A colleague recently hit a nerve with the big banks and their apologists in an op ed here by praising the European Union for protecting consumers and merchants from price-fixed swipe fees every time a consumer swipes a card to buy something.
In doing so, he exposed something the banks desperately hope consumers and policymakers won’t notice: Just two companies, Visa and Mastercard, so dominate the business of processing debit- and credit-card payments that – without competition – they have price-fixed these swipe fees at staggeringly high levels.
When the banks feel threatened by op eds like Duncan’s, they resort to a litany of canned talking points replete with bogus claims; and with name-calling, saying merchants are espousing “socialism.”
This is a particularly odd claim given the key role of competitive pricing in allowing free markets to work. When banks agree to price-fix their fees, they destroy the free market that should exist.
And if you read the bank propaganda often enough, you’ll begin to notice something: They never address the facts. That’s because they simply don’t have a valid argument to justify ripping off consumers and merchants.
Here are a few more incontrovertible facts that you’ll find the banks continue to dodge:
First, banks will still make a handsome profit under the new European Union regulations that went into effect this month, with credit-card fees as much as a dozen times less than in the U.S.
They’ll still make 10 to 15 cents on a transaction that costs them a few pennies to process. That’s a much bigger profit margin than retailers – or virtually any company in a competitive industry – make.
Second, banks already make outrageous profits on swipe fees here in the U.S., and yet those fees continue to grow. According to their own numbers reported to the Federal Reserve, banks make a profit of 500 percent on debit-card swipe fees (even after Congress intervened) and as much as 10,000 percent on credit cards.
For instance, if you spend $100 in a store using a card, the bank will gouge the merchant as much as $4 off the top, even though it costs the bank only a few cents to process the transaction.
Third, the U.S. pays the highest swipe fees in the world, and about two-thirds of the world’s total. They are merchants’ fastest-growing expense and, for many, their second-largest operating cost after labor.
Even modest Congressional reform of debit cards yielded $6 billion in consumer savings in just its first year, according to an economist’s study. Some industries, such as convenience stores, now pay more in swipe fees than they earn in profits.
Fourth, it’s the poorest people who get hurt the most. “The low-end consumers end up paying retail prices that are inflated that much further,” says Harvard Business School Prof. Benjamin G. Edelman, who has studied this uncompetitive market. “They definitely get the short end of the stick.”
Those are the plain, unvarnished facts about how Visa and MasterCard hold American consumers and merchants hostage through their power to dominate the market and price-fix fees for their member banks.
This is not how free markets are supposed to work. Until we deal with this problem, everyone will be the poorer – except the banks.
In the meantime, don’t be fooled by the banks’ game of three-card monte. They can dodge the facts and throw up smokescreens as much as they like, but eventually facts will win out and consumers will demand competition, fair play and an end to this price-fixing.
Beckwith is senior vice president of government relations for the National Association of Convenience Stores (NACS).
A response to Mallory’s op-ed.