Arkansas' economy is doing well. So why would anyone want to mess with that?
Ask the big banks in New York and San Francisco. They're the ones pushing to repeal a 6-year-old reform of the debit card market that brought competition to debit cards, helped small merchants expand their businesses, created jobs, and saved consumers billions of dollars.
Before Congress enacted debit-swipe-fee reform, the banks were able to amass lavish profits from merchants every time you, our customer, swiped your debit card to pay for anything, from new tires to T-shirts.
Because debit "swipe fees" were centrally fixed by the card networks, banks didn't have to compete with each other--so they were able to continue raising the costs of swiping debit cards through the roof, even though it cost the banks mere pennies to process a debit transaction.
In fact, for many merchants, even with debit swipe reform, onerous payment-card swipe fees have ballooned into their second-largest operating cost after labor. That's right--it costs merchants more to process payment cards than it does to pay for electricity or rent.
With razor-thin profit margins, merchants have to pass along at least some of these outrageous costs to customers or risk going out of business altogether. That means higher prices for everything: from a doughnut and coffee at your local diner to more expensive haircuts at your local barber. Everything costs more, even if you don't use a card to pay for them.
In 2010, Congress tried to make those debit swipe fees more reasonable by bringing competition to an industry dominated by just two businesses, Visa and MasterCard, which use their power to price-fix swipe fees for their member banks. Congress brought competition into this market by doing two important things.
Before debit swipe reform, Visa and MasterCard would pay the banks to block their competitors so that debit cards were only processed on Visa and MasterCard's proprietary networks. Congress stopped that by ensuring there was a choice of network on debit transactions. Now, because retailers have a choice, Visa and MasterCard have to compete with other networks (such as NYCE, Star, or Pulse) for our business. This has led to a decrease in processing costs and other benefits, including better security for debit processing, as the networks vie for merchant business.
The second thing Congress did was give the very largest of the banks a choice: If the banks wanted to let Visa and MasterCard centrally fix their debit swipe fees, they would only be allowed to charge about 25 cents for every transaction. If, on the other hand, banks chose to compete with each other on price, they could charge whatever they want. That's right, whatever they want.
But competition takes effort. So the largest banks have taken the easy way out: They still let Visa and MasterCard centrally set their fees. After all, a debit transaction costs a bank only about 4 cents to process. So even with these modest reforms, by charging a quarter, banks are marking up their fees an average of 500 percent, according to the Federal Reserve. Yes, you read that correctly--500 percent. And credit cards, a much larger business which Congress didn't address, cost even more.
Debit swipe reform was a win-win-win. The banks get some incentive to compete on price (while still making a 500 percent profit margin). Networks get to compete with Visa and MasterCard for business. And, according to an economist's study, in the first full year after debit reform went into effect (2012), consumers saved $6 billion and more than 37,000 jobs were supported by the savings.
In Arkansas, those savings were almost $43 million and the reforms supported almost 300 jobs. There's no reason to assume that trend won't continue.
But here's the catch. A slim majority of the House Financial Services Committee--at the behest of the banks--voted this fall to repeal debit reform in legislation disingenuously called the "Choice Act."
Arkansas merchants, though, are calling it the "No-Choice Act" because it forces us back into an unfair, anti-competitive market where Visa and MasterCard fix prices and block competition. In short, it's the antithesis of the free-market system that made the U.S. the biggest economy in the world.
Do we really want to undo these free-market reforms? Do we want to hurt retail businesses that support local communities and employ our neighbors?
That's just not the Arkansas way.
And make no mistake, the attack on reform is by the big banks--your small neighborhood credit union and savings banks weren't covered by debit reform. They're free to charge what they like on debit cards and so have an advantage over the big banks--an advantage they'd lose if reform is repealed. Instead, more of the small banks are likely to be gobbled up by the big guys.
So tell your members of Congress to leave debit reform alone so consumers and small businesses and our economy can flourish without having to stagger under the burden of outrageous fees.
In fact, tell them they should look at credit cards next. A level playing field is all we ask--and all we need.
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Charlie Spakes is president of the Arkansas Grocers and Retail Merchants Association.
Editorial on 12/02/2016