I don’t know if Edward Yingling is the throw-a-chair type, but I might keep some distance from him today, after the apparent agreement on debit card fees yesterday broke against the American Bankers Association.
What strikes me about the debit card issue is how bankers in a knee-jerk manner look at the political loss on debit fees as counter-innovative. The conference committee hashing out a compromise financial services bill between the Senate and House yesterday agreed to cap debit card fees, and immediately Yingling blasted the political compromise. Yingling told the New York Times:
This provision remains a terrible deal for consumers, for lower-income bank customers, for government benefit programs, and for community banks.
So you’re unhappy with the outcome. Got it, Ed.
I agree the deal will take a bite out of bankers’ paychecks — but only in the near term. Debit card fees are to banks what taxes are to governments: there’s no need to sell them; they are a given. And when you think of innovation, such cash-cow businesses end up being the greatest impediment to new ideas and strategies. I understand that banks need to profit — we don’t run charities, after all. But forcing banks to look beyond innovation-less businesses for those profits isn’t “terrible,” to use Yingling’s word. “Inconvenient,” yes, but “terrible”?
Was that a chair I just saw flying by my window?
This is typical political ignorance at it’s worst. This is an addendum attached to a bill that is supposed to help protect consumers from greedy banks making risky investments. This addendum does not help the consumer, and as a matter of logic will end up costing the consumer more. Let’s take a look at who will regulate the fees – the Federal Reserve, which is governed by the very banks they’re trying to regulate. Ah, the fox is watching the hen house!! Let’s say for arguments sake that the banks decide to look good in the public eye and do put a limit on the debit card fees. Will this be a reduction or just a limit on increases? Furthermore, consumers will not see any cost savings whatsoever from a reduction. These costs are built into the price of the product and the cost savings per item will only be pennies that the consumer could care less about. This whole thing was about who was going to profit from the fees; the banks or the retailers, not the consumers. Let’s say that they do reduce the fees. The banks will find creative ways to charge the consumer to make up for lost revenue. So, now the consumer isn’t seeing cost reductions at the register but they are seeing increased fees from the bank!! This again, is government running amok, as they now have reduced incentive for alternative payment vehicles. The retailers have cheaper alternative payment vehicles, such as decoupled debit cards, available to them right now. The pain, however, is not great enough to encourage movement to such alternative choices. I say let free enterprise work like it’s supposed to. Allow Visa and MasterCard to price themselves to the point where retailers feel the pain and decide to make other payment choices. We will surely see Visa and MasterCard keep their fees in check if there are other payment pressures to keep them in check.