Thursday, June 30, 2011

My take on Swipe Fees

There is an ongoing debate in the restaurant and retail industries about swipe fees for debit cards. There are bills being written and debated in congress that address swipe fees and I see trade associations from both industries cheering on these new regulations. My advice:

Quit crying for government regulations and
start fixing the problem yourself!

There is no regulation that I'm aware of that says a business must accept plastic -- credit or debit. If merchants think the card brands are charging too much, organize something that would get your point across. Have a "no plastic day" or "no plastic week". If enough merchants participated, this would send a strong message to the card brands and with little risk of unforeseen consequences. To me, this debit swipe fee trivial, a much bigger issue are the different rates for reward cards vs. non-reward cards and not knowing the fee up front, during the authorization event. It seems strange to me that the reward card rates are rarely, if at all mentioned by these same trade groups and the reward rates are much more significant than the debit rates.

It’s a cliché of mediation, uttered by every mediator trying to push two unhappy parties to reach agreement on a resolution, that "a good settlement is one where both sides are unhappy." The problem is when politicians create regulations, having both sides unhappy does not buy votes so one side or the other is going to be ecstatic, while the other side is going to get screwed. In this environment things will change because both sides need to be profitable and this is where unforeseen consequences enter the picture. Many times (I would say most times when it comes to government regulations), these unforeseen consequences can be worse than the original problem that was being addressed. I strongly believe that it much better to keep politicians out than to suffer the unforeseen consequences that will ensue.