The 2008 $48 billion VISA and Mastercard interchange fees that Senator Durbin mentions all throughout his bill is as a result of $2.864 trillion of VISA and MC debit and credit card charges. What this means is that the average interchange fee is a very reasonable
Senator Durbin also mentions that the the U.S. interchange fee is the highest in the world. This is just not true.
Senator Durbin compares the U.S. interchange fees to the European interchange fees. What his Bill forgets to take into the equation are the cardholder annual fees. European banks can afford a very low interchange fee BECAUSE they charge cardholder annual fees
or they bundle it up with account fees. In France for example, that's 120.00 euros of annual cardholder fees on the average. Senator Durbin also does not take into account that most checking accounts in the U.S. are currently free of charge and going after
the interchange fees will most definitely change the equation to the detriment of U.S. consumers.
If Senator Durbin compares the U.S. scenario to that of Europe, what he most certainly does not know is that in Europe, debit cards are not really debit cards as we know them in the U.S. Debit cards in Europe are differed debit cards which means that the cardholder
can actually charge with this debit card more than what he has in his checking account as long as he has the money to pay for the entire debit card charges at the 'end of the month'. In the U.S., as I remember it, each transaction which puts the checking account
into an overdraft state will cost the accountholder a $25.00 service fee.
VISA and MASTERCARD somehow have not been capable of convincing Senator Durbin that the current interchange fees are in line with the cost of processing a card payment in the U.S. I am convinced that they are and I can prove that they are in line with the cost
However, I do understand the motivation of reining-in VISA and Mastercard. Anyone who has read my previous comments and blogs regarding Mastercard and VISA can understand this.
Overall, I think the Durbin Bill could be more effective and efficient if all it says is
1) that merchants are allowed to not accept card payments for small amount transactions (and do put an amount here such as lower than $10.00)
2) current and any future interchange fee changes must be approved by the FTC
But if the Durbin Swipe Fee regulation added on the bill is voted into place, then the following will likely take place :
1. Merchants will not accept cards for small payments
2. Amex will be impacted since Merchants can indicate their preference of which card scheme or means of payment they want to accept.
3. Small banks, although Durbin-exempted, will still be affected. Small banks will follow any interchange fee decreases imposed on the big banks as they do not want to be 'discriminated' upon by merchants (although Durbin says that merchants cannot discriminate
against small banks).
4. Of course, VISA and MASTERCARD will lose some of their volume (revenues), particularly their fixed-fees for small payments.
5. Increase in cash withdrawals. Increase in cash payments.
6. More pay per transaction fees paid by debit cardholders
7. Banks will recover whatever small amount of interchange revenues they lose by charging debit cardholder annual fees
(in my opinion, this is the worst effect of this Durbin Swipe Bill).
8. Consumers will consolidate their accounts into 1 debit card, 1 checking account, 1 bank account. (it's not unheard of for U.S. consumers to have more than one bank account).
9. More cash payments means more opportunities for small merchants to evade sales taxes.
The 'opportunities' that I envision are :
1. chip-based electronic wallets for small payments as long as a) the cost of accepting is close to the same cost of accepting cash b) the cost of replenishing these cards is close to the same cost of withdrawing and handling cash
2. electronic invoicing will be desirable for consumers who will use cash or checks to pay
3. new card networks, new card schemes in the U.S. preferably co-issued by banks and merchants (this might take a number of years but the motivation will be there)
4. other means of mobile payments for small amounts
Thank you for reading...
CardSwitch Technology Ltd.