Debit Interchange Fee Limit

Just read this article, I hate when the government hurts one industry to favor another all in the name of protecting the consumer… Disclosure: Long V…

Sorry your long went the wrong way, but this is a good move. The credit card companies charge exorbitantly high fees to the point that it is basically parasitic – it’s bad for all businesses, but especially toxic for small businesses. It doesn’t just effect the banking system, either, it flows through all of retail, down to the consumer, who ends up basically subsidizing outsized profit margins for the card companies. These companies are quasi-monopoly businesses and should be regulated as such – I’m not sure it makes sense to break them up, because there are efficiencies in network scale that, at least in theory, should benefit both the card companies and society, but the card companies were clearly over milking the cow at the expense of society prior to this ruling. I have to say, for once, I actually think the government got something right (take note! it may never happen again!). So really, it’s the government hurting one industry in favor of several industries, as well as society in general.

It’s just debit card fees, not credit card fees. The idea behind the limit is that retailers will pass on the savings to consumers, but I can’t see this happening even in the current environment. Consumers will be hurt through the increased cost that banks and card companies will push on them. It may sound good for consumers now, but we’ll see what is said when we have an annual fee tacked on to our debit card, credit card, checking and savings accounts. Say good bye to fee accounts, hello to annual fees. Disclosure: Still long V, AC is at $60/share. Will buy more below $65 support level. Looking @ picking up long date calls for Jan 2012 or 2013.

I agree that it may in the end be passed onto consumers (everything always gets passed on to the consumer), but at least small retailers will benefit. The WMTs and TGTs of the world are large and can negotiate for lower per swipe fees, but the smaller retail chains take it in the shorts (particularly high volume of transaction chains). These fees can wipe out a few points of profit margin in a hurry, and it literally puts some companies out of business. I’m all for efficiency, and uncompetitive companies should fall by the way side, but not as a result of being held captive to finance companies that are able to support a fee structure that is itself inefficient as a result of a lack of competition. This was a good step in the right direction of reducing the amount of leeching that the financial services sector does from the rest of the economy – hopefully, that trend continues (though I doubt it). If your point is that the banking system is still broken on multiple levels (i.e., the fact that they are able to “capture” the fee reduction and therefore increase their own profits instead of passing them on to the consumer), I definitely agree.

Debit card swipe fees were 1% of the purchase price. If a company relies on a 1% profit margin to get by, then maybe the owner should rethink his strategy/competitive position. I’m all for small businesses, but I do not think that uncompetitve small businesses should be supported through policy decisions whose sole goal is to mess with what the free market has deemed as the fair and accurate determination of who should bere the cost and who should reap the benefits. My view is this: Let the companies work it out without government intervention. We know the consumer will be screwed either way, so why take one side of business over another? Let Wal-Mart take a stand and stop accepting cards if their fees are too high, let small businesses give discounts for using cash and check, but don’t step in and completely change the market dynamics all in the name of saving the consumer, because that complete and utter bullshit.

No, it’s not an uncompetitive strategy, it’s retail based on low profit margins but high number of transactions – you shop at places like this every week and probably don’t even think twice about it. Grocery stores, gas stations, drug stores, and convenience stores all operate on this sort of business model, among others. You think it is “only” 1% but you have never looked at the math before, where a gas station may be making PENNIES per gallon, and barely break even because of excessively high fees (the fee is applied to the entire swipe purchase). What are they going to do? Go to a check system? Impossible. I’m pretty sure you don’t understand Visa’s business model or operating leverage math, either and are just trading the chart. The free market works well except when natural monopolies or collusive duopolies occur, as is the case here. There is no mechanism for the market to “work it out.” At any rate, the consumer SHOULD be protected: that is an essential function of government, and the reason we pay some of the highest taxes in the world. If only retail benefits and the consumer continues to get screwed, that at least is better than the parasites at Visa continuing to gouge everyone on every transaction (although it would better if Congress actually had some balls and created a more effective set of laws that really did protect the consumer). You are having a hard time seeing this because you lost money today and are biased.