23 April 2014

Devil's Advocate

Roger Elwell - Yes Please

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Transaction Banking

A community for discussing technology trends, views and perspective in global transaction banking
A post relating to this item from Finextra:

UK retailers urge government to step in over card fees

15 June 2010  |  8070 views  |  0
Retailers are calling on the new UK government to intervene and force banks to cut the "unjustifiably high" interchange fees they charge for card payments.

Card Payment Charges: Not the Rip-Off the BRC Thinks

18 June 2010  |  4596 views  |  1

 

What a joke.  Does the BRC really believe that any transfer of profits from the banks to the retail community will be passed on to customers, as they claim in their latest attack on the banks’ charges for processing card payments?  Since when have they become so philanthropic?  No, I imagine none of us 'consumers' would ever see that money at all.

As for the quote that the banks ‘are currently levying charges on card payments well beyond what it actually costs them to process those transactions’, if I remember my business training correctly, that is what I call ‘making profits’.  If the profits are ‘excessive’ (which is a subjective view at any time), then someone would have entered the market and undercut the incumbents by now – or do they claim that the banks are operating a cartel?

In any case, they could never convince me that they only charge ‘what it costs to produce’ the goods they sell – if so, how does a cheap item of clothing made in a sweatshop in India turn into a £20-plus item on their shelves?  How does a cheap stereo made in less than idea conditions in China turn into the £150 item sold in their stores?  And how do the supermarkets make such stonking profits if they don’t charge ‘more than it costs them’ to procure?  These people shouldn’t be allowed anywhere near business, if that’s what they really think.

They know perfectly well why the charges are like so.  They relate not only to ‘processing’, but also the costs of maintaining the organisation, research and development, marketing and sales, customer support, the fraud costs, funding costs, etc, and the costs related to providing those retailers with the payment guarantee that they otherwise would not enjoy.  Oh, and it includes an element of profit that is required to plough back into the business, and to satisfy the shareholders in dividends (which, unlike much of the retail sector, few banks are actually doing, they should note, at the moment).

They should examine their own practices before they start throwing stones at the banks.  If they don't like the charges they are paying, they should move to another bank - and if they can't find the deal they want, maybe they should set up their own schemes, when they can discover just what the economics really are.

It does raise the interesting question, however, of how contactless and mobile payments are really going to replace cash over the coming months.  I still have my own doubts that we can really make a financial case for replacing cash when it is so cheap to handle – and will continue to be so for as long as I can see.

 

TagsCardsRetail banking

Comments: (1)

Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 21 June, 2010, 10:55

Excellent article. Non-banks like Revolution Money launched competing schemes with a flat 0.5% interchange fee. Probably, they found that rate so unsustainable and had to sell out to Amex? 

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Roger Elwell

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