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Ray I agree. I keep my money in mason jars in the back yard.

It's a little inconveneint to have to dig them up when I need something, but at least I am not depositing inside a house of sin. No double entendre intended.

MadMoss's picture

The change in swipe fee was

The change in swipe fee was approved and changed from 44 cents per transaction into 21 cents rather than the initially suggested 12 cents. I believe this was to ease-out the drastic change in the revenue of banking companies and at the same time make the burden of payment for the merchants less, but it definitely wasn't the change that merchants were looking forward to. Smaller banks will be suffering even with the exemption from the swipe fee cap as it's only natural for the consumers to avoid debit cards that have higher charging rate. And although I'm not saying that the Fed needs to stop working on pleasing everyone as it's pretty impossible, they really should put more priority and considerations for the welfare of smaller businesses rather than keep on minding the bigger banking corporations who has more than enough room for exploring other market option and means to do something for their revenue increase.

Ray Borradale's picture

Coming and going

Banking was conceived in iniquity and born in sin. Bankers own the Earth. Take it away from them but leave them the power to create money, and, with the flick of a pen, they will create enough money to buy it back again. Take this great power away from them and all great fortunes like mine will disappear and they ought to disappear, for then this would be a better and happier world to live in. But, if you want to continue to be the slave of the bankers and pay the cost of your own slavery, then let the bankers continue to create money and control credit.   

Sir Josiah Stamp, - second richest man in Britain at the time -  President of the Bank of England – speaking at the University of Texas - 1920.

Debit Card Cash Cow

Having once been in the credit card transaction business, I'd like to lend my perspective.

Debit cards (also called "check cards") are a cash cow for banks. Their actual cost for a debit card transaction is a very few cents: it's completely automated when the card is swiped and the customer's PIN entered, with the money being instantly transferred from the customer's checking account to the merchant's bank account. The consumer and merchant generally have little idea of how little it costs to actually run the transaction.

Banks thrive off ignorance, and have continued to jack up the charge to merchants. One card service I checked went from 29 cents to 79 cents over a few years, but these charges can vary substantially. Supermarkets and big box stores are said to pay a lot less. They also process a tremendous number of debit cards.

A customer also has the option to use his debit card like a credit card, meaning he signs rather than enters a PIN number. The banks love this, and even more so a few years ago when debit card interchange fees were considerably lower, although still nicely profitable. You've probably noticed the bank campaigns encouraging their customers to sign when using their debit cards. The banks charge the merchant 2% - 3% of the total purchase amount when this method is used, and often a fee of around 25 or 30 cents besides. The customer doesn't realize that when he signs rather than enters a PIN, the merchant pays a different rate — he's not informed of that by his bank. The withdrawal from the customer's bank account takes two or three days rather than being instantaneous. Besides the 2% or more that the merchant pays, the beauty for the bank is that no money is advanced by it — the money is already there in the customer's checking account.

The rates charged to cardholders used to be against American usury laws, but Tricky Dicky Nixon changed them, using the excuse of the economy, although it was far from clear to the public how eye-popping higher credit card rates were going to help the American people in a bad economy. They were also left with the impression that the move was strictly temporary. The media didn't call Tricky Dicky on it.

You may notice that merchants often prefer Visa or MasterCard over American Express, Discover and others. They don't say why, at least to the customer, but the reason is that they typically pay around 2 percent for the former, depending on the type of transactions, and around 3 percent for the latter, again depending on the type of transactions. If the merchant has $10,000 worth of charges for the month, that's $200 vs. $300. $100,000 would be $2,000 vs. $3,000. Again, the cardholder additionally pays his own fees on his credit card activity, unless he pays in full and on time every month.

As for giving the Federal Reserve Bank the authority to set the proper interchange fee on debit cards, that's like trusting the fox to look after the hens. The Federal Reserve is made up of private banks, and run by the biggest international megabanks among them, the very entities who profit off those debit card fees. Even if Senator Durbin's provision goes through as scheduled, it's obvious what's going to happen.

The other changes called for in the Durbin provision are, "merchants are now allowed to set minimum transaction amounts (not to exceed $10) on debit card transactions and have more freedom to choose their preferred method of payment." This is at least a partial restoration of a merchant's right and freedom to run his business as he sees fit.

Coalition of Franchisee Associations's picture

What's being debated

The argument currently being presented is that the regulation, which would cap interchange fees,  would be equivalent to price fixing and would hurt small banks (which have an exemption). Additionally, big banks are claiming that  the regulations would result in an overall increase in prices. Note that, despite comments to the contrary, these costs will be paid by franchisees; how and whether they will be passed onto the consumer is not clear at this point.

michael webster's picture

Issue on Debit Fees

I understand Nathan's point to be this:  as a consumer, you might like lower interchange fees, but as a small business owner using an ATM to supplement your income, or as part of a payroll card plan, or part of your overall business plan, you would like to be able to add a surcharge without having to show the Federal Reserve that the surcharge is "fair and propoportional."

1.This [bill] gives the

1.This [bill] gives the Federal Reserve the authority to set debit card interchange fees that are "fair and proportional"

Is the issue whether the Federal Reserve is capable of 'fair and proportional' or who sets and how debit card interchange fees are charged now?

michael webster's picture

Durin Counter-Point

One of the values of BMM is the value of reasoned debate.

The CFA has recently asked franchisees to help pass some federal legislation regarding interchange fees, the "Durbin" bill.

There was very little context to the CFA's call to action,  and what the underlying issues were. So, I asked Nathan Danus, VP of Payment Alliance, to present the another side of this legislation to BMM readers. Here is his thoughtful response, which is a good starting point to this debate.  (The overall context of this bill has to be discussed knowing how opaque to most small businesses what their actual fees interchange fees are.)

Let's remember that Senator Durbin is the same Senator that attempted to limit ATM surcharge amounts to no more than $.50 per transaction. This portion of Senate Amendment 3812 was defeated and ultimately removed from the Financial Reform Bill. If it had been included and passed with the current Bill we would have put tens of thousands of ATM operators and entrepreneurs out of business in a week. This reckless legislature would have also set back the way we as a society access our cash by 15 years.

In addition to putting thousands of small businesses out of work and making us drive to our bank to access cash, we would have eliminated the ability for our local convenient store or supermarket to generate additional revenue by providing the convenience of a cash access point. As a result of the loss of revenue this would inevitably drive up the costs of goods and services and we would see reduced consumer spending.

Luckily Durbin's amendment putting a $.50 max on ATM surcharges was removed from the bill. Unfortunately, Senator Durbin was able to slip in a modified Durbin Amendment, which was added to the Senate version of the Financial Reform Bill in a last minute vote. This addition may sound familiar as it seems Durrbin has found another way to attack the fees for accessing cash from a Debit card. Specifically by putting a cap on swiped Debit card transactions. The sad part is that while this sounds like a benefit to increase consumer spending and lower business operating costs - the savings will stay at the merchant level and never reach the consumers.

In regard to debit card interchange reform there are three main areas that banks, card issuers, merchants and consumers need to be aware of:

  1. This [bill] gives the Federal Reserve the authority to set debit card interchange fees that are "fair and proportional"
  2. It allows merchants to offer discounts for particular brands or types of debit cards
  3. It allows merchants to set minimum amounts for debit card purchases

I'm actually in agreement with point 3. Makes sense... Point 2 sounds a bit like special interest and point 1 is just scary to think that the Fed can accurately base the debit interchange fees on the actual processing costs to over 1,000 different issuers and acquirers.

Nathan Danus, Vice President - TMG, Payment Alliance International, Inc.

What Nathan is pointing out is very important - if this bill passes in it current form, the lobbying will move to the Federal reserve to regarding what is "fair and proportional".  This is not an are in which small businesses have much clout.  So, while you could, like Nathan, be in favor of his points 2 and 3, as a small businessman you might nonetheless oppose this bill because of your well founded concern to point 1.

Thanks to Nathan for his reasoned contribution to this debate.