If you want to understand inside the Beltway politics, proceed immediately to a superb article by Zach Carter and Ryan Grim at Huffington Post, “The Swipe Fee War”. It is a meticulously reported piece over the number one fight in the nation’s capital, which contrary to headlines, is not the budget battle but proposed regulations over debit card fees, otherwise known as “interchange” fees. As Felix Salmon, Katie Porter, and Adam Levitin have written, the reason this battle is so hard fought is that it pits two big spending constituencies against each other: banks versus retailers, or as one Senator broke it down further:
The big greedy bastards against the big greedy bastards; the big greedy bastards against the little greedy bastards; and some cases even the other little greedy bastards against the other little greedy bastards
Debit card charges are as close as you get to pure profit in banking once you get the system in place. The service runs over existing charge card equipment and infrastructure on the merchant end, and is integrated into existing bank balance reporting on the consumer end. For retailers, which are often low margin businesses, the various bank payment service charges are a very large cost. And the only serious study done on the impact of card charges (both credit and debit) on consumers concluded that the average household pays $230 a year. This is a significant hidden tax on lower-income households.
The Carter story is full of juicy vignettes: Bernanke lying badly on behalf of banks; WalMart fabricating alarmist Fed statistics; various Congressmen handwringing as to which group they should sell themselves to align with; the repeated flip flops of the mercenary NAACP. If we had sensible anti-trust precedents, this abuse of a oligopoly powers could be handled there, but the successful efforts of law and economics movement to indoctrinate judges have made that a non-starter, leaving the legislature as the best avenue for containing financial services industry rent-seeking. The ugly spectacle of this much time and effort being spent by various pigs at the trough as to how they whack up the economic pie, as opposed to create new products and services, is compelling proof of the need to regulate financial services firms as utilities. If these swipe card rules go through, it would be a welcome small step in that direction.
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Sorry, but the “tax” of $230 a year is less than phone service and oil changes. It’s less than cigarette money, for crying out loud. It’s less than sales tax. And it’s not a tax. It’s a fee paid by the merchants in exchange for the cost savings that debit and credit cards represent. The merchant who gives away free bananas in protest of merchant fees (see the article) is an idiot. The Amex charge for that banana is a small fraction of his wholesale price for that banana. IT makes no sense to avoid 12 cents in fees against your 75 cent profit and your 25 cent cost savings.
Further, the merchant fees (per dollar) are about half the cost of all other banking services, including cash and check processing. These services are not free. Merchants pay for change at the bank. Merchants pay per check deposited at the bank. (and merchants usually absorb 100% of the losses on bad checks)
Merchant card fees cover both the costs of fraud and convenience. And it is most certainly NOT free for the banks. The infrastructure costs are on the backs of the banks, not the merchants. The banks pay the service providers (Visa, Mastercard, etc.). The fraud expenses are on the backs of the banks, not the merchants. Collections, claims, and other losses all fall on the banks and thus the charges.
Those charges are a bonafide bargain to the retailer. Let them quit taking cards and they shall see just how expensive it is to buy hundreds of dollars in change every day, plus the security expense and the salary expense. If those costs are invisible to them, so be it. Let them operate a cash-only business. It’s their loss. Literally.
My guess is that retailers will start to turn their backs on rent seeking greedsters. The first thought that comes to mind is using ‘free’ software to replace expensive proprietary POS software. That’s a great, workable way to save money. I’ve seen it repeatedly when small companies say FU to Microscoff and run their books and so forth on *inux.
The big greedy banksters are most fearful of their own relevance in the future – everyone needs to stand up to the shake down tactics in these times of economic malaise. Big corps would like to keep up the appearance that the survival of the universe depends on the so called “conveniences” that they sell.
Sorry, but Unix isn’t free either. Expertise is costly.
Merchant fees are hardly a shake-down. Any business is free to NOT take cards. Go ahead, Atlas. Shrug. I dare you to live in that world for a while and see if you like it :)
Businesses could also chose to charge more if credit cards are used…or provide a discount if cash is used
Fiendes;
Rent seeking is it? You haven’t heard the best yet. When we pay our local property taxes here in Forrest County Mississippi, if you use a card, the County charges you the banksters transaction fee! They’d rather wait for an old fashioned cheque to clear the bank, and avoid the fee. As for convenience, you pay a hefty price if you’re not good with maths regarding your bank balance.
H. G. Wells once described advertising as “legal lying.” Modern day banking looks to be an analogue; State Sponsored Theft.
And people were decrying the depths to which “our” government had sunk when Al Franken entered the Senate. He was called, among other things, the Senates Foole. Well, heres to show you, the Foole in any court has the job of pointing out “Unpleasent and Inconvenient Truths” to the ruling elites. Go get them Al!
ambrit:
Gee. Maybe banks should just let people bounce checks for free!
Until very recently it was impossible to “bounce” a check.
The banks “offered”, as a service, overdraft protection. The rates on these loans, which they are, were way above any loan shark, and why they had to be called a “service”, not a loan.
I tied to cancel the “service”. They would not. I bet they wouldn’t let me “overdraft” my account by several thousand dollars.
But overdraft your account for $10 and they are more than happy to pay the claim, charge the depositor $40 for the “overdraft”, and 20% on the now $50 shortfall in the account.
That is fraud.
The alternative is to simply deny the charge, which they are able to do, but that is no where near as lucrative.
I frequent several cash only businesses. Do you believe they are just too stupid to realize the cash cow they are giving up by not taking debit/credit cards? They all seem to be robust businesses with lower prices than similarly situated enterprises. But since half of all debit swipe fees go to the top 10 Banks we bailed out, I feel so much better knowing we are supporting these failed enterprises.
Do I think they are too stupid to realize the cash cow they are giving up? Of course not. Some businesses would not benefit by taking cards and that’s their choice. It’s a judgement call that each business owner needs to make. I hope it works out for them. I really do.
But my point is that it’s delusional to assume that merchant fees are pure profit for the bank and present no benefits to the merchant and the customer. Remember that we frequently pay fees for ATM use, so cash is rarely free either.
(Regarding security, armed robberies of stores is becoming less frequent due to the fact that most business, including bank, rarely hold much cash. If you want to usher in another era of holdups, so be it.)
Conspiratorial thinking, however, will get us nowhere. I fully support businesses eschewing credit cards – it used to be the norm. They should simply do it and quit whining about it and expecting that their card should be processed for free. There are costs to card processing; it’s really as simple as that.
You’ve distorted the argument…a shape shifting of sorts – It’s about the size of the fee. No one expects that it should be free
Hardly. The imipetus of this entire discussion is that the banks have no business charging a fee. The market sets that fee, by the way. The govt should stay out of it, huh?
Ray,
The market sets the rates? I worked for years at a merchant processor, and Visa & MasterCard issued their rate structures, of the same amount, at the same time each year, for about 5 years.
Then there was an anti-trust lawsuit, and, suddenly, their rate structure began to diverge, and come out one month apart (late 90’s).
This was about the time that debit cards began to be pushed on consumers (remember getting your new ATM card in the mail that was now “co-branded” as a MasterCard or Visa for your convenience?). Within a few years, these cards began to reach majority level of issuance for cards.
But ATM pin-debit fees were no more than $.47 per transaction, while debit card fees were $.25 + about 2%. Basically, for any charge over $10, the banks got more for debit than ATM. Ca-Ching! This plus the fees from people using debit cards like credit, and making more mistakes on the spending limits.
Then Wal-Mart came around, and sued, and the giants settled, and debit card fees dropped about 15%, but this was still more than ATM pin-debit for transactions under $20 or so.
Then we can get into the question of why debit is much cheaper for banks than credit on the risk side, but I’ll save that for another reply.
Long story short, the rates are not set by the market, but by a duopoly, with Amex overpricing due to cachet/customer base, and Discover trying to stay competitive to the other 95%+ of the market.
Talk to me when you’ve actually worked in the industry and heard the discussions about pricing.
You line of argument is pure BS.
It should be free. Completely. The bank receives the carry on the transaction.
Yes, banks do charge ATM fees, which is INSANE. Remember the good old days when you went into a bank and talked with a teller.
They get rid of the cost of the teller, bring in a machine, and then charge you for the “service”.
Fuck them and their fees.
It’s true. Banks make money by creating money out of nothing and lending it at interest. As their services have gotten worse (for normal people) their fees have gone up, way up.
The services they provide to their customers are in exchange for their customers allowing them to control the creation and value of money. That, in itself, is a bad deal for the customers. To charge fees on top of that, then turn billions of dollars in profit, then get bailed out by taxpayers for failing at a business that is stacked entirely in their favour, is shocking to say the least.
That’s why I use credit union. Less fees, way better service, better rates; and if they make a forture, I get my share. Banks should be outlawed altogether – they’re unnecessary and dangerous.
When will you accept the simple truth?
US banks make more in fees than lending. You think this is normal?
It is pure vampirism and sucking rent. Period!
Shouldn’t be THAT hard to dig, no?
Since the insolvent money center banks are now owned by the people, morally speaking, let’s have the people decide what is best for their banks. The repeated failure and crimes of the banks does have a price, loss of autonomy being part of that price. Jail being another.
“carried on the backs of the banks” indeed. Shut up and sit in the corner while we decide what is to be done with you.
Wow. How rude.
Don’t let facts stand in your way, bub.
Fact: fraud, claims, etc. are handled by the banks and it ain’t free. That’s one reason why merchants are charged a fee. If merchants wish to handle their bad checks and security issues themselves, so be it. That ain’t free either. I daresay that a security guard and a skip tracer are much more expensive than a few cents per transaction.
Once the treasonous bankers have been tried, and if found guilty, hung, and once the ill-gotten bonuses of the past ten years have been clawed back, and once the banks have been turned into fully regulated utilities with no need to be bailed out of insolvency every ten years or so,
THEN we can set a reasonable profit margin for the banks for swipe fees etc.
The bankers really did kill the golden goose, as you may sense from our comments to you. Those on the bottom are already living a Darwinian existence, and as the middle gets a taste of that, many will be willing to endure much pain, as long as the bankers “get theirs”. Rudeness is the least of your worries, at that point. My fear is that ex-military people will target leading bankers for assasination- where does that fit into your risk models?
I think there might be something wrong with you. Aren’t you getting a bit agitated over a little fee that you never see?
Ray,
I love the way you change the argument.
This is about a hidden tax on debit cards, where the banks first made the service free to merchants, then jacked up the fees once the service became widely accepted. And they steer customers actively to the less fraud-proof version of payment, which is a debit card rather than an ATM card, which requires a PIN>
So by this “oh those little fees don’t hurt you, why are you bitching” which is patently untrue. By your logic, you favor a Tobin tax on all banking transactions, starting with securities and FX. Maybe we should put a Tobin tax on mortgage origination too. And I guarantee you don’t.
The banking industry has fought Tobin taxes tooth and nail.
This is the first time you’ve ever commented on this site and you are a clear industry plant, whether paid or self appointed is irrelevant. Being a newbie and first to comment and then persisting is a clear tell. I’m banning you. NC is not a PR service for banking industry shills.
What Yves said.
However, what Ray said also has a grain of truth. Merchants do have the option of rejecting plastic cards or — as I’m increasingly seeing in California at gas stations and elsewhere — offer a two-tier pricing system. If customers pay cash at that gas station, for instance, they pay less.
Yves, you have every right to ban contributors who use improper language, ad hominen attacks, rant off-topic, advertise or repeatedly make the same point impervious to argument, but your banning of Ray makes me uneasy. Even if he is a shill, which is unproven, I submit contributors to your site should have the right to propose counter-arguments which can stand or fall on their own merits.
I personally come to the web to learn and examine views which I would otherwise have no access to. Sites that are simply mutual admiration societies of the one-eyed are a waste of time.
Mark,
The network agreements explicitly bar two tier pricing, such as surcharges for credit/debit cards. That’s what this fight is over. I’m not sure re the background, but gas stations (and it may only be in certain states) got a carveout (not sure whether because they got together and insisted on it, or because the networks realized they’d have to offer that concession to get them to sign up).
Mark
I live in California and do all of my retail purchases in cash. I often request a cash discount and am told repeatedly, that it is against the rules they have with the banks.
Name,
I’m in a position to see the patterns of who pipes up on this site because I can search comments. And had I wanted to control comments, I could have expunged everything Ray wrote, which happens on other blogs but not here unless a person is remarkably abusive.
In case you weren’t aware of it, there are both formal, funded, very active efforts to manipulate public opinion via the comments sections of well trafficked blogs, as well as informal types who play the same role. And those individuals typically use distortions in their arguments and work from industry talking points that have been honed by PR firms. I’ve seen a huge uptick in comments that do not look to be organic (as in driven by legitimate readers, whether longstanding or new) in the last six months.
Another thing I weigh in the decision is dominating a comment thread. Excessive comment frequency on some sites (Barry’s in particular) is a hanging offense. I won’t ban on that alone but will include that along with other factors.
I welcome debate by legitimate parties, but I am not going to allow NC to become a propaganda outlet for vested interests. This is sort of like deciding what is titillating versus what is pornography. It’s a subjective judgement, but if you look at it day in, day out, you have a pretty good idea of where the line lies.
And Ray was out of line more narrowly, his comments were full of ad hominem, saying opponents were paranoid, engaging in conspiracy theories, etc. Plus he said things that were not true, for instance that retail banks did not get bailout money (look at the list of TARP recipients) yet asserted that he was an expert, all in lieu of dealing with the substance of the rebuttals. And you can see how the level of discussion decayed as other readers became annoyed at his bullying style of argument. So independent of his shilldom, his comment frequency and his tone put him in troll territory.
I could easily have banned him and said nothing, but it’s time high traffic sites start advertising that we are not open for business for industry PR efforts. Read the Bill Black post up in case you need to be reminded that this is one aspect of a long term effort to promote corporate pet interests that have prove monumentally effective over time.
Yves, instead of removing the banned user’s comments, some kind of a negative rating system a-la-YouTube might help – very negative comments could hidden by default.
Andrew,
I did NOT remove any of Ray’s comments!
The only sort I do are gratuitously nasty ones, the foaming at the mouth sort. Oh, and people who have been banned and find ways to come back in. Banned is banned.
Yves, I know. I was referring to your post that garbage comments pollute the comment board. So, as an alternative to the radical measure (outright removal), you could have them hidden/collapsed them by default based on low peer ratings. That way they wouldn’t pollute the board nearly as much.
See how YouTube works… I think Yahoo boards work the same way too.
I’ve found that most small businesses provide discounts for customers who pay in cash. Obviously it’s not explicitly BECAUSE the customers pay in cash, the credit card companies wouldn’t like that, but nonetheless it is the case.
Quite frankly that senator is as fucking clueless as you.
If cash is so onerous as to not be an alternative, then presumably banks are willing to drop the part of their agreement where retailers are forbidden to offer discounts for cash payers vs. credit/debit card prices?
Also, where this law that leads you to assume banks get all the returns from improving technology forevermore, and can form cartels and protect themselves from competition and (heavens!) dropping prices as economies of scale improve?
lol I think you need a dictionary.
You don’t seem to know the difference between free speech and a cartel.
As I said previously, merchants are completely free to enter into merchant card agreements or not. Have at it and see how you like it. It might be better, it might be worse.
If your superstition about retail banking is really your driving force, by all means do without. That’s what Walmart does!
BTW: the bailouts were to investment banks, not retail banks. Apples and oranges.
I don’t recognize you as a frequent commenter, but you show up first in the queue here and have spent an inordinate amount of time on this issue that has a very small effect on any one individual.
I mean this legitimately: It seems like you’re doing this in return for a fee.
In any event, all your arguments about being free to choose not to patronize a monopoly or oligopoly are less persuasive than you think. We have the right to elect representatives to create and enforce rules against monopolies and oligopolies. It is difficult to argue that the credit card and debit card processors are not one of the two. Done. Bye-bye.
If you are being paid, enjoy the “thirty pieces of silver.” [Yeah, you’re probably not even getting that much.]
Paranoia and ad hominem attacks. Do you have anything to contribute besides that?
Ray,
It’s not ad hominem to point out your logic and your persistence (and your sudden presence and intense interest) are highly suspect. AJ did have a substantive point in addition to his questioning your bona fides. By contrast, your reply WAS pure ad hominem.
It’s been proven that research sponsored by drug companies very frequently delivers skewed results. Arguments by people who clearly have an unusual vested interest (evident by you being a new commentor who was first to post on this thread, and has been unusually persistent in responding, with comment frequency violating rules of thumb used on other sites), and become borderline abusive are all clear tells. I don’t care whether you are self appointed or paid, you have a clear axe to grind.
@Ray Free speech, fairies and magic dust. How sweet and nice. Yea, right…
Back in reality, this is how the credit card cartel really works (and there is no better other word to describe it):
Banks charge fees for both merchant acquiring (processing funds at the merchant side) as well as on the card issuing side. The merchant acquiring side costs are relatively low and typically not very profitable. Many banks are not interested at all in doing this side of the business and quite often this is relegated to specialized 3rd party processors. On the other hand, the card issuing side is VERY profitable and everyone wants to grab a share of it.
Why are banks able to charge exorbitant fees on the cardholder side? Why, for example, aren’t merchants able to have customers pre-pay money to the merchant and then use merchant-issued cards? In most countries there is government regulation that requires any company that collects over a few million dollars in pre-paid funds to be registered, surprise-surprise, as a bank. And one can easily imagine what kind of investment you need to become a bank, with all the regulations (typically in the wrong places).
Very occasionally, merchants decide to circumvent this by issuing charge-cards (i.e. their own private label credit cards), but checking credit worthiness, chasing broke customers and such is not typically what retailers want to get into. Moreover, private-label charge cards are very inconvenient for customers – imagine having a card for each retailer that you visit. You’d have to carry a ton of them wherever you go, manage your accounts with each merchants… It just wouldn’t work on a large scale.
So what else could work? There’s a simple solution – electronic cash stored on chip cards. Basically it would work just like normal cash but it would have almost all the convenience of a debit card (except that if you lose it you lose the cash). Well, naturally, there is already such a patent and it’s owned by, surprise-surprise, Visa Inc. Their interest, surprise-surprise, is to block the patent rather than use it.
Now, let me give some more background on the exorbitant fees. For a long time I used to work for a company that offers pre-paid/gift card services to retailers. We were able to offer these services, which are essentially the same as what banks offer, plus LOTS of more functionality (customer loyalty management, reporting, etc) for a fraction of the price that banks typically charge. If you don’t believe me, look at Australia – the government has regulated the market and slashed the fees. The banks are still in the business and making some profit, but of course not making a killing like before.
I personally think that regulating the market is not the way to go. Get rid of the regulation which enables the cartels instead and the fees could get even much lower than even in Australia.
The point being that there is no cartel. YOu seem to want exactly the opposite of what you say. You seem to want govt regulation rather than market pricing. Just say so, will you please?
Ray,
What a pile of horseshit. Debit cards are a duopoly. You really think you can sell this “no cartel” nonsense to anyone with an operating brain cell?
“The point being that there is no cartel. YOu seem to want exactly the opposite of what you say. You seem to want govt regulation rather than market pricing. Just say so, will you please?”
Have you even read what I wrote? OK, I’ll spell it out for you. I’m not talking about more government regulation. I’m talking about:
1) Allowing non banks to hold much pre-paid balance, instead of X millions of dollars in total, allow them to hold X amount of dollars per cardholder.
2) More importantly and more radically, revoke patent rights to ALL software and just keep the copyright laws! I see software patents as much more of a problem than benefit to the software industry and the mankind, but that’s another discussion altogether.
NOTE: I AM NOT ASKING THE BANKS TO PROVIDE THE SERVICE FOR FREE. However, knowing a few things about the industry, as opposed to talking out of my ass, I think that with enough barriers pulled down, the prices would go down to about 1c-10c PER TRANSACTION for debit cards.
Private label cards preceeded Visa (bankamericard) and Master Card. Recall that Sears had one of the largest credit card outfits in the 1960s. (And it was so screwed up that if you moved you had to get a new card and card number). Many department stores had charge cards. I recall in the 1950s they were made of metal with a cardboard inset (the numbers were embossed on the metal). Smaller outfits just kept a log. It turns out that the costs of doing this are higher than the costs of the current charge system.
As pointed out cash costs both in terms of bank charges and the need for counting machines as well as a need for security. If it were legal I would think the convenience stores (otherwise often known as stop and rob) would go charge card only, no cash accepted, as then the robbers would get nothing. (Consider the cost in workers who are shot…)
“superstition” and “conspiracy theories”- the meme of the Fascist deniers. Your use of both terms reeks.
To answer your questions about returns on technology, that technology is not static and requires constant updating and maintenance. It’s their expense. They get the revenue. If you don’t like capitalism, you’re free to go shrug somewhere else.
I can only assume that you have no clue how insulting this is.
Technology is not static. I agree.
Technology requires constant upgrading and maintenance. I agree.
It’s their expense. I presume you mean: ‘technology is the banks’ expense’. Really? Do tell: color me fascinated.
The banks invented servers? I had no idea. Indeed, this is the first time I’ve ever encountered this Secret History of How Banks Invented eComm Servers. Do tell.
Then I assume that the banks also invented C#? I had no idea.
They also invented C++? Wow, I had no clue. Where was I…?
And the banks invented all the other code languages as well?! Color me gobsmacked…!
Here, I’d understood that PHP originated as Open Source, along with so many other languages that people had worked on because they believed in something.
Oh, and the browsers! I guess the banks invented those, too! Because, you know, the banks are *capitalists* (ooh, cue the Kewlness Track). Because the oddest thing is that the last that I remember hearing, all the online transactions and PayPal transactions and many eComm transactions take place via browsers…. of which the underlying, original browsers trace back to Open Source projects (Konqueror, Mosaic…)
But the banks created browsers, along with servers…?!
I think that I need to stop before Yves bans me from NC for life.
Mamma mia…
Wow. You’re way off the mark here. I only stated that banks pay for their systems. I didn’t say they invented everything. That’s quite a Straw Man you’ve constructed based on your poor reading comprehension.
Ray,
He’s right that your argument is spurious. The debit cards not only run on networks (whose economics are that of large initial investment, then near pure profit once a reasonable return on that investment has been recouped), but also are a by product to the credit card infrastrusture, which means that their was no risky large investment to launch these products, just some code/feature grafts and initial marketing.
And the ongoing “investment” requirements are pretty trivial (do not try to BS me here, I had American Express as a client and know their economics damned well) on the debit card side Plus any “investment” in the overwhelming majority of cases is to launch new products which have better economics than the current platform. So these are for the most part not network maintenance, as you suggest, but to increase the absolute level of income.
At least now we know Al Gore worked for Goldman Sacks too….
What is this nonsense about the “maintanance fees ” and “system development fees”?
If they scale up the system , then the unit cost has to DECREASE , but instead of the it is increasing.
If they bring same improvment,that INCREASING the perceived value of the system,then again they could receive more money for it.
But they don’t fo neither of them- the fees are higher year by year, and the level of service is stagnant.
Hi,monopolistic pricing.
We are also free to change capitalism or so called capitalism or whatever.
Correct. Ray appears not to recognize the difference between Capitalism and Crony Capitalism.
Just for the record, in New York there is now two tiered pricing at local gas stations. I believe that merchants can’t charge more for credit purchases but that they are allowed to offer discounts for cash ie. a matter of how they frame it.
Ray may not realize that this site holds more True capitalists than the combined 10 year attendence at Davos.
Personally, I was responsible for Painewebber’s long term $3.50 target for silver in the late 1980’s- missed by 2 cents I think (their target had been 4 dollars). I read the WSJ every day and believed the crap they were selling. I predict here and now that Ray will be silent when his regional banks are bailed out after commercial real estate collapses, or rather when the accounting fraud that allows it to subsist is removed.
Troll,
Actually, merchants are not banned for offering cash discounts; what they are banned from doing is adding to the charge for credit.
So they can list a cash price and a credit price, but they can’t list a price and then tell you that you will have to pay more for using credit.
Wow, you are operating from a perspective that is simply astonishing to me.
Allow me to offer a perspective from ‘the eComm layer’, as well as from my acquaintance with several small, locally-owned, hard-working businesses who actually **innovate** and create new products and services (some of whom have sunk a fair chunk of their revenues into trying to develop eComm components to better serve their local communities and customers).
You state that: And it’s not a tax. It’s a fee paid by the merchants in exchange for the cost savings that debit and credit cards represent. The merchant who gives away free bananas in protest of merchant fees (see the article) is an idiot.
I agree this is not a ‘tax’. It is a FEE.
If a merchant accepts cash, they don’t pay a percentage of the transaction based on the amount of the purchase; with most kinds of cc’s (credit cards) and dbts (debit cards) that I’m aware of merchants are extracted a percentage of the transaction. That is a FEE. It is pure, utter extraction. That transaction doesn’t cost the bank more to process based on whether the amount transacted is $50 or $800 or $3,000. Yet, depending on the amount transacted, the banksters take a ‘cut’, a FEE. They do not innovate, invent, or create to get that FEE — they only get it because they have the power (and legislation) to do so.
Meanwhile, don’t forget that the banks are also charging the customer for that very same transaction: in short, the banks make money off both sides of the transaction. Yet we aren’t hearing about that from the banksters, now are we…?
You lose all credibility with me when you state: Merchant card fees cover both the costs of fraud and convenience. And it is most certainly NOT free for the banks. The infrastructure costs are on the backs of the banks, not the merchants
If you honestly believe this, you are seriously misinformed.
Small retailers (including every restaurant in the nation) pay when there are fraudulent cards. The system **should** notify the retailer at the instant of swipe if the card is fraudulent, but it does not always do this. But it gets worse: if a retailer swipes a card and that data is not encrypted, or the network is not fully secured, then the retailer eats the costs — at least, the retailers that I’ve heard gasping in shock have ended up eating it. One retailer that I know – a small operation – having spent tens of thousands for inventory software and a whole new cc/dbt system, just ended up spending **more** tens of thousands of dollars to purchase all new swipe machines that encrypt **at the instant of swipe**. Did the banks provide those machines for free to the retailer? Not a chance. Did the banks provide any kind of discount to retailers using those new encryption devices? Not a chance.
As for ‘innovating banks’, that’s an oxymoron.
I’ve written eComm code, and I’ve worked in the eComm layer and the very notion that banks innovate is ridiculous. They have done their utmost to control and capture eComm technologies, but that does **not** make them innovators. Nor does it make the credit card companies innovators (!). It makes them what they always were and always will be: agents who cream profits from transactions. They happen to be at the point where the money changes hands, and they take advantage of that fact (in an exploitive fashion, I will add).
What Congress does not appear to understand is that if they side with the banks, they are damaging the vitality of small and medium sized businesses who actually **innovate** — whether it is a local farm that wants to offer an organic produce service, whether it is someone setting up a new merchant site via Amazon’s services, or whether it is a salon chain that wants to offer people the chance to buy a Mother’s Day gift card online. All those people actually **innovate**, provide personal services, and create the economic exchanges that allow for cities to have budgets that pay for schools, roads, cops, etc.
There is no reason — economically — for banks to stick businesses with the costs of fraud over which they have no control, to stick businesses with extractive ‘percentage’ fees of transactions, or to play both sides of every transaction by charging BOTH the payer and the payee.
Money is not magic.
It’s just money.
It flows — just like water flows, just like electricity flows. You can regulated it just like you regulate and charge for water and power.
Money is not any more complicated than adding, subtracting, multiplying, and dividing. It’s not genome research: it’s simple stuff.
Midas ‘innovated’ when he invented coinage, and there have been a few other financial innovations through the millenia, but to claim that banks ‘innovate’ or that it costs them more to run a small fee than a large one is preposterous.
If you want economic vitality in the US, you need to get the ‘flows’ of money out of the death grip of legacy institutions like the big banks we’re left with at present.
I think this isn’t just ‘big greedy bastards against little greedy bastards’: I think it’s about a conflict between the future and the past. And right now, the past has a deathgrip and a stranglehold because we have a Zombie Congress and a history of terrible legal education.
Great comment, should probably be it’s own post.
They do not innovate, invent, or create to get that FEE — they only get it because they have the power (and legislation) to do so.
I beg to differ. The expense of the computerized infrastrucutre, software, data transmission, whatever, falls on the banks and they constantly update these systems at their own expense. It’s simply a matter of fact. It’s really not my problem that you don’t understand that.
Meanwhile, don’t forget that the banks are also charging the customer for that very same transaction
They most certainly are not. The cost of card transactions go to the merchant, who is the primary beneficiary of the transaction, thus it is their cost of doing business. I’d like to see your bank statements proving that the bank charges you for an interchange fee. They don’t. No bank does so. We aren’t hearing about that from the “banksters” because it is only an invention of your imagination.
You lose all credibility with me when you state: Merchant card fees cover both the costs of fraud and convenience. And it is most certainly NOT free for the banks. The infrastructure costs are on the backs of the banks, not the merchants
If you honestly believe this, you are seriously misinformed.
Small retailers (including every restaurant in the nation) pay when there are fraudulent cards.
Correct. They both pay, but the bank has fraud losses. That’s a fact and that’s the reason for the fee.
The system **should** notify the retailer at the instant of swipe if the card is fraudulent, but it does not always do this.
The system can’t do this until fraud has been detected. It ain’t magic, you know.
If a retailer swipes a card and that data is not encrypted, or the network is not fully secured, then the retailer eats the costs
Well, it’s their mistake to not encrypt the data. Their negligence, their loss. Data security is the responsibility of the retailer. You can’t hold the bank responsible for the retailer’s failure to protect assets of their customers. And you can’t expect the bank to pay for their equipment. it’s a choice each retailer makes based on their own needs and goals. You make it sound like a big ripoff, but it’s really just ignorance on the part of your friend. That’s life.
As for ‘innovating banks’, that’s an oxymoron.
I’d say you are willfully misreading here. Systems require continual upgrades and enhancements. That’s all I said. I don’t care what your personal experience is, BTW. If you think that’s exploitation, feel free to use 100% cash all the time. No one is stopping you. (and so much for your ecomm code-writing job, I guess)
If Congress sides with the banks, they are simply staying out of it. The proposed legislation would place price controls, taking the free market away from card transactions. Is that really what you want? MORE govt control or less? Think about that one.
…I doubt that beauty salons qualify as innovative, by the way lol
There is no reason — economically — for banks to stick businesses with the costs of fraud
I proved once already that there is a very good reason for doing so. If this fee restriction holds up, fewer businesses will be able to offer card services because banks will cease approving most transactions. If you want that, fine. But you must get over the idea that banks should be performing services for free. They won’t and they don’t have to.
This is just misinformation:
they have no control, to stick businesses with extractive ‘percentage’ fees of transactions, or to play both sides of every transaction by charging BOTH the payer and the payee.
Money is not magic.
It’s just money.
It flows — just like water flows, just like electricity flows. You can regulated it just like you regulate and charge for water and power.
Money is not any more complicated than adding, subtracting, multiplying, and dividing. It’s not genome research: it’s simple stuff.
Fair enough. no reason to expect all that flowing to be free of cost, is there?
Midas is a mythical figure.
If you want economic vitality in the US, you need to get the ‘flows’ of money out of the death grip of legacy institutions like the big banks we’re left with at present.
You are conflating here. Any and all businesses are free to conduct a cash-only enterprise. Banks are not required for any reason. Most businesses use them, however, for security and convenience. Those are pretty good reasons. If you want to install a vault in your little shop to store all your cash, nobody is stopping you. But don’t call it a savings, because the cost will be more than bank fees.
“I’d say you are willfully misreading here. Systems require continual upgrades and enhancements.”
At the risk of sounding rude I’ll just go and say – you’re talking out of your ass.
Give me an example of one significant enhancement in terms of debit card processing in last 10 years. I agree that the credit card side has had some improvements such as real-time data mining for fraud detection, but not all banks employ that either as the credit card fraud losses are usually paid by the merchant or even the cardholder.
The systems are freaking simple. It’s add value X from account A and deduct from account B. It’s not freaking rocket science. I designed a system that does just that and lots of other stuff – the debit/credit was a piece of cake compared to everything else and the other stuff wasn’t rocket science either.
15 years ago, before the internet, there was a large telco fee associated with acquiring transactions. Now it’s virtually free.
15 years ago, you had to have multi-million dollar mainframes to run this thing. Nowadays you could process the whole transaction volume of a medium-sized country on a set of machines that cost a couple of hundred thousand dollars.
Just because lots of banks still waste enormous amounts of money on IT doesn’t mean that the costs are warranted. And again, even after all the costs they’re still making a killing.
Well stated.
And I’m guessing that neither you nor I made the kinds of obscene bonuses of these bank execs, yet they flaunt themselves as if they are ‘innovators’.
Thank you for this comment.
The personal insults are way out of line.
I never said anything about innovation. That was you and the other commenters who lack reading comprehension skills. Further, this is not a discussion of high tech innovation. I merely stated that systems must exist to do all the work that the banks do. That much should be obvious and I don’t understand why you don’t see that. That’s an expense. It’s really very simple and it was my only point. The banks have expenses. There is no reason why they should process cards for free or for less than what the market will bear.
Personal insults, Bub.
You continue to insult the intelligence of the human race, and the people paying these “fees”.
“Talking out of one’s ass” is not an insult for me at all. When occasionally I talk something I don’t have good knowledge about and then get caught out by someone out of my league, I can freely admit I talk out of my ass. It’s just that as I get older I am a bit more aware of my ignorance, so I tend to do it less.
Now, if you wouldn’t care to address to any of my points, I’ll keep maintaining your opinion as described above.
Look at the profit margins for retailers versus big banks, and tell me whose side your on.
Wal-Mart did $408B in revenue last year and had net income of $14.3B dollars, or net income was 3.5% of revenue.
J.P. Morgan Chase had $102.7B in revenue last year with net income of $17.4B, or net income was 16.9% of revenue.
So spare me the costs of doing business. Retailers have low margins and a lot of costs. Big banks have super high margins, rent seeking activities, and are simply afraid of margins declining and their profits falling from the stratosphere. Just wait until we tack on a financial transaction tax to control for the rest of your rent seeking behavior!
Sorry, but not all banks are JP Morgan. You’re confusing apples and oranges. Retail banking is a different thing than what you are thinking about.
As the author noted, though, it’s the ten biggest banks getting the majority of these fees. The big banks are desperate to protect their rent seeking activities lest their easy profits and EPS start to fall.
I’d rather transfer money to a retailer getting a 0%-5% margin than a $10B+ bank (i.e. those affected by the Durbin Amendment) getting a 10%+ margin.
The insolvent JPM Chase, Citi, WFC, etc. are “investment banks”, as you say Ray, but they are also taxpayer guaranteed hedge funds and DO have retail locations. So don’t say they are not retail banks and that retail banks were not bailed out. You say the banks should be able to charge “whatever the market will bear”. Well, the market is speaking to you right now. We have determined that Society can’t subsidize Communist bankers who feed regularly at the public teat. We are pulling you, bawling, from that teat, and will regulate you as you have proven that you can’t regulate yourselves. Even Greenspan admitted that. The Market cannot BEAR you, to use your phrase. If your particular bank does not go under due to bad CRE loans, then you will benefit from the elimination of the insolvent banks and failed bankers at those “investment banks” and the failed regional banks. Good luck to you.
You line of argument is pure BS.
It should be free. Completely. The bank receives the carry on the transaction.
Yes, banks do charge ATM fees, which is INSANE. Remember the good old days when you went into a bank and talked with a teller.
They get rid of the cost of the teller, bring in a machine, and then charge you for the “service”.
It is the same with Checks. Now, instead of having HUGE service centers for clearing checks, they have nothing. They send the checks back and fourth electronically, saving themselves Billions a year.
Fraud? Pass it on to the customer. There is no way to trace it most of the time, that may or may not be on purpose, but you can guarantee the banks are earning on that fraudulent transaction until they cancel it.
You clearly have no idea how banks and banking work, or are just a paid parrot who is deliberately re-writing history and.
I’ve spent my entire career in banking and I know precisely what I am talking about.
So you are a banker with an agenda.
Thanks for clearing this up.
And from everyone out there who is not sucking the teet of the TBTF, I offer another very heart felt and honest FUCK YOU.
You’ve spent your entire career in banking, yet can’t name a single technological innovation the banking cartel has come up with.
I’ll help.
o Credit Card Securitization — lowers cost of holding debt for banks.
o Online Bill Pay — lowers cost of processing checks for banks.
o Rewards points — encourages people to rack up interchange fees on things they wouldn’t otherwise charge.
o “Credit Protection” schemes — pure sop for banks.
So why do we need interchange fees for “innovations” that more than pay for themselves?
Actually, I might believe that Ray has spent his life in banking–in upper management, talking about ways to increase returns.
I, however, have worked in the bowels of merchant processing for many years, on the processor and merchant side. Every year, we would hear him and his ilk at the large banks and the associations talk about their innovations and increasing costs, watching them cut back on fraud prevention for merchants and small processors while changing regulations to reduce the ability of merchants and processors to dispute invalid chargebacks and/or fight fraud, while reporting higher and higher profits.
So, basically, higher fees, lower expenses, pushing risk out to their partners and the public (via push to debit cards, changes in processing rules, and cut backs in fraud prevention partnerships that worked).
Yup, definitely at the top tier in his company, saying “make more money” without looking at consequences outside of his bonuses.
In general I believe if you use your banks ATM there is no fee its using some other banks atm that costs. But consider if you walk into a bank that does not know you from adam, you can’t cash a personal check there, (and possible not even a government check). (Disclaimer I don’t use ATMs, preferring to go to the bank once a month and get green pieces of paper).
Mr. Butlers has done a fantastic job in this thread of simply making one point over and over again: Businesses do not have to participate and can accept cash if they do not want to pay the interchange fees. Sure they can and some do but the reality is it will cost them business.
The retailers are more than willing to pay a fee for the services provided by the creditcard/debitcard processors. The issue is how much and how many middlemen get a slice. The other issue is the rates paid are based on hundreds of differing criteria and also transaction level. Large corporations get a different rate(lower)then a small business.
The processing system is a utility for the banking system and for the business community. It should be priced accordingly with a flat rate based squarely on operating costs and an agreed upon percentage for profit. Making the system transparent and equitable at all levels would be the fair thing to do but since the rentiers that own the system would prefer to be able to milk the consumer and retail community for whatever rate they think the market will pay, it is a moot point.
Mr. Butler’s posts in this thread illustrate the tactics and attitude the rentiers will use to fight back against anyone questioning their right to skim a percentage from the system using a protected monopoly. Our elected reps and money as free speech assure they will have this right. The free market principles Mr. Butler espouses has no reality in relation to interchange fees but since his salary is paid by this system he will never acknowledge that simple paradox.
You see, you can always only accept cash if you don’t like it. Never mind that nearly 70% of point of sale transactions use a credit or debit card.
Exactly, mcgee – rent seeking 101.
Firstly, you lobby the government to erect high fences (you must be a bank to do this business).
Secondly, you talk to your ‘competitors’ and make sure that everyone sticks together.
Then you make a killing in the fees and when you hear complaints you keep repeating “hey, this is a free market – you can take it or leave it, nobody forces you to take it”.
And then when the government tries to claw a bit back, you fight tooth and nail and bitch like it’s the end of the world. And if everything fails try to threaten with End-Of-World scenarios.
By the way, I’m not really a big fan of retailers either. When they got their cuts in Australia they failed to pass any of this onto the customers.
I lived in Singapore and the fees are more transparent as low-margin merchants usually pass the fees explicitly onto the customer, which is fair enough. At the same time, they have a low cost debit card network (local, not Visa/MCard) and it’s pretty popular. If I remember correctly such transactions are charged at only 20-25c flat to the merchants!
Ray,
This is patently spurious logic. An extra, unnecessary, extractive and hidden to the customer charge can in no way be treated as comparable to necessary (or discretionary but elective) expenses. This is sheer rent seeking.
A former security researcher turned criminal hacker has been sentenced to 13 years in federal prison for hacking into financial institutions and stealing credit card account numbers.
Max Ray Butler, who used the hacker pseudonym Iceman, was sentenced Friday morning in U.S. District Court in Pittsburgh on charges of wire fraud and identity theft. In addition to his 13-year sentence, Butler will face five years of supervised release and must pay US$27.5 million in restitution to his victims, according to Assistant U.S. Attorney Luke Dembosky, who prosecuted the case for the federal government.
Dembosky believes the 13 year sentence is the longest-ever handed down for hacking charges.
Butler, also known as Max Vision, pleaded guilty to wire fraud charges in June last year.
He gained notoriety for hacking into carder forum Web sites, where stolen credit card numbers are bought and sold, and forcing members to conduct their business through his own site — CardersMarket.com. Criminals used the stolen credit card numbers to create fake debit and credit cards that were then used to steal money or merchandise.
This isn’t Butler’s first time facing a federal hacking sentence.
After a promising start as a security consultant who did volunteer work for the U.S. Federal Bureau of Investigation, Butler was arrested for writing malicious software that installed a back-door program on computers — including some on federal government networks — that were susceptible to a security hole.
http://www.computerworld.com/s/article/9156658/Criminal_hacker_Iceman_gets_13_years
Sounds like someone has a sense of humor. Sort of.
There is a Ray Butler at Regions Bank. If this is our Ray I do respect him using his real name. Regions Financial is on Weiss’ list of the top ten weakest banks in the country, rated at D-. They will fail in the next leg down (my opinion). Their share price went from about 40 down to about three bucks during our most recent Stock Market Crash.
They have 28 billion in Commercial real estate exposure, which represents 218% of their tier one capital.
If this is our Ray, he should be as rightiously annoyed at the ‘investment banks” as most of us are- they have destroyed his bank and the zero interest rates required to keep those insolvent, dead banks upright are killing his spreads. And soon, his career.
Join us Ray. Stop using charge and debit cards. Remove your money from institutions you do not wish to support. Girls with flowers in their hair will embrace you, Ray, and we can defeat the Blue Meanies together.
Flower Power.
“The big greedy bastards against the big greedy bastards; the big greedy bastards against the little greedy bastards; and some cases even the other little greedy bastards against the other little greedy bastards”
Is Atlas still shrugging?
“If these swipe card rules go through, it would be a welcome small step in that direction.”
I’m ignorant on this…..how so?
I will keep paying with cash as much as I can in any case. It’s not ideal but e-money is clearly too dangerous in all senses: control by big capital and the state, hidden fees and taxes like these, the very real risk of hacking and losing money if you buy online…
Ray Butlers doesn’t address this:
If cash is so onerous as to not be an alternative, then presumably banks are willing to drop the part of their agreement where retailers are forbidden to offer discounts for cash payers vs. credit/debit card prices?
Why not just make the above practice illegal?
Different banks make different agreements. Some retailers indeed provide a discount for cash.
Once again, businesses are completely free to not enter into merchant card agreements at all and pass the “savings” on to the customers.
If you want said practice to be illegal, write to Congress. I don’t know what you want me to do about it :)
Ray, why should consumers aka that vast majority of us be ok with oligopolies using their market power to charge ever increasing fees for services that are of public utility? price controls, taxation, regulation, legislation etc. are all forms of social engineering used by democracies to bring about the outcomes they desire. in the same way merchants are free not to enter into merchant agreements, banks and card issuers are free not enter the debit card game but i doubt that lowering the profit margin on such issuance will cause them to do so and by helping retail margins it might just make the average person better off.
uh. ok. whatever
Bill,
As I noted above with curmudgeonly troll, merchants can offer a cash price alongside a credit price, or post a price and then give a discount for cash, but they cannot post a price and then tell customers that there is a surcharge for credit.
Thus, a few gas stations still post the different prices side by side, but most businesses do not want to post such differences for all of their products (which would meet the requirement). Plus there are many reasons why businesses prefer not to handle higher volumes of cash.
My email account is free. I can send pictures, videos, maps, reports, anything, but money. For, that the banks charge a toll. I can send pictures, videos, maps, reports, money, checks or money orders through the US Postal Service for .44 and they do not take a percentage of my mortgage, car payments or my kids student loans, they just deliver the money. It is not my fault that some many peons and paid agents from PR departments for the Chamber of Commerce and the banks don’t understand this. The percentage in the form of swipe fees, per transaction fees, monthly statement fees, leasing fee for the machine etc is meant to socialize us into learning dependency on the banks and expecting to be charged a so called small, nominal fee. The fact that they contestants are waging a scorched earth fight to the death shows not only profits are involved but power and control.
The additional propaganda and bald face lying lies are further revealed in the Check 21 law passed by Congress in the wake of 9/11. When the skies were cleared of all commercial airline flights, banking ground to halt. It seems while the banks were busy investing in their fee generating 21st century electronic banking merchant payment systems, their check clearing paper system ran on chartered jets loaded with the daily take, transported to and from local Federal Reserve Bank clearing houses. Congress was incredulous that after putting up taxpayer money for the internet development and the rapid commercialization of eBiz on line, that the banks were still antiquated when it came to check clearing. 2 systems, separate but unequal, how could that ever happen in the land of the free except for the nominal fee? Oh well, the Federal Government will soon realize that Check 21 made digital copies legal tender and will turn all of the Post Offices into Credit Union Branches when the banks finally go belly up. At least we will have gotten all of the bugs out of email for USPS to take over when the time comes.
I don’t see much point in addressing your parnoid fantasy point by point, but Check 21 was in the planning stages long before 9/11 and had nothing to do with that event.
Dear Ray, go fuck yrself.
Ray, I just want to thank you for using the name of CA university professor. His web site is an excellent new source of info on the political economy, especially this link:
http://www.epi.org/
This is wonderful new site I never would have found out about except for you! Thanks nameless, faceless shithead of a drone. I am now reading an excellent Alternative People’s Budget. Read the intro from this excellent site:
“Three major plans for addressing the federal budget deficit are competing for support on Capitol Hill and with the public. President Obama’s budget framework, as detailed in a speech two weeks ago, reduces deficits from around 10% of gross domestic product (GDP) today to an estimated 2% by the end of the decade. House Budget Committee Chairman Paul Ryan claims his plan would bring deficit levels to 1.6% of GDP by 2021. The People’s Budget, developed by the Congressional Progressive Caucus with assistance from the Economic Policy Institute, goes further than both of those plans, achieving small budget surpluses by 2021.”
http://www.epi.org/economic_snapshots/entry/The_Peoples_Budget_A_Responsible_Budget_Plan/
To pick up on what readerOfTeaLeaves wrote, this whole debate is essentially about how much money costs, and who receives your service charge. Cash isn’t entirely cost-free (the U.S. Treasury is paid with taxes), but it’s considerably less than the banks’ user fees. If it were up to me, I would make fees incredibly low on debit cards and comparable to cash costs (and not based on the size of transaction), since that’s just you accessing your own money that you’ve deposited (and ones and zeros in a computer should have less overhead than moving around pieces of paper). Credit cards would cost more–after all, you are technically taking out a loan (even if, like I usually do, you are using it as transactional credit).
The issues are much more fundamental than the size of the banks’ cut–what we’re really discussing is the de facto privatization of money, as we move towards increasing electronic purchases (debit and credit).
agreed mike that is the larger and more important issue. do we want to allow the privatization of a public good producing good like money? it has lead to horrible outcomes in healthcare and as abcx says is again leaving Americans with inferior outcomes at higher costs.
for most businesses, card fees are cheaper than the cost of handling cash. it varies, but that’s why businesses accept cards. Once again, all businesses are free to not accept cards.
Sorry but no. The cost of accepting cards is less than the cost of lost business which would occur if only cash was accepted.
Those banks that charge for transactions know full well that the widely entrenched infrastructure and convenience of plastic is embraced by consumers and know that it is easy to slap a cost to merchants on top.
that doesn’t make any sense, but whatever
I lived in Germany for a while. As anyone who’s lived there will tell you, Germany is primarily a cash-based economy. They rarely use credit cards or debit cards at POS. Most retailers will accept an EC karte (a debit card with a smartchip) if your bill is over a minimum account. I couldn’t find the exact merchant fee for this, but I’m pretty sure it’s either minimal or free. It seems like a problem at first but it’s really no big deal once you get used to it. Most shopkeepers will set whole number prices.
Of course, Germans are also more sensible than Americans – they post after-tax prices and tips are usually included. So you never have to pay some ridiculous amount like $5.73.
This also means that splitting restaurant bills by dishes is easy for them – I have seen many a waiter in the US get befuddled when faced with this simple task because of the tax that goes on top.
The problem with doing this in the US is that the economy would grind to a halt if most businesses like your grocery store stopped accepting credit cards. Aldi, for example, did not – can you imagine Walmart doing that? Pretty much their entire core demographic would go somewhere else.
Another banking related thing that the US is a 100 years behind is free online bank transfers (ACH). Why is it that I can’t transfer money from a BoA account to a Wells Fargo (insert Bank A to Bank B here) for free? Some banks, mostly small credit unions, let you do free ACH push and pull transactions, but most don’t. They want to charge you a fee for the convenience or they tell you to use a bloody paper check. Somehow Europe, South Korea, Japan, heck, even India can allow this but we have trouble with such a simple thing. This will totally kill Paypal’s business too. On the German eBay, for example, most payments used to be made through direct bank-to-bank transfers (don’t know the case now after ebay bought paypal). As it stands now, our household of four young, connected people has to mail in a rent check every month using Bill Pay. The company then has to physically deposit the damn check – what a waste. The check then takes a few days to clear while the bank gets free short-term funding.
Rant over.
1. Germany is primarily a cash-based economy. They rarely use credit cards or debit cards at POS.
2. Germans are also more sensible than Americans – they post after-tax prices and tips are usually included. So you never have to pay some ridiculous amount like $5.73.
3. Another banking related thing that the US is a 100 years behind is free online bank transfers (ACH).
Excellent points, abcx!
1. It is amazing to stand in line at a coffee shop, convenience store or pharmacy and watch Americanos pay for tiny purchases with plastic cards. They have been brainwashed into doing this, just as they’ve been brainwashed into quietly accepting a 2-million-inmate Gulag.
Spending cash is faster, cheaper, untrackable, and — best of all — SCREWS BANKS OUT OF A FEE. Read and learn:
http://www.usecashmovement.org/
2. Retailers in most countries quote all-in, after-tax prices. Clueless Americanos go to the cash register, never knowing exactly what amount they will be asked to pay, and never sure whether the amount is correct or not. This is absurd and anti-consumer.
3. JP Morgan Chase recently introduced a Person to Person transfer service, whereby a Chase depositor can email a payment to anyone else, whether the payee is a Chase customer or not. However, the recipient must open the email and enter the details of their payee account.
Incredibly, the quill-pen-era US banking system still lacks a free, universal transfer system by which you can unilaterally wire money to another account. To do this by Fedwire, you have to visit the bank branch, fill out a paper form, and pay $25.
Bottom line, the anachronistic US banking cartel does not deliver convenience and value proportional to the heavy fees it extracts. A bust-up of its TBTF constituents, along the lines of the 1984 AT&T break-up, would be a salutary experience for this sleepy, value-subtracting cartel.
Checks don’t take a few days to clear at all. People write checks, and have the checks processed *and* handed back to them in about 2 minutes. (Oh yes, there are service charges for this too.)
I recall when I worked for a merchant processor that a rental agency from out of the country had a corporate office that did business with us. Their reason for that was that some clients preferred to pay while within the US, but the majority of their transactions were run within their main country due to much lower interchange (about half US cost, IIRC).
Several years ago, the major associations started adding surcharges to merchants processing transactions from out of country cards to help them offset/recoup this lost revenue.
The oligopolistic nature of the industry begs for regulation. If the banking industry only had its head down, providing good value and innovating with new products and services (instead of its head up its ass), they would probably have a high margin business with nary a peep from anyone.
The fact that retailers cannot reflect these “interchange charges” (e.g., fees) in the prices of the products consumers purchase, allows for the costs to be implicitly added to all products. Even if you maintain a zero-balance charge account, why bother paying cash. This does nothing more than add innefficiences into the system (a place to extract rent), similar to health care where insurance insulates patients from the cost of their choices.
Ray Butlers comes across as an industry paid hack. They come in, redirect, and generally monopolize the discussion. The card swipe fees are a scandal. Butlers tells us not to believe our lying eyes. Curiously, he doesn’t contest the figure of $230 a year. It makes me think that the real figure is probably considerably higher. The real question here is if the banks are providing a service that is actually worth $230 or whatever a year. This is very different from the issue of whether or not they can get away with charging this amount or more.
In reading on this subject, I think special mention needs to go to Senator Dick Durbin of Illinois who has been whoring for the banks to the max on swipe fees. His herculean efforts on behalf of the banks should inter his reputation as a liberal once and for all and fix him instead as a true soldier of kleptocracy.
uuh, I agree with your first paragraph but Durbin is the one who introduced the cap on interchange fees. as for those who say that the loss of these fees will lead banks to cut no fee checking or low fee checking I have a couple of thoughts, cap executive compensation or provide direct government subsidies to allow banks to “afford” no fee checking. this blog post is a good argument for the public option in many markets of high public utility and consequent low demand elasticity and low levels of competition eg banking, insurance etc. http://slackwire.blogspot.com/2010/09/public-options-general-case.html
Stop me.
Ray started the discussion, you ass.
All through the thread, not one person posted the actual fees.
Since I did my banking statement yesterday, here are the Amex fees for the month:
March 14: Charged $58.20. Amex paid $56.16
March 21: Charged $19.20. Paid $18.53
March 23: Charged $100.10
March 24: Charged $63.20. Amex combined these two & paid $157.59
April 6: Charged $12.05. Paid $11.63
April 11: Charged $61.00. Paid $58.86
April 13: Charged $48.15. Paid $46.46
April 15: Charged $30.05. Paid $29.00
April 16: Charged $42.21. Paid $40.73
In addition there was the customary $4.95 monthly charge for doing business.
Among the major credit cards, Amex is unique in clearly stating their fees. Master/Visa lumps theirs together in ways that are indecipherable. In past years Discover ran their own fees, but as they seem to be on the verge of collapse, MC/Visa processors now process Discover as well.
So far as fraud is concerned, the processors, whenever possible, take the money from the merchant who submitted the fraudulent transaction. Which means it’s the merchant who looses. A careless merchant who submits too many of those gets his fees raised & eventually gets chopped off altogether. Whereupon they turn to PayPal. Don’t get me started on them.
I’m a little mail order bookstore, existing in the shadows of Amazon. Are these killer fees? Let’s put it this way: A healthy business, in a good environment, can stand it. In hard times, every knock hurts.
Ray,
From years in merchant processing in the online sphere, I can give you a ballpark of merchant fees by card type for a large merchant. These figures include all transactions costs (authorization fees, interchange, settlement fees, monthly fees, chargeback fees, etc.)
Visa Debit 1.75%
Visa Credit 2.05%
MC Debit 1.7%
MC Credit 2.1%
Discover 2.1%
American Express 2,65%
This was at a top 10 internet retailer (at the time). Smaller merchants would pay higher rates (we were basically at interchange + processor cost + small profit). When I was at a merchant processor, small merchants basically paid around an additional 1-2% depending on their volume.
Rates have gone up since then. In addition, V/MC have added surcharges for the following:
International transactions and
Reward program cards
The actual cost of processing is recouped by the processor in their fees.
Visa/MasterCard recoup their costs in the per transaction portion of interchange.
About 95% of the interchange, and 90% of the total cost, goes to the issuing banks.
That’s why they love debit cards. Instead of the risk of a credit line, they are drawing from a defined account’s funds. As Yves and many commenters have said, the infrastructure was in place from the credit system, so debit is highly profitable because of this, as they are collecting fees from both ends.
aka the cost of doing business. We don’t expect Amex to process charges through their system for free, do we?
We, the royal “We”
Are you now admitting that there is more than one person behind your keyboard?
That their should be a cost is not the question, but in your two sided world view that is all you can come up with.
Banks used to make very good money off the carry on an account, they were not paying interest on a checking account balance. This was the “cost”, and was not seen by either the person with the account, or the person accepting payment.
This is also on point to the post, Debit card attached to demand accounts, not credit cards.
And those fees are insane. I could drive payment, in cash, for 50 miles on what they are charging for $200 worth of spending.
Come on folks, banks have been demonized enough. Those modest fees have a positive side for all of us. They could be seen some kinda saving help. Every time you buy something they put a few pennies aside for you, just like a cookie jar. Those pennies add up and in the end through the rewards system you’re able treat your kids to a nice Disneyland trip. Ain’t that neat? If you had to use the cookie jar, you would never have the discipline to achieve that.
Thank you banks for thinking for me!
Of course, the banks now charge the merchants extra for processing rewards cards transactions, so the businesses are now paying for your trip, not you or the bank. Cheers!
How much could be the cost of a Ray Butlers?
Is it based on the number of words, or is it covered by certain time period?
He/she has good understanding,and spot on – so ,he/she could be in the 25-40$/hours range.
Is there any PR company, which offering this services?
Originally I was under the impression that he’s just another clueless banker who’s thinking they’re doing God’s work. But now I’m considering whether he’s actually a paid shill.
He can’t counter any of my points and he keeps repeating “banks must get their fees, take it or leave it” mantra, so yea $25-40/hr sounds reasonable for his capacity.
Nay! Community service order under auspices from high above, for pilfering under their noses.
Skippy…it was that or roving cabana boy in Afghanistan.
Every time congress does *something* about exorbitant fees, they have all these hearings about how bad it is for the little guys, then make a law that sets limits on the fees. The companies that charge an arm and a leg come up with a new set of fees that circumvent the law, while the companies that didn’t previously charge a fee or were below the new limit raise their fee to the maximum allowed.
I’m inclined to give some consideration to Ray’s point. If we really believe that banking is a public utility (which is perfectly reasonable, methinks) then it seems like a public option would be a better choice than a price control. the basic problem here is that the general public wants a service for a price that the market won’t support. As some have noted, it seems like a cap will just shift the costs around, possibly having worse effects in the end. Why don’t we just do what single-payer countries with private health-care markets do? A basic public bank. Then, private banks can prove their “innovativeness” by adding services that the basic public option does not in the private market. If they’re really innovative then they should obviously be better than the gov’t (for those who can afford it) and thus survive. If they can’t beat a basic, bare bones gov’t run-option, then it belies their innovative qualities. This would avoid the negatives of price controls and really only hurt a small sector of the population (bankers who suck at their job) and help 1) anyone who needs loans and 2) bankers who are legitimate innovators.
Credit cards suit me.
As someone who chooses to live far from the madding crowd I visit town once or twice a month, and on those days have a lot of shopping to do. It is also very useful being able to buy things on-line and have them delivered to me before I next have to go to town.
Without the credit card I would have to start every town visit at the bank to withdraw a thousand dollars or more to cover all proposed purchases, and end every visit returning to the bank to re-deposit what wasn’t required, give or take a small float. On-line purchasing would be impossible as I refuse to have anything to do with Pay-pal etc purely because I don’t trust their security and processes. (SONY anyone?)
I pay off my card in full every month, and keep the limit below what the bank keeps urging on me as I don’t need that much.
Directly it cost me nothing apart from the annual card fee (that’s here. Things seem to be done differently in the States, it seems.) Indirectly I suppose retailers add a little to their prices to cover what the service costs them, but I’d pay that even if paying in cash.
If the (retail) banks and/or service providers are gouging retailers I would have thought I would be hearing much more from them than I do.
If as I read above Visa are blocking true cash cards which, if released, would result in more convenience and cheaper prices, that is a scandal about which something should be done, but that’s not the subject of this thread.
Otherwise, credit cards suit me.
CREDIT and DEBIT cards are different things. The post was about Debit cards, which, it seems, you are not using.
There is a long history of Credit card laws that protect consumers, most notably from Fraud.
Debit cards, relatively new, offer none of these protections, and are HUGE revenue bases for banks.
Credit- They are extending a loan to you.
Debit- They are taking money from you.
bob,
Actually, there are laws under Reg E that protect consumers from debit card fraud, because the funds are drawn from depository accounts.
They differ from the protections of credit cards, and usually take longer to resolve, but they have existed for years.
In some cases (such as for recurring payments), the protections are stronger.
Having known multiple people faced with debit card fraud, the “protections” you refer to amount to “Your money is gone for a year, then you MIGHT get it back, with no interest and with up to $400 missing.”
With credit card fraud, the cardholder is never out anything, unless the card company decides to get in on the fraud and forces the cardholder to go to court (more and more common, actually).
Any claim that the government enforced money cartel is “free market” is bogus.
And now that the bankers have wrecked the economy again they should be allowed to recover their losses with higher fees?
Fine. Then first remove all government privilege for the bankers including de facto legal tender laws for private debts, the Fed, the FDIC, and anything else. Not before.
I dont understand why my comment is not showing up.
Yves,
Please stick to your guns and ban the bankster
lobbyist. They already run DC and the media. Letting them
turn your site into Fox news online is the last thing
we need.
I read your site for economic truths that shills
like Ray Butler coercively prevent the corporate press
from reporting. His endless string of corporate propaganda makes this comment thread unreadable from about
five comments in.
It also means the finance industry has captured your blog. Ray Butler’s freedom to lie to and to mislead your readers is not a freedom worthy of defending regardless of who is paying for his time while he insults our intelligence and wrecks your blog.
OK Paul’s had his fun with us, but nowhere in the thread (although Yves points it out in the post) that the fees charged are orders of magnitude greater than the costs.
Banks win, merchants lose. Choose your team.
Would you rather see many merchants win tiny individual victories (and have the ability to compete on product price, rather than payment method) or see a small number of big banks win.
The banks will still make money (as they should) with the new fee structure. Why shouldn’t the gov’t inetervene to remove the boot on the throat of the merchants, and consumers.
I’d also point out that interchange is about as utility banking as you can get, so back to Yves question to Summers…
MichaelC
See my reply
http://www.nakedcapitalism.com/2011/04/huffpo-expose-on-the-biggest-ugliest-fight-in-dc-debit-card-fees.html#comment-381018
which breaks down the fees a little bit.
Apologies to you (and Tea).
I was thinking “too few” but wrote “none”. That was careless. I meant to draw attention to fact the fees are indefensible.
The bankers are greedy since their new-money-for-debt scheme, commonly called fractional reserve lending, works well for them in the boom but turns on them in the bust.
Let them reap what they sowed then.
It is not exactly a new scheme dating back at least to 1689 when the bank of england was founded to finance the english wars. Recall that the second bank of the us was created in 1815 despite Madisons hatred of banks because its lack greatly complicated the war of 1812. After 1836 you had absolute free for all fractional reserve banking, you hung your shingle out as a bank, and issued currency in your favorite design in any amount you thought you could get away with. The Civil War lead to the National currency acts which ended this Chaos and created national banks that could issue currency backed by Federal Bonds.
So to say fractional reserve is new, is a stretch, as essentially the entire period of modern economy has had it.
Banking has always had booms and busts and always will.
So to say fractional reserve is new, is a stretch, as essentially the entire period of modern economy has had it. Lyle
You parsed my sentence incorrectly. It reads “new-money-for-debt”. FR bankers create new temporary money, commonly called “credit” for new debt. I did not say the scheme was new.
The Civil War lead to the National currency acts which ended this Chaos and created national banks that could issue currency backed by Federal Bonds. Lyle
The National Debt is a wicked scheme doomed to extinction. Also, “order” is a typical rallying cry for fascists, don’t you know?
Banking has always had booms and busts and always will. Lyle
Conventional banking is obsolete and has been since 1602 when the common stock company was invented. Banking exists today (to any significant degree) only because of government privilege and general ignorance of its obsolescence.
Don’t believe me? Then eliminate all government privilege for banks and we shall see. That would mean the elimination of the capital gains tax and legal tender laws for private debts, no lender of last resort, no asset buyer of last resort, no government deposit insurance and the removal of any other legal hindrance to genuine private currencies. Government money would be pure fiat but only legal tender for governemnt debts -taxes and fees – not private ones. Not only would fractional reserves be hard-pressed to survive but even usury itself and of course PM monies.
To believe that banking as it now exists shall always exist is to concede that evil is stronger than good – a rather cynical viewpoint – that in the case of money just happens to be wrong also.
It feels like North Korea in here.
Why? Are you a banker? Do you confuse a government backed and enforced counterfeiting cartel with “free enterprise”?
You’re a paranoid idiot
Then what did you mean by the North Korea statement?
That isn’t acceptable here and it is NOT “North Korea” to require that people who comment here remain civil.
This is not a public square. This is my private domain. I maintain an open door policy but I also have a bouncer for people who get out of line. Keep this sort of thing up and you will not be permitted to comment.
Naw he misspoke, the commenter meant South Africa circa apartheid. Only its concentrated wealth vs un-concentrated and not white over blacks, enforced counterfeiting knows no ethnic boundary’s save have’s and have not’s.
Skippy…too think the best thing humanity could do to improve its and all other living things is to abolish banking…yet they cower.
too think the best thing humanity could do to improve its and all other living things is to abolish banking…yet they cower. skippy
The bankers must really come to believe they are “Masters of the Universe” since they control (for now) the lifeblood of an economy – money. They must believe their own propaganda and believe their craft is irreplaceable. In fact it is not.
This law establishes price controls on private contracts in a market that has competition or opportunities for others to enter and compete.
Definitions are important so let’s start there. We are talking about debit cards and not credit cards. These are cards issued by a bank that use funds held in checking accounts.
Merchants enter into contracts with Payment Networks.
Banks enter into contracts with Payment Networks.
No one is using force to make anyone sign any contract. Why should government be allowed to use force for one party against another?
Banks aren’t innocent but one would like to hope the basic principals for the proper role of government and contract law would still matter.
As far as fraud is concerned. Merchants should not have fraud loses specifically related to debit cards. If you are a merchant and you have loses for accepting a debit card and had a chargebacks against you and lost a dispute, then you did something wrong. Banks eat incredible losses everyday. There are banks who will chargeback everything they can even though they know they will not win if disputed. They are hoping the merchant is lazy or sloppy and won’t represent.
The biggest part of the bill or current version of the rule actually has nothing to do with the interchange cap. It has everything to do with merchant priority selected network and non-exclusivity.
Non exclusivity breaks tone of private legal contracts and forces people to do business with at least 4 companies to issue debit cards. The merchant priority selected network allows the merchant to send to any network that is not supporting a two tier interchange rate. So a merchant just has to find the 1 company in 4 to route the transactions to lower costs. Then to compete the market will fall out and debit interchange will crash as everyone races to the bottom for volume. This will crush small banks.
Force is always immoral in private and outside the proper role of our government in implementing price controls, regardless if it hurts the zombie banks and consumers, to then benefit a merchant.
Force is always immoral in private and outside the proper role of our government in implementing price controls, regardless if it hurts the zombie banks and consumers, to then benefit a merchant Akston
Noble sentiments but banks have a government enforced money monopoly for private debts so your argument is a non-starter.
Akston:
“This law establishes price controls on private contracts in a market that has competition or opportunities for others to enter and compete.”
The pricing on merchant processing is basically set by Visa and MasterCard. They own 80% of the market, with Amex a distant 3rd and Discover way back in 4th. Amex charges a premium to V/MC rates, and Discover tries to compete.
The only near competitor that could move in is First Data, who effectively own their own processing backbone and who already process over half the transactions. NO ONE else is close to doing so. Even the large banks would likely need to partner with First Data to set up a rival issuing market.
“Definitions are important so let’s start there. We are talking about debit cards and not credit cards. These are cards issued by a bank that use funds held in checking accounts.”
Yes, but irrelevant.
“Merchants enter into contracts with Payment Networks.”
Yes, but irrelevant.
“Banks enter into contracts with Payment Networks.”
Yes, but the rates are set by V/MC.
“No one is using force to make anyone sign any contract. Why should government be allowed to use force for one party against another?”
Force isn’t needed when there is only one game in town.
“Banks aren’t innocent but one would like to hope the basic principals for the proper role of government and contract law would still matter.”
Yes, but I do believe that there are anti-trust laws still on the books that may be relevant. Because, historically, monopoly (or, in this case, duopoly) power has been abused.
“As far as fraud is concerned. Merchants should not have fraud loses specifically related to debit cards.”
Since debit cards can be used interchangeably with credit cards, they can have the same fraudulent use. PIN is not needed on a card swipe as credit, and online, all cards are grey.
“If you are a merchant and you have loses for accepting a debit card and had a chargebacks against you and lost a dispute, then you did something wrong.”
Nope. I was with a merchant and merchant processor, and many banks would uphold their chargebacks even when we proved the transactions were properly accepted. With a fee of $50+ to send such a chargeback to the associations (V/MC) for arbitration, along with a six month response frame IF THEY DECIDE TO RESPOND, in many cases the banks interpretation was the end result.
“Banks eat incredible losses everyday.”
Yes, but not as much as you appear to think.
“There are banks who will chargeback everything they can even though they know they will not win if disputed. They are hoping the merchant is lazy or sloppy and won’t represent.”
See my 2nd previous note. And isn’t that fraud on the part of the bank?
“The biggest part of the bill or current version of the rule actually has nothing to do with the interchange cap. It has everything to do with merchant priority selected network and non-exclusivity.”
?
“Non exclusivity breaks tone of private legal contracts and forces people to do business with at least 4 companies to issue debit cards. The merchant priority selected network allows the merchant to send to any network that is not supporting a two tier interchange rate. So a merchant just has to find the 1 company in 4 to route the transactions to lower costs. Then to compete the market will fall out and debit interchange will crash as everyone races to the bottom for volume. This will crush small banks.”
See my note about First Data, above. They actually started being the outsource of choice for most small banks processing, to the point where they are the majority of the market. They started buying up the regional carriers years ago.
The only carrier this might directly affect is SHAZAM, which is a non-profit carrier for Iowa banks. The national banks have not really been able to break into this market due to high costs/low profitability, and their network has been able to maintain there. If Iowa merchants have to have a choice, the bigger regional/national processors could finally break them down.
“Force is always immoral in private and outside the proper role of our government in implementing price controls, regardless if it hurts the zombie banks and consumers, to then benefit a merchant.”
Coercive force by the associations due to having duopolic control of the market should also be considered immoral by your lights, and this bill might help break that power.
Banks eat incredible losses everyday. Akston
I wonder how they can afford it? Could it be because they are essentially government backed counterfeiters?
Indeed they are. But let’s pity them, eh?
So basically the banks are trying to extract money from every transaction that takes place, anywhere, ever. It seems Michael Hudson’s ‘parasitic finance’ analogy is so apt that can barely be called an analogy.
they are getting paid for a service
Incorrect, they set a playing field through dominance, where through various media and other means induce a pathology in customers / retailers, to pay for using their own money or conducting transactions (this relationship is parasitic).
As Beard and others have pointed out, this relationship is unnecessary burdensome, it lacks the free market ethos of efficiency, therefore it is a drag on the economy, an extraction of potential, used to justify egregious bonuses[?], where is the value.
http://www.youtube.com/watch?v=wVdfeSxJ2nM
Skippy…skimming scams.
The main problem is that the banks have sold everyone on the concept of getting paid and paying instantly, for everything.
Take John Doe and his daily life, he goes past the same small store, run by Fred, every day going to work. (I’ll use UK prices in USD.) Stops buys a paper($1), a pack cigarettes($7, some mints 60 cents and some cookies for a snack($1.50) Total $11.10.
Every days he pays by card making 20+ transactions a month worth circa $220.00 To save money, all these two guys have to do is look back a bit in time to the old fashioned monthly account system. Today to smooth things out John should deposit $110 using a Check, with Fred as a guarantee, then Fred charges him monthly for his purchases. For two weeks John is out of pocket, but for 2 weeks he has credit and the same for Fred. Another plus point is the Credit (provided by both) is free! Simple, and only 2 bank fees each every month.
If small retailers did this with all their regular well known customers, banks would not get such a big slice of the action. It worked for years and years here, all that is required is a little local knowledge of your customer base (just like local bank managers used to have).