The battle of the "swipe fees" has been hard to miss the last few weeks. The big banks are spending millions of dollars on TV, radio and Internet ads telling us that the government should not limit the fees that they charge on debit cards transactions. On the other side, a coalition of major retailers, such as Wal-Mart and Target, has been funding a comparable campaign to stop the bank gouging.
It may seem as though the public has little at stake in this battle between big banks and big retailers, but that is not true. In this case, Wal-Mart is on the side of the angels; small businesses and consumers will win if they prevail. This is an important battle in its own right, but even more important as a lesson in effective politics.
The basic story here should be a policy no-brainer. There are two major debit card networks, Mastercard and Visa, who essentially are the market. Together, they control more than 90 percent of the debit card market.
This control gives them enormous market power. There are few retailers who can refuse to accept the debit cards issued by these networks. They would lose a huge amount of business if they did. As a result, Mastercard and Visa and the banks with whom they share their profits, are able to charge fees that far exceed the actual cost of a debit card transaction.
According to research from the Federal Reserve Board, the fees on debit card transactions average 48 cents. The Fed estimates that the networks can cover their overhead and operating costs with a fee of 12 cents per transaction. The difference, which comes to $12 billion a year, is pure frosting. It's additional profits for the banks and credit card networks. (Some of this is shared with debit card customers with various rewards, like frequent flyer miles.)
The biggest losers in the current system are cash-paying customers. Retailers are required by the companies to charge the same price to everyone. When they raise their prices to cover the debit card fees, they also must raise prices to customers who pay in cash, who tend to be poorer. So we have a system in which low-income consumers pay higher prices to increase the profits of the big banks and give frequent-flyer miles to higher-income consumers.
This is where the big retailers come in. If they can lower the swipe fees, they hope to be able to pocket some of the savings, even if they end up passing most of the savings on to consumers. If the big retailers can pocket 20 percent of the savings, this gets them another $2.4 billion a year in profits. This is real money, certainly enough to get their attention. However the other 80 percent translates into an additional $9.6 billion a year in consumers' pockets.
This is the reason that Wal-Mart is on the side of the angels. It is not being altruistic; it hopes to increase profits by lowering swipe fees. However, it will also be putting money into consumers' pockets (and taking it away from banks), if it succeeds in this effort.
Unfortunately, any political victories by progressives in the foreseeable future are going to look like this. The reality is that progressives are far too weak to have any clean victories. Good policy to help ordinary people won't buy you a cup of coffee in Washington. Without the firepower of some deep-pocketed interest that gets to share in the pie, policy will go nowhere.
This is why cap and trade was the best hope for an agreement limiting greenhouse gas emissions. Goldman Sachs and the Wall Street gang saw the possibility of big bucks hustling emission permits, futures and options on emission permits, emission-permit-backed securities, etc. A carbon tax would be easier and more efficient, but no one in Congress or the Obama administration cares about a bunch of enviros whining over the future of the planet. On the other hand, Goldman's campaign contributions are taken very seriously.
This was the genius, whether intended or not, of the Obama administration's green jobs projects. These projects financed work by thousands of contractors around the country who made profits by weatherizing homes and businesses. These contractors are now strong advocates of more funding to reduce greenhouse gas emissions. As a result, even some of the recently elected conservative Republican governors now support such spending.
The moral of this story is that we should get used to seeing some of the bad guys in our camp. And if we are going to design policy that has any chance of being implemented, we have to find ways to bring more of them on board.
Richard (RJ) Eskow: Green Alert: Banks Use Bush Terror Team, Threat Tactics to Push Debit Card Fees
I totally disagree, that is part of the reason we have not done so well as it is. What we need to do is TELL CONGRESS WHO THEY WORK FOR AND WHO THEY BETTER REPRESENT. When and if they do not SHOW BY THEIR VOTES whose side they are on they will not get our vote and BE OUT OF A JOB. Holding them accountable and their actions transparent is the only way we are going to get the job done correctly.
-AJB
In Latin America, you dare not find 2 price tags for everything retail, one price for cash the other card.
It's like that already in the US for gas, in most places.
Until people in the US stop bailing out TBTF with fees, taxes, QE, inflation, etc. it's going to be YOU, the consumer, who are innocent of derivativeÂs, that are going to pay for their bail outs.
Everytime you swipe that card, remember you are paying to bail out TBTF which should've already been placed into RECEIVERSHÂIP/BANKRUPÂTCY re-organizÂation.
That can be done by simply restoring Glass-SteaÂgall.
Debit fees to pay off bail outs to Wall Street is not cute-n-funÂny!
The way we are headed by 2880, you'll just have to update the old phrase about the tree falling in the forest to, "Would it still be global devestation if no one were here to see it?"
-AJB
NOT FAIR.
Earlier Walmart was arguing that online sales should be taxed which would hurt consumers now they're being praised for fighting banking transaction fees that might hurt their own bottom line. This company and its friend in big retail could care less about the American consumer they will do whatever it takes to increase their bottom line, most of the time that doesn't coincide with consumer interests sometimes it does but comes with a number of economy damaging hidden costs.
All they are doing is limiting the swipe fee to .12 cents instead of .44 cents. If someone buys a candy bar and puts it on their debit the store will lose money on that and they are required to lose money if they agree to accept credit and debit cards. That's not fair.
Also, as I mentioned Walmart has been one of the loudest voices in raising prices on internet purchases. Furthermore, these low prices also have generally come with a lower quality of product in case you haven't noticed. You may not care that factories and small retailers have gone out of business because it doesn't affect you directly, but guess what, those businesses previously paid taxes and employeed people. Now our government is trying to provide services and take care of unemployed with fewer tax dollars and greater unemployment and everyone has to pay for this in terms of higher debt and increasing inflation. There's no such thing as a free ride.
Do you really think Wal-Mart is going to pass on the supposed savings to their shoppers? No, they will pocket it for themselves.
I come here daily in the hopes of learning something. It rarely happens.
Thatnk you.
And by your comments Matthew, it's pretty evident where you stand as far as the banking issue, which is BY FAR the main reason why we will FOREVER REMAIN IN DEBT. Which institution do you work for?