An article in today’s American Banker reports that rumors of merchant discrimination against small banks is nothing more than a fear tactic meant to sway Congress and the Federal Reserve. The banks have used this talking point in their lobbying visits, but a recent wave of expert analysis has proved the contrary and demonstrated what merchants and consumers have known all along: that the small bank swipe fee exemption is a win for community banks and credit unions.
From the article:
The banking industry’s campaign to delay or weaken forthcoming regulatory caps on debit card interchange has conjured images of grocers and department stores shunning customers who attempt to pay for purchases with debit cards from their local bank.
But the so-called steering tactics many small-bank executives have suggested retailers would try likely would be ineffective if merchants, some payments experts say. Among the suggested merchant tactics include pestering customers to pay a different way and flat-out rejecting their debit cards.
“The risk of merchant steering is seriously exaggerated,” says Aaron McPherson, practice director with IDC Financial Insights in Framingham, Mass. “It’s just a political tactic to try to extract concessions from the Fed.”
But McPherson and other payments experts are skeptical that merchants will engage in the practices that Clayton and other industry officials have suggested. For starters, many of the scenarios violate the “honor-all-cards” rules of Visa Inc. and MasterCard Worldwide, which prohibit merchants from adding extra fees for using certain issuers’ cards or refusing outright to accept cards because of the issuer.
Additionally, even if merchants were to attempt to do these things, the effects likely would be negligible because of customer backlash they would face, skeptics argue.
For more information, call Rachel Wolf at 202.331.2120.