Small businesses looked to be winners when the Dodd-Frank Act passed, limiting debit card fees for transactions. They seemed to have won again when Bank of America’s plans to raise fees in an alternative way was met with torches and pitchforks.
Unfortunately, when you’re up against the banks, sometimes you never win.
A little known and little appreciated side effect of the debit card fee reductions that were so widely celebrated has arisen, and it’s really hurting a lot of retailers. The facts are this: Traditionally, debit card providers—i.e. banks—were willing to cut retailers a discount on fees when customers used debit cards for transactions of $10 or less. With their high fees chopped off at the knees, the banks have removed those discounts to try to rake in more money. Ergo,those transactions are now costing retailers more than they used to.
Anyone who spends time with consumers knows they use debit cards for a lot of things under $10. That can be a little gas, a sandwich, candy for the kids or a million other permutations. The important thing is that those all add up very quickly, and retailers are suddenly shelling out quite a bit of their revenue to the banks. Again.
Look, I understand that banks don’t want to lose revenues. But you can’t pay lip service to being there for small businesses and then punch them in the face, especially when you not-so-subtly blame everyone but yourself for it:
“There will be some unhappy parties, as there always is when the government gets in the way of the free-market system,” says Chris McWilton, president of U.S. markets for MasterCard Inc. He said the company decided that it couldn’t sustain the discounts under the new rate model because the old rates had essentially subsidized the small-ticket discounts.
Because of course those rates weren’t unreasonably high to begin with, were they, Mr. McWilton?
Retailers Fighting Back
There’s not much your average small retailer can really do here, aside from shaming the companies into giving it up. That’s a long campaign, to say the least.
Instead, many are actively encouraging customers not to use debit cards, so as to save themselves from high fees. Others are offering incentives not to use the cards. Still others are raising prices, resigned to the fact that they can’t physically tackle customers as they go to swipe their cards.
There’s plenty of blame to go around here. The government should have looked more carefully at the potential effects here, and the banks should be willing to do something that doesn’t hurt small businesses. Alas, they’re the ones who now must suffer.
What are your thoughts on this unfortunate situation? Has your business been affected?