Comments on: The Fed’s bold move on debit interchange http://blogs.reuters.com/felix-salmon/2010/12/16/the-feds-bold-move-on-debit-interchange/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: Ace1964 http://blogs.reuters.com/felix-salmon/2010/12/16/the-feds-bold-move-on-debit-interchange/comment-page-1/#comment-22116 Tue, 21 Dec 2010 04:19:10 +0000 http://blogs.reuters.com/felix-salmon/?p=6613#comment-22116 With interchange set at $.07 (or $.12 if issuers can rationalize it), the Fed has in essence killed Debit Cards. The cost of processing and fraud losses are collectively over $.12 per transaction, so DICK Durbin got his literal wish of pricing commensurate with the cost of processing. The only problem is…why would a bank continue to offer an unprofitable product? Prepare yourself to change the way you think about prepaid cards; the major loophole in the amendment. You’ll be receiving one from your bank by July 2011…

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By: TFF http://blogs.reuters.com/felix-salmon/2010/12/16/the-feds-bold-move-on-debit-interchange/comment-page-1/#comment-22088 Sun, 19 Dec 2010 12:00:10 +0000 http://blogs.reuters.com/felix-salmon/?p=6613#comment-22088 m.jed, both consumers and merchants take a haircut on the interchange fees. Felix has previously written that merchants will raise their prices by the maximum interchange fee that they might pay on a transaction, pocketing the difference whenever somebody uses a cheaper option, but while that sounds nice in theory it isn’t factually accurate. Profit margins are low enough at some businesses that if they were doing this it would be their ONLY source of profit.

Instead, merchants mark up their prices by (at most) the average transaction fee that they pay. If everybody paid by credit card, they would be forced to raise prices a little to stay afloat. This isn’t to say that they don’t make a profit on their credit card sales — but many merchants don’t make enough profit on credit card sales to cover their fixed costs if everybody were to purchase that way.

If the interchange fees are reduced, then merchants get the best of both worlds. First, they aren’t likely to reduce their prices by as much as their costs fall. Second, they can then freely encourage consumers to charge their purchases without it killing their profit margins. (The hope, of course, is that they will spend more on credit.) Either alone is sufficient to justify the pittance being spent on lobbyists.

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By: y2kurtus http://blogs.reuters.com/felix-salmon/2010/12/16/the-feds-bold-move-on-debit-interchange/comment-page-1/#comment-22056 Fri, 17 Dec 2010 21:59:16 +0000 http://blogs.reuters.com/felix-salmon/?p=6613#comment-22056 To Ken H.

If you mutual savings bank is anything like mine than you will enjoy years of growth at the expence of the mega-banks which will grow much more slowly or even shrink in responce to the new legislation in total.

In absolute terms this change hurts mutual banks… but in relitive terms it absolutely helps us.

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By: m.jed http://blogs.reuters.com/felix-salmon/2010/12/16/the-feds-bold-move-on-debit-interchange/comment-page-1/#comment-22049 Fri, 17 Dec 2010 20:35:42 +0000 http://blogs.reuters.com/felix-salmon/?p=6613#comment-22049 tff –

first, we’ve seen this experiment tried in Australia and it didn’t benefit consumers at all. Second, there is no monopoly. Finally, while there are certainly hundreds of thousands of small merchants, there also exists WalMart, Safeway, Kroger, Target, CostCo, McDonald’s, etc. who were all lobbying for this. If they were going to pass on the savings to consumers then why bother spending money to lobby?

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By: Ken_H http://blogs.reuters.com/felix-salmon/2010/12/16/the-feds-bold-move-on-debit-interchange/comment-page-1/#comment-22045 Fri, 17 Dec 2010 19:17:33 +0000 http://blogs.reuters.com/felix-salmon/?p=6613#comment-22045 misterdog

do you have any idea how much it costs to operate an atm? most atms deployed by financial institutions are not operated as profit centers. they are extended to increase availability of financial services to customers without driving them to the most expensive means of providing service, a branch.

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By: misterdog http://blogs.reuters.com/felix-salmon/2010/12/16/the-feds-bold-move-on-debit-interchange/comment-page-1/#comment-22028 Fri, 17 Dec 2010 17:04:35 +0000 http://blogs.reuters.com/felix-salmon/?p=6613#comment-22028 Job well done, Fed. Felix (and other commenters): will the super-high ATM fees be the next “profit center” eliminated by the Fed?

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By: Lilguy http://blogs.reuters.com/felix-salmon/2010/12/16/the-feds-bold-move-on-debit-interchange/comment-page-1/#comment-22027 Fri, 17 Dec 2010 16:53:28 +0000 http://blogs.reuters.com/felix-salmon/?p=6613#comment-22027 Call the swipe fees something else and, voila!, the money keeps rolling in to V & MC.

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By: TFF http://blogs.reuters.com/felix-salmon/2010/12/16/the-feds-bold-move-on-debit-interchange/comment-page-1/#comment-22024 Fri, 17 Dec 2010 15:02:57 +0000 http://blogs.reuters.com/felix-salmon/?p=6613#comment-22024 davew, if they increase fees too dramatically then their customers will abandon them. The key to their business model is ensuring that the people making the decisions are different from the people bearing the costs.

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By: TFF http://blogs.reuters.com/felix-salmon/2010/12/16/the-feds-bold-move-on-debit-interchange/comment-page-1/#comment-22023 Fri, 17 Dec 2010 15:01:12 +0000 http://blogs.reuters.com/felix-salmon/?p=6613#comment-22023 m.jed, it is rational to support the interests of millions of small merchants over that of a monopoly.

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By: Ken_H http://blogs.reuters.com/felix-salmon/2010/12/16/the-feds-bold-move-on-debit-interchange/comment-page-1/#comment-22019 Fri, 17 Dec 2010 14:33:05 +0000 http://blogs.reuters.com/felix-salmon/?p=6613#comment-22019 I work in a small community based financial institution, a mutual savings bank in fact. We offer a tremendous number of services for “free”, ie checking accounts, transactions, online and mobile banking, etc. These are expensive products which consumers have come to expect to be free. Interchange through our debit card program is one of the ways in which we offset those costs.

I am sure there is reform necessary in the system, and I am far more in favor of strengthening protections on overdraft fees.

Nevertheless, I would love to hear, Felix, how you would propose a financial institution such as mine, or the one on whose board you sit, can maintain market position. This certainly means we will have to raise rates on lending, or decrease rates on borrowing, or institute fees on things customers think are freebies. Now, if customers dont bolt instantly to the next bigger bank down the road that can absorb some of the hit more readily, how is paying a fee for the checking account, or making nothing on their CD, or paying more for their mortgage ultimately better for the customer? Now lets assume that they do leave for the bigger institutions, what then? I thought community institutions were a good thing. This just seems to exacerbate the “get big or get out” mentality that has bloated the financial services sector to gross and dangerous proportions. How is that good for the consumer?

I guess its good for merchants. But seriously, did walmart need the help?

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