Consumers Wait on Promised Savings from Swipe Fee Reform
Bank of America’s recent announcement that it would charge a $5 a month fee for its customers to use its debit card brought jeers from consumer groups, the National Retail Federation (NRF) and many others.
While the bank’s actions can be criticized, it certainly should not have come as a surprise to any that it and many other financial institutions will be raising fees to make up for revenues and profits lost as a result of reduced swipe fees mandated in the Durbin Amendment, legislation strongly pushed by retailers.
A RetailWire discussion back in April found that most thought any fee hikes resulting from legislation that shifted costs from one place to another would be blamed on banks and not retailers.
Tony Orlando, owner of Tony O’s Supermarket & Catering, said at the time, "Let the banks eat crow, as consumers are fed up with them. Supermarkets have become banks for some folks, as they use our money to keep the fees lower, so the repercussions will not fall on us."
Mallory Duncan, senior vice president and general counsel at the NRF, recently told Fox Business News, "Bank of America did this to themselves. They are the ones that decided to impose this $5 fee. If they see their customers leaving, you can bet your bottom dollar that they’ll start re-thinking whether that’s a wise idea."
As to the promised savings as a result of lower fees, Mr. Duncan said retailers are working on ways to pass those along to consumers.
"Change won’t come overnight, but consumers will definitely benefit," Mr. Duncan is quoted by CSP Daily News. "Reducing these fees will put billions of dollars back into the Main Street economy, helping American families stretch their paychecks and ultimately preserving and creating local jobs to keep America on the road to recovery."
- Retailers say lower debit-card swipe fees will mean consumers save – Consumer Reports
- Consumers Looking at Higher Fees for Debit Cards – RetailWire
- Mallory Duncan tells Neil Cavuto: Bank of America "did this to themselves" – National Retail Federation
- Retailers Seeking Ways to Pass Swipe-Fee Saving on to Consumers – CSP Daily News
Discussion Questions
Discussion Questions: How do you think retailers will pass along savings to consumers as a result of the Durbin Amendment? Should they be communicating this to consumers?
One retailer in the c-store industry is trying to pass on the savings only to find that the state of Georgia won’t let him let people know about it. He elected to advertise two gasoline prices, but instead of cash and credit he posted credit and debit. He is offering a $.10 per gallon savings to those using his PumpPal debit card program.
The state has determined that he can’t do so. He is now suing the state to halt new rules that would ban display of reduced debit card gasoline prices.
Bank of America should take a look at what is happening with Netflix. On the one hand, BofA wants to charge for debit card transactions. On the other hand, they plan to reduce their labor force by thousands. On the next hand (oops), they are advertising how they are helping small businesses and individual consumers (except for their own employees and customers). It doesn’t add up for consumers and it won’t bide well for BofA.
I think you are just going to confuse the customer if you start putting up multi-pricing signage. A better way would be to just offer a small discount at the till and ‘surprise’ the customer. As for BofA’s new charge, I guess banks don’t have enough bad PR these days. Reading some of the comments on the Consumer Reports site shows that there are always cheaper local banking alternatives. Vote with your wallet.
I get the impression that consumers are open-mouthed with amazement at the greed of the big banks. They’re certainly in the corner with retailers, who’ve been gouged by banks for years.
Bank fees are rising due to the institutions’ need for revenues to stave off their loses, particularly in real estate loans that are continuing to erode the balance sheet. There are a number of large retail companies as well as co-ops and franchises that have the ability to create their own banks and will start doing so soon. The delays in this investment are being caused by their need to educate themselves in this business as well as finding qualified individuals with a successful track record. These tangibles make it a very high stakes investment but if it is well put together the rewards will be seen as a milestone in business.
If the interchange fee were charged directly to the consumer using the card, rather than to the retailer accepting the card as payment, then consumers might pay more attention to this change. But as it’s largely transparent (passed along at some point in the price of goods), then most consumers are not aware these charges even exist. So some retailers will build limited-time promotions in order to drive some business around the limited publicity generated by this law. But how many retailers today are making a big deal of offering a discount for using cash over credit? Besides, retailers don’t want to give the impression that there is no fee associated with the use of debit cards.
The thing that absolutely amazes me is that the banks have somehow been able to cry foul when all along they have been using the retailers’ store networks, cash, and personnel to dispense the money while debit cards have enabled them to sit on the consumer’s assets longer and have reduced losses due to fraud. If anything, the banks should have been paying the retailers to accept debit cards instead of charging them swipe fees.
Banks are definitely going to need to adjust their business models, but not merely by adding fees. The old brick and mortar model that is anchored by a large monolithic stone building in the center of town is long gone. Banks must work on expanding their online presence to allow more sophisticated transactions over the Internet, such as taking out loans, opening and closing accounts, etc. The number of branches will dramatically decline as both customers and bankers turn to high speed Internet. Instead of charging for electronic transactions, banks should be encouraging more electronic activity by reducing or eliminating fees. The challenge, of course, is that current interest rates and a flat yield curve make it difficult to make any money off of demand deposits. This is the real reason banks are unable to make much money right now.
Retailers could do well by regarding banks as the “canaries in the coal mine”. Banks have long used retail branches to reach consumers, but with cash and document images now flowing freely, it has become unnecessary for banks to have a physical presence. Retail still has to deliver the goods, but improved distribution models and micro manufacturing facilities will make it economical to reach more consumers individually. Retailers could do a lot to show they are on the consumer’s side. Why not show the reduction in swipe fee as a credit on the customer’s receipt? By showing the credit on the receipt, retailers can reinforce their image as supporting their customers and helping them have more money to spend in the store.
Retailers are likely to take a “wait and see” approach to offering any savings as a result of the Durbin Amendment. The consumer may alter their payment methods, shifting from debit to cash or check, or perhaps to more credit card usage.
If that takes place, retailers will incur different costs, which perhaps won’t permit any cost savings.
The “law of unintended consequences” may hit here. Some retailers might have added transaction fees, slower cash payments and, in some cases, lower sales as a result of consumers walking through stores without cash or a desire to add to credit charges.
Banks operate in the retail sector, too. They, like other retailers, have to make a profit to survive. Added fees are the response that they need to take to sustain that profitability. When the visible hand of “Big Brother” steps in, the hand of the marketplace gets altered.
The Consumer Intentions & Actions (CIA) Survey monitors payment methods that consumers choose. The September survey indicates that credit card usage will be up in the coming 90 days. Retailers will be watching this over the next 6 months.
Let more banks fail. If they honestly cannot make windfall profits with the trillions they have to manage, then allow capitalism to take its course and let the fittest survive. No sympathy, sorry.
I don’t think most stores will lower prices anytime soon because other costs have risen even faster, thus offsetting any savings. Cardboard and trash pickup has increased 25% in just 2 years, and other fuel charges for deliveries are not going away either. I’m betting that many stores will be glad that this expense savings will keep them from having to charge more somewhere else.
Most retailers will make no attempt at all to pass along savings from any reduction in the swiping fees they pay to banks. Frankly, I doubt they will be able to determine the specific amount of their savings – i.e., to put an accurate number on it – which is a necessary first step in designing any sort of customer discount. Instead, it will be treated much like our Social Security fund has been treated, wherein the Federal Government sees some unused money laying there and grabs it for other purposes. Retailers will see their bottom line improving by a small amount and assign the new revenue to a variety of purposes. The card-swiping savings will simply melt into the matrix of a complex balance sheet.