As If Retailing Weren’t Already Difficult Enough, Uncompetitive Bank Fees Make It Even Harder
By Jack Kofdarali
It’s not easy running convenience stores: It’s a highly competitive business, since we’re on every busy street in the country; and profit margins can be miniscule — if you don’t like the price of gas at one store, there’s always another down the street.
So when someone finds a way to save consumers and merchants $40 billion that also helps us merchants grow and expand, we’re going to be big fans.
Congress, it turns out, did just that in 2010 when it made the big banks compete for the business of processing our customers’ debit-card purchases.
In this obscure business, Visa and MasterCard had grown so huge that they had managed to dominate the entire market and price-fix outrageous fees for their member banks.
Every time you swiped a debit or credit card, your bank gouged you and the merchant for processing the payment, which meant extremely tough times for small businesses and higher prices for you.
Even after reform, these “swipe fees” have ballooned into most merchants’ second-largest cost of operating, after only labor.
In the convenience-store business alone, for years the banks have made more than the owners themselves — including me — earned in profits.
Americans still pay the highest swipe fees of any industrialized country in the world — all because the banks could thumb their noses at the free-market competitive principles that made this the largest economy in the world.
So customers pay correspondingly higher prices, even if they don’t use a card, which hurts the poorest consumers most.
Harvard Business School Prof. Benjamin G. Edelman, who researched the card market, found that because banks don’t compete on fees for merchants, the people least able to afford higher prices, the poor, “definitely get the short end of the stick.”
Naturally the big banks don’t like having their sticky fingers removed from your pockets. They have tried to discredit debit-card reform with a blizzard of half-truths, distortion, disinformation and outright lies. Competition, it seems, doesn’t agree with them.
So the House Financial Services Committee is amending a bill that would repeal reform, which not only gave banks an incentive to compete but required that merchants have a choice of at least two competing networks to process transactions. Visa and MasterCard had been squashing these competitors through brute force.
According to a study by a noted economist, in its first year alone reform saved consumers $6 billion a year and supported almost 38,000 jobs.
In California, where my small chain of two-dozen stores operates, debit reform saved consumers more than three-quarters-of-a-billion dollars that year and supported 5,000 jobs.
In my business, reform has let us hold down prices in order to compete (federal figures prove retailers are holding prices much lower than what the goods they sell cost them.)
That’s why members of Congress need to stand up to the big banks and refuse to let them turn back the clock to the bad old days. As it is, banks still get to mark up their fees 500 percent, which looks pretty good to retailers who get by on 1 or 2 percent.
We need to strengthen, not kill, debit-card reform. Then we need to reform credit cards, which Congress hasn’t yet touched.
And ultimately, in the not-too-distant future, when we’re paying for something with the touch of a fingerprint or a voiceprint, we must ensure these technologies too aren’t rigged by the card companies and the big banks.
That is what we need to be telling Congress: Don’t lie down for the banks; instead, stand up for consumers and small businesses and, indeed, our entire economy, which grows slower and distortedly when the players don’t abide by the rules.
Mr. Kofdarali is president of J&T Management in Corona, California