Debit Card Fees: Retailers vs. Banks, But Will Consumers Lose?
There is a fight going on between bankers and merchants over what happens when you swipe your debit card at the grocery store or at the mall. When you make a purchase with your debit card, the retailer has to pay 1% to 2% of the total purchase price to banks. Banks want to keep the fees, merchants want to cut them down.
Both sides have hired lobbyists and written letters to Congress to advocate for their position. If these fees were slashed as the merchants want:
- Small business could prosper. Lower fees will help merchants grow their business and have more money for hiring and investments.
- Small banks and credit unions will lose a big source of their revenue and may even fail.
- The consumer could lose perks such as free checking accounts as banks try to make up for the lost source of revenue.
- If debit card fees are lower than credit card fees, merchants might encourage consumers to make purchases with debit.
Both retailers and banks have drawn support from bloggers, with many who say that consumers will the be ones who lose out.
It’s as if almost no one understands unintended consequences. Merchants and the public at large, don't seem to get that if they remove these fees the banks/credit unions aren't going to just give up $16,000,000,000 in revenue? Just like they didn't credit card companies didn't give up their revenue when the CARD act was enacted. Those credit card companies ended up charging higher interest rates, and in this case checking fees will start becoming the norm.
This debate is only about debit cards -- merchants will still be smacked with 1-2 percent credit card swipe fees. This means the benefit to the merchant will be moderate, but the downside to small, community-owned credit unions will be enormous. A lot of people forget that credit unions are owned not by stockholders but by, collectively, every single person who banks there. Community-owned credit unions put competitive pressure on big banks to keep fees low. It's in everyone's interest not to hurt the credit unions. That said, I wonder what the effect of a compromise would be -- since the average fee that merchants pay is 44 cents (which means about half the fees are higher), what if both sides compromised at a cap of 44 cents?
In my opinion, the services that banks offer are just a tool. I use them to my benefit, but if I wanted to, I could pay 100% with cash (another good reason to become debt-free and financially stable!). It's important to achieve that stage of financial stability where the financial institutions that you do business with work for you. If they start charging you more than you make off of them, they get the chopping block. That's just what will happen if this passes and my bank tries to raise fees on my debit card - I'll just cancel my debit card and start using other (fee-free) means of payment.
As a person who frequently uses my debit card for purchases, and sometimes gets charged for that transaction depending on the merchant, I support lowering the merchant transaction fees. Businesses bear the brunt of these costs, yet they are also the wheels of our economy; stronger business profits equate to more job opportunities. Banks are dead set against this issue because they rake in millions of dollars, dollars they say they will lose and have to transfer the cost over to their customers. Obviously I don’t look forward to higher bank fees, but then again it might make banks more competitive and that could mean more choices for customers.
I’d like to know just how consumers are going to be affected by such changes. I may be a bit myopic here but my simplistic take on this is that this would be somewhat of a slam against savers. The paring of merchant debit card fees sounds like a great thing (since who doesn’t want lower costs?) until you start hearing about the trickle down effect here. If there’s the risk of banks turning their threats and whining into reality, I certainly wouldn’t want to see them simply passing the loss of their buck onto their customers.
What do you think of the debit card fees fight? Do you think consumer costs will increase no matter what Congress decides?