Lyle Beckwith of the National Association of Convenience Stores argues that debit card interchange is unfairly high. But this argument ignores several key points.
First, its important to remember that debit card interchange is regulated by the Durbin amendment, a law for which NACS and its allies lobbied heavily. The law charges the Federal Reserve with capping the debit card interchange rate at a level that is reasonable and proportional with the costs of processing these transactions.
Although NACS claims that the Fed has allowed institutions to overcharge, the truth is that the U.S. Court of Appeals for the D.C. Circuit disagrees. After extensive litigation brought by NACS, that court ruled that the Fed did indeed set a debit interchange rate that was appropriate, and the U.S. Supreme Court upheld that ruling by refusing to hear an appeal.
Another false assumption in the Beckwith op-ed is that financial institutions simply pocket interchange revenue. This is untrue. In fact, financial institutions invest a portion of interchange fees in developing the latest security technologies like real-time predictive analytics, EMV, tokenization and end-to-end encryption, all of which help keep customer data safe.
The financial industry has put billions of dollars toward these and other technologies. Many of the security solutions being implemented today were originally developed by the financial industrythere is a reason that your financial institution knows when to call customers to check and see if it was really them making a particular purchase. Interchange fees paid by merchants translate directly into these and other benefits for consumers. Starving banks of interchange revenue is a surefire way to reduce investment in these critical technologies, leading to more fraud-related headaches for all Americans.
Behind the rhetoric, what NACS is really asking for is an even bigger government handout through congressionally approved price controls. The nations largest retailers convinced Congress to pass the Durbin amendment by promising to pass on some of their $8 billion of interchange savings each year to consumers in the form of lower prices. But recent evidence shows that retailers instead kept the money for themselves. Not satisfied with the $8 billion annual windfall they already received from the Durbin amendment, merchants are now begging for an even more stringent price cap on debit interchange, allowing them to hold onto billions more.
Electronic payments are a crucial building block of our economy, and they bring benefits to consumers, merchants and financial institutions alike. But asking for congressionally approved price controlswhichhurts community banks and credit unions and diverts funds away from crucial security investmentsdoesnt seem to be in line with those goals.
Camden R. Fine is president and CEO of the Independent Community Bankers of America. Follow him on Twitter @Cam_Fine.