The banks have lost the swipe fee battle, and soon it’s expected that every time a debit card is used, the store where that card is swiped will collect a little more money, and the institution issuing that card will collect a little less. While the fight is being waged between banks and retailers, it’s (surprise!) the consumers who will ultimately pay the war’s costs.
Here’s what the consumer can expect as swipe fee changes take place:
More Bank Fees, More Annoying Account Requirements
Bank fees are nothing new. But the fees have multiplied in recent years, first related to changes in overdraft policies, and now banks are blaming swipe fee changes for another round of fee hikes. The LA Times reports that Chase, which recently tried out charging non-customers $5 to use its ATMs, has been testing a flat $3 monthly fee simply for its own customers to use a debit card. Other banks and credit unions are trying to come up with that magic combination—fees and account requirements that’ll bring in big bucks without scaring away customers.
The changes might include a monthly fee, higher minimum account balance requirements, and/or a daily cap on how much one spends with a debit card. One way or another, the changes will be made to accomplish a simple goal: milk customers for more money. Richard Hunt, president of the Consumer Bankers Association tells the LA Times:
“They’re all testing the market and seeking the right price,” Hunt said. “It’s a mathematical certainty the consumer will bear the cost.”
Same Old High Prices at the Store
In theory, retailers come out as the winners in the swipe fee switch. It is expected that a retailer will get to pocket 32¢ extra per transaction once the changes take place—the average debit card swipe collected by banks was 44¢, and it will soon be capped at 12¢, if all goes according to plan. All of those 32 extra pennies the retailer no longer passes along to the bank per transaction add up quickly. So, in theory, retailers could share the wealth and pass along some of that extra revenue to consumers via price cuts. Will that happen?
In a press release, Bill Hardekopf of the credit card-shopping hub LowCards.com says he expects that swipe fees will result in the consumer un-friendly trifecta of higher monthly bank account fees, higher ATM fees, and a reduction or total disappearance of debit card reward programs. He also says he expects no impact whatsoever on the price paid for goods by consumers:
The regulations on debit card interchange fees scheduled to go into effect in one month will reduce the revenue to banks. These institutions will, in turn, charge consumers more for banking services. The consumer will likely not see any benefits from retailers because swipe fees are embedded in product prices. The retailers have clearly won this battle, while banks and, in the end, consumers will end up as the losers.
“I don’t think the retailers would have spent millions of dollars lobbying for this law if they intended to pass along every single nickel of savings to consumers,” he said. “This was an issue of where the cash would flow — to the banks or the merchants. Ultimately, I’m afraid, the consumer is going to get stuck footing the bill.”
Lower Maximums, Higher Minimums at the Store
With the changes expected to take place, you’d think that retailers would now want to encourage customers to purchase with debit cards. Studies show that people buy more when shopping with plastic—which stores obviously like—and the stores will be collecting more money each time a debit card is swiped—which stores also obviously like. But regardless of the swipe fee changes, retailers are taking it upon themselves to lower their own costs related to plastic.
One way to conveniently get cash and avoid getting hit with a fee for using a non-affiliated ATM is to make a debit card purchase at a store—supermarkets, drugstores, the places you need to go anyway—and request that the cashier rings up and hands over $40 or $60 in greenbacks in the transaction. This works for the customer because he isn’t charged the $3 or $5 in fees he would have encountered at an ATM, and it works for the store because it gives the customer an added excuse to go shopping. Recently, as the WSJ reported, Walgreens announced that in such transactions customers would now only be allowed to get a maximum of $20 back, down from the old maximum, $40. At the same time, many stores are upping the minimum a customer must pay in order to use a credit card and/or giving discounts to customers who use cash. All of these changes are intended to achieve the same goal for the store: to get as much money from the customer, and pass on as little money as possible to the middlemen in each and every transaction.
But if the middleman is getting less rich due to these changes, can’t things be tweaked so that the consumer gets a little less poor?