Merchants recently gained an important win in their recent defense of the Durbin Amendment.
Lawmakers have shown little interest in taking up a debate that forced them to choose between two important constituencies, merchants and the financial services industry.
Nevertheless, large banks remain undeterred from their goal of overturning Durbin by condemning price setting and operational mandates, something merchants have had to endure for years at the hands of global payment networks and the banks that stand behind them.
The hypocrisy implicit in many of the banks’ arguments against Durbin show the banks really have no interest in anything resembling a free market. Some examples are:
Big banks band together in complete disregard for the free market and create a horizontal compact that sets supracompetitive interchange rates. They have neither the courage nor the competitive interest to engage in the kind of free market competition that merchants are accustomed to.
Bank opposition to new competition illustrates they really have no use for the “free” market. They came unglued a decade ago when one large merchant sought a bank charter. They sought protection from the same government they accuse of meddling in their business with Durbin-based regulation.
While merchants compete vigorously with each other for single digit profit margins, banks band together to soak merchants with hugely profitable fees for card programs. Consumers inevitably pay the price at the POS. Perhaps the Federal Reserve Board staff economists, who are supposed to work for all Americans, should study this market reality instead of conducting myopic studies that simply bolster the banks’ arguments that Durbin reduces the availability of free checking.
Bank pacts aimed at controlling faster payments doom the American economy to a substandard, closed-market approach that will witness the U.S. falling even further behind the rest of the world.
If it weren’t bad enough that banks themselves band together, bank-controlled card networks also band together at PCI and EMVco to develop policies that have shifted the burden of fraud and fraud mitigation from the banks to the merchants while disadvantaging competing domestic networks.
And, let’s not forget that many of them probably would have been wiped out for good in the 2007 financial crisis that they created if it were not for a government bailout.