellers from adding an additional fee to credit card paying customers’ bills but it doesn’t stop credit card companies from charging merchants pre-set and unreasonably high fees that significantly reduce their profits and force them to raise prices for all customers. In the end, even customers paying with cash end up paying more.
 
To fix the swipe fee market, lawmakers need to look closer at the way those fees are set by Visa and MasterCard and force them and banks issuing the cards to compete for merchants’ business just like retailers compete for a customer.
 
“The people who pay these fees – either directly or indirectly — need lawmakers to dig deeper than cosmetic solutions to make sure nobody is swiping our lunch.” Cichowski says.
 
Read the rest of the article here.

Facts About The Broken Credit Card Swipe Fee System

Current swipe fee system is not working and it needs improvement, clarity and government oversight. Right now it is completely controlled by Visa, MasterCard and major banks that charge merchants unjustifiably high transaction fees that significantly reduce business owners’ profit margins. Retailers can’t opt-out or comparison-shop. U.S. card fee system lacks transparency, competition and is almost impossible for merchants to decipher.

Facts:

• In the U.S., banks take between 2 and 3 percent of every credit card purchase.
• The average profit margin for U.S. merchants is 1-3 percent. That means the swipe fees going to the banks equal or exceed the business owner’s profit on each transaction.
• Right now, many small business owners don’t even know the cost of each transaction because the system dictated by the credit card companies and the banks keeps fees hidden and remarkably complex.
• Currently, Visa has over 70 swipe fee categories while MasterCard has over 240 different categories.

Swipe fees are out of control and constantly growing, even though with today’s technology the actual cost of processing credit card transactions should be minimal and U.S. has the highest fees in the world hurting both merchants and consumers.

Facts:

• Today, hidden swipe fees are costing average consumers hundreds of dollars a year – no matter how they pay for their purchases.
• U.S. swipe fees are 7 or 8 times higher than the standard European rate on each transaction
• Hidden swipe fees cost Americans more than all credit card annual fees, cash advance fees, over-the-limit fees, and late fees combined
• Hidden swipe fees cost Americans more than all credit card annual fees, cash advance fees, over-the-limit fees, and late fees combined

For more facts about swipe fees read:

• The Facts About Debit Reform
• The Facts About Credit Card Swipe Fees
• “Swipe Fee” Reform – International Lessons

Time for Congress to Put an End to Visa-MasterCard Price-Fixing

While business owners are struggling to keep operating costs and prices down, credit card companies and big banks charge them swipe fees that are extremely high and unreasonable if we consider how little it actually costs the banks to process credit card transactions.

Bill Leichsenring, the owner of two restaurants in Iowa, describes how much credit card fees hurt his businesses and calls on Congress to act and bring transparency and competitive pricing to the swipe fee system.

“We need transparency and competition. We need the ability to negotiate to reduce our operating costs so we can hold down prices.

I believe in free markets and don’t usually advocate government interference. But in cases like this, where the market is clearly broken, Congress needs to step in.

Members of Congress should determine why U.S. card swipe fees are so much higher — including the ratio of what is charged businesses vs. actual costs — and set about demanding competitive market pricing for swipe fees instead of the price-fixing we have today.”

Read Leichsenring’s article here.