A Swipe at Our Industry
Shhh. Do you hear it? It’s another debit-card swipe at your POS and, indirectly, another swipe from the banks and financial institutions that have prospered handsomely from your countless transactions.
If you haven’t figured it out by now, the financial world doesn’t like you, and they’re letting the Federal Reserve know with a lobbying frenzy featuring the biggest names in the banking world.
And guess what? They’re winning.
Recent reports, from Bloomberg BusinessWeek to The New York Times, show that some key supporters in both the House and Senate may be wilting after having backed the debit-free amendment contained in the sprawling Dodd-Frank financial regulation law, known as the Wall Street Reform and Consumer Protection Act.
According to media reports, at least two Republican senators, David Vitter and Michael Crapo, are now expressing reservations. And even one of the regulation’s chief sponsors, Rep. Barney Frank, D-Mass., is feeling the wrath of Wall Street.
(Disclaimer: While I have strongly favored swipe-fee reform, last summer I questioned whether our industry sacrificed too much by acquiescing to the broader, 2,323-page act.)
In just a matter of days, on April 21, the Federal Reserve Board must finalize rules governing lower debit-card fees, which will take effect July 21. The Fed’s proposal, hailed by merchants, calls for slashing debit-card fees to 12 cents from an average of 44 cents per transaction (based on a 1.5% pertransaction fee).
In plain speak, that means if this measure goes through as proposed, banks could lose 70% of the $20.5 billion they collect in annual fees.
Without those billions, these institutions, from local credit unions to goliath lenders Bank of America and JPMorgan Chase, say they’ll be forced to impose new fees on consumers. And to hasten their battle cry, they’re spending millions of dollars and enlisting some of the best lobbyists to fight their cause. Among these paid advocates are Sam Geduldig, a former adviser to House Majority Leader John Boehner, R-Ohio, and Regina Mahoney, a former senior adviser to Rep. Steny Hoyer, D-Md.
Nervous? You should be. Geduldig recently was quoted saying something many of us would find persuasive to our free-market tendencies.
“The idea that Chairman Ben Bernanke and the Fed would set prices in any industry is abhorrent to Republicans,” Geduldig said in mid- February. “Because of that sentiment, we’ve gained a lot of traction on this issue with the new Republican majority and have a lot of momentum as we continue to push for legislative changes.”
Is Geduldig’s comment about fixing fees abhorrent, and right? On the surface, his point is compelling, if not riveting—yet specious. What Geduldig doesn’t say is how Visa and MasterCard have prospered on the backs of retailers, generating more income than the entire c-store channel’s collective profit. Simply put, we build the businesses and they take home the profit (at least a lot of it).
No doubt they are entitled to reasonable compensation. The world of plastic has simplified payment, accelerated transactions, expanded the consumer base and undoubtedly benefited all retailers. It has curbed external and internal theft, enhanced secured transactions and given fresh tools to cash-strapped customers.
But at what cost? Transaction fees in the U.S. far exceed those in European markets. Moreover, Visa and MasterCard have achieved virtual oligopolistic powers. Retailers who choose to shun Visa and MC’s plastic power are carving out their own corporate coffin.
NACS and the broader Merchants Payment Coalition—to which NACS belongs and whose member associations represent about 2.7 million stores nationwide—have made their case well. We do believe in free markets, but above all we believe in fair markets. And swiping away debitcard reform is simply not fair.