In an old South Park episode, the very un-PC creators laid out what girls should look for in a boyfriend. One “tell” that signaled for girls to move on was the un-sheathing of a debit card. It allegedly signaled that the male didn’t earn a lot of money. Funny? Readers can decide.
Still, the joke at the expense of debit cards is a reminder of how useful they are, particularly for those who earn a little bit less. Stop and consider this with credit cards well in mind. Credit cards are themselves marvels of capitalism. Think about it. With your Visa, MasterCard or American Express, you can literally traverse the world only to have your purchases financed. What a dream not just for credit-card holders, but also businesses.
Evidence of the value of credit cards to users and businesses alike can be found in the billions of annual profits earned by credit card companies. If customers and the businesses they interact with didn’t value the global financing of purchases, the profits wouldn’t be large enough to rate the scorn of Senators Richard Durbin and Roger Marshall. The Democrat and Republican bemoan the billions earned annually, but it’s those very profits that tell us how much consumers and businesses value them.
Instead of acknowledging the above-mentioned market signals calling for politicians to leave the credit-card sector alone, Durbin and Marshall are pursuing legislation (The Credit Card Competition Act) meant to intervene in the swipe fees credit card companies charge. Their intervention isn’t necessary. Think the aforementioned profits yet again. There’s two sides to every transaction, and the profits remind us of the extraordinary importance of credit cards to commerce.
From there, it’s useful to pivot back once again to debit cards. They’re a reminder that if ever there’s a problem or unmet need in the marketplace, actual market players are the solution. We know this because businesses very much value the use of debit cards by customers. They do simply because the swipe fees debit card issuers charge businesses are quite a bit less than those charged with credit cards.
That the swipe prices (at present, .21 cents) are lower is a statement of the obvious. Or should be. While with credit cards financial intermediaries are financing purchases with actual loans, with debit cards they’re merely facilitating purchases. This is not nothing in an increasingly cashless world. Debit cards on their face enable a lot of commercial activity. And there’s more.
Debit cards provide those with less the functionality of credit cards minus the debt. No doubt some do use debit cards because they’re not as flush, and they desire an automatic governor on their spending minus what some deem expensive debt in the form of interest payments. In which case, let’s call debit cards an excellent market solution both for the consumer and for the business. Too bad politicians and regulators don’t feel the same way.
At present the Federal Reserve is bruiting the dangerous notion of pushing down a maximum charge of .14 cents per debit card swipe. As mentioned before it’s .21 cents now, and even the previous number came after the Fed revealed its ugly regulatory self in 2011. It was then that the central bank proposed a .12 per swipe cap on debit cards.
About this regulatory assault on debit cards, it will be stressed yet again that there are no price controls as much as there’s scarcity. If banks and other financial intermediaries can’t profit from facilitating debit-card transactions, then the logical result will be reduced access among those with the least, the parsimonious, or both to a low-cost way to transact. Businesses will lose in this scenario, as will consumers looking for ways to maintain their finances while not running up costly debt in the process.
It’s something to think about, including for Senators Marshall and Durbin. Markets are relentless in pushing down all manner of prices for consumers and businesses, including swipe fees. Unknown is if politicians and regulators will get out of the way so that this can happen.
