Fact: Swipe fee reform means lower prices, especially on gasoline.
Swipe fee reform means more freedom and payment choices for consumers, while repealing debit swipe fee reform would mean higher debit and credit card fees. When consumers can buy gasoline at a 5 or 10 cent discount by using cash or debit rather than credit, they save money. If you believe in American capitalism, then you know that lower business costs on Main Street leads to lower prices for consumers. When you provide more freedom and choices in the payment market, especially in the hyper-competitive world of gasoline and groceries, consumers will benefit. You don’t have to trust merchants; you just have to trust that merchants have no choice but to cut prices when their competitors do. That’s why consumer groups—not always friendly to business interests—strongly support swipe fee reform: they know it can’t help but lead to lower prices for consumers.
Fact: Credit card industry price fixing that occurs today costs Americans a billion dollars each week.
With swipe fee reform, banks are allowed charge merchants whatever they want as long as they don’t fix prices. The Federal Reserve told banks that if they fix prices then there have to be limits. As things stand today, every single bank in the US charges exactly the same debit swipe fee rates. It’s as if the Coca Cola Company ordered retailers to sell every single Coke product at the same price. Card swipe fees started in the 1960’s as a legitimate expense when transaction were done by hand and on paper. But Visa and MasterCard member banks quickly learned that because swipe fees were kept secret from consumers, they could charge ever-rising prices even though the real cost of “swiping” dropped to near zero due to computer and network technologies. At the same time, the credit card industry effectively prohibited merchants from offering discounts to consumers who used cash, debit, or no-frill cards vs. premium rewards. That’s why gasoline discounting is less common today than 25 years ago and why Americans pay the highest swipe fees in the world – eight times what Australians pay.
Fact: Visa and MasterCard aren’t as concerned with fraud as they want you to think.
Visa and MasterCard encourage customers to use signature debit instead of PIN debit; signature debit transactions are more prone to fraud, but have much higher interchange rates than PIN transactions. If the big bank credit card industry was worried about the costs of fraud then they would not encourage it with signature debit. The credit card industry’s first line of defense against fraud isn’t greater security, but quietly shifting blame—and cost—to the merchant. Using a procedure known as “chargeback,” the credit card industry exercises its unilateral power to deny right of payment so that the merchant is on the hook for the cost, and not the big banks that issue 80% of all Visa or MasterCard branded cards. The Federal Reserve looked at fraud costs and found that 43 percent of reported fraud losses were borne by merchants.
Fact: Small bankers say that swipe fee reform will be good for business.
Even the small bankers say that swipe fee reform is good for them—despite what the media is reporting. The head of New Jersey’s second largest credit union, Merck Employees Federal, says that the new reforms mean that credit unions have been handed “a tremendous opportunity” to gain new market share. In fact, small banks will have a competitive advantage, since banks with under $10 billion in assets—over 99 percent of all banks and credit unions in America—are not subject to the swipe fee regulations and will be able to distinguish themselves the big banks such as Bank of America, Citi, Chase JP Morgan, Wells Fargo, and Wachovia. According to analysts cited by American Banker, reforms “will put community banks and credit unions at an advantage over larger institutions” because they are able to continue and expand customer rewards programs and free checking.
Fact: Merchants appreciate the debit system, but it isn’t as perfect as the banks claim.
Unfortunately, there’s a big gap between credit card industry adverting claims and actual practices, as both consumers and merchants know. When a merchant accepts a debit card, there is not a guarantee of payment for the purchase. Rather, the credit card companies use a procedure called a “chargeback” that takes away merchants’ guaranteed payment. A chargeback is just as it sounds—when Visa or MasterCard reverses the debit or credit card charge back to the merchant. This means that any time there is a customer dispute, fraud, a processing error, or an authorization issue, the merchant is very likely to be the one on the hook for the cost—and not the bank or credit card company. Chargeback happens millions of times daily in the USA; there is no instant guarantee of payment from the credit card industry, and never has been. In fact, cash is much better than plastic in terms of instant payment guarantee because counterfeiting is so much less common than chargeback.