By james art 
By Doug Cantor | General Counsel, National Convenience Store Association
In a wide-ranging complaint, the Justice Department made clear that Visa twisted antitrust laws beyond recognition to monopolize the debit card network’s market. Not only are Visa’s actions illegal, but the complaint gives an idea of how willing the market is for the networks to be disintermediators.
From the beginning, the justification for debit card swipe fees has been a house of cards. Consider this thought experiment. A guest checks into a hotel and the front desk asks if they wish to opt out of valet service during their stay. The guest says yes. The clerk says, “Great, then we’ll charge you an extra 2% per day during your stay.”
If this happens, you will probably be annoyed. The reason is obvious. Your solution would save the hotel working time and costs. They should not charge you extra; they should thank you. Alas, what is obvious in most commercial interactions is distorted beyond recognition in banking.
The debit card is exhibit number one.
The Federal Reserve is currently considering its rules on debit cards. When the big banks agree to have their so-called interchange fees fixed on their behalf by the giant credit card companies, the fees the banks can deduct for each debit transaction are capped at 24 cents.
The Federal Reserve offered to cut that amount by nearly 7 cents — and bankers reacted as if they were the victims of a terrible injustice. are they Not for everyone who understands what a debit card is.
One of the main jobs of a bank is to attract deposits from people (and businesses) in order to use that capital to do things like make loans. In order to receive deposits, banks must give their customers ways to withdraw their money whenever they want. A debit card is just one way banks allow people to access their deposits.
Debit cards were invented to give banks a cheaper way for customers to access their money. Other alternatives—such as visiting a brick-and-mortar bank branch or processing paper checks—are more expensive.
In fact, when PIN debit cards first appeared on the scene, banks paid fees to merchants willing to accept them to offset some of the merchants’ costs of point-of-sale equipment and processing. This made sense for banks, given that institutions saved money when customers had a place to use these debit cards instead of paying by check or using bank tellers for cash.
The same fees occur when debit cards are used at ATMs. The bank pays a fee to the owner of that ATM to help their customer with a place to use the card.
This is why several countries, including Canada and New Zealand, have widely used systems that do not charge any debit card exchange fees. These systems work efficiently and securely and are popular. After all, these debit cards still save the banks money.
However, in the US, banks continue to try to prove to the Fed that they need billions of dollars in revenue from fees when debit cards are used. Considering the big banks can deduct 24 cents in interchange fees when it costs an average of 3.9 cents to process a debit card transaction, the profit margin is 600 percent.
This is, of course, in addition to the money banks save on other costs by giving their customers access to money through debit cards.
After all, banks asking for gigantic debit fees can no more be justified than a fictitious hotel owner charging a huge fee to customers without valet service. It won’t stop the bankers from promoting their backward reasoning or, apparently, Visa from trying to monopolize the system for its own benefit.
Editor’s note: Doug Cantor is general counsel at the National Store Association. Reader reactions, pro or con, are welcome [email protected].