Sunday, May 22, 2011

The Battle Over Credit/Debit Card Swipe Fees


The path between your credit card transaction at your favorite store and the bank or credit card issuer is significantly more complex than most people think. VISA and MASTERCARD , for example, as business entities that you do business with directly do not really exist. Seriously, try to find a VISA or MASTERCARD Office. You always end up at an issuing bank. That's because VISA, MASTERCARD, AMEX DISCOVER are really service providers. They supply the network that processes your transaction. There are a multiplicity of hands in your credit card transaction all taking a penny here, a few cents there all referred to as the "discount rate". When you make a one hundred dollar purchase at store and use your debit or credit card if the merchant has a 5% discount rate he only gets $95. The five bucks is divided among a number of service providers from the regional clearing house, card issuer and others. Think about the number of credit/debit card purchases daily and you begin to get a picture of the enormous amounts of money being funneled off to the credit card industry. They are like a leech on the money flow.


In December, the Federal Reserve issued a rule that would cap the fee at 12 cents per transaction. The new rule was added to the reform bill as an amendment by Senate Majority Whip Dick Durbin (D-Ill.) Thus begun an intense battle between the banks, credit card issuers, service providers and the retail industry who would like to hold on to this money instead of giving it to the banks. Sen. Jon Tester (D-Mont.) has proposed legislation that would delay its implementation by two years. Want to guess where his campaign contributions will be coming from?
The credit card issuers, banks and service provides have gotten fat on this unregulated flow of money and are now fighting to hang on to the only thing better than an oil well when it comes to making easy money. The retail industry wants to keep the discount fees to "lower consumer costs". Don't hold your breath on that one. A better bet is any savings they reap will go right to the bottom line as profit. Finally, the banks are threatening to raise fees and every other charge including card interest rate if they loose this revenue flow.
Most likely outcome if the bill passes: Banks will use it as an excuse to raise fees on small account holders, retailers will keep the money, prices will not go down and card issuing may become more restrictive.

See a win in there for the consumer? Me neither.

 
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