If supporters are right, consumers will notice little obvious impact from the deal on debit-card fees reached Monday by House and Senate conferees working on financial reform. The say increased competition among card-clearing networks will lower costs to merchants, who in turn should be able to pass along some savings to consumers. But the fees that now average 1 to 2 percent are most noticeable to those whose bottom lines are directly affected.
At the top of that list, along with the retailers, are Visa, MasterCard and the large banks that dominate the debit-card business, which fear the loss of profits. So Visa, for one, hasn't given up the fight - but it's fighting a rear-guard action that, according to its critics, illustrates Visa's fears of price competition and desire to maintain market dominance.
Brian Dodge, senior vice president of the Retail Industry Leaders Association, says retailers send about $20 billion a year to Visa and MasterCard's clearing networks in so-called "interchange" or "swipe" fees on debit-card transactions. About $16 billion, or 80 percent, goes to the banks that issue Visa- and MasterCard-brand debit cards, which take payments directly from cardholders' bank accounts.
The deal by the conferees modifies a financial-reform amendment that was proposed in the Senate by Illinois Democrat Dick Durbin and that passed with 17 Republican votes. (Click here to see details of the compromise version of Durbin's amendment; read about the larger debate in my Sunday column in the Inquirer.)
Durbin's proposal would have fostered competition in part by ensuring that card issuers couldn't stop retailers from offering discounts for using cash or checks, or for using a competing - that is, lower-cost - card-clearing network.
The compromise still allows discounts for cash or checks, but not for using a competing network. Instead, it relies on language that says debit cards must work on “two or more”networks - a requirement that Dodge says should drive price competition between networks. (A decade ago, most debit and ATM cards had multiple "bugs" on their backs indicating that they would work on multiple, mostly regional networks, such as the Philadelphia area's MAC system. Now it's common to just have the Visa or MasterCard logo.)
Dodge says this memo, circulated by Visa after Monday's compromise was reached, illustrates the problem generated by the Visa/MasterCard duopoly. Among the problems it cites is that the deal "would stifle innovation in networks to develop new services to compete for consumers, issuers and merchants, instead driving networks to be the lowest cost provider."
"Merchants compete every single day on costs - to have the opponents of this complain that competition is unfair is just unbelievable," Dodge says. "Welcome to our world." The Merchants Payments Coalition put out this statement, in a similar vein.
Dodge says the compromise includes substantial concessions, but calls it "a major step in the right direction toward bringing transparency and fairness to what’s now a broken system."
The American Bankers Association calls the deal "a terrible compromise for consumers," and alludes to its shortcomings: It doesn't, for example, protect lower-income consumers from excessive fees charged on prepaid cards or on cards issued to distribute government benefits.
But it's not clear how the status quo protects them better.