I’ll bet you don’t know that every time you pay for lunch or buy a pair of shoes using a debit or credit card, your bank takes a huge chunk off the top that raises the price of everything you buy.
It’s also the bane of merchants like us, who are constantly struggling with slim profit margins.
And if a fat slice of profit is going right out our doors every time a customer swipes a card to buy a piece of furniture from one of our stores, we can’t expand as fast, either. That hurts our economy here in Georgia and nationwide.
For some retailers, these “swipe fees” threaten their very survival.
The bank that issued your debit card gets to snatch up a 500-percent markup for processing purchases because it doesn’t have to compete with other banks. According to the Federal Reserve and the banks’ own figures, they’re charging almost a quarter for a service that costs them less than 4 cents.
Why? Visa and MasterCard so dominate the debit-card market that, without competition, they can price-fix fees for their member banks.
Congress finally did something about this uncompetitive corner of American business by passing the Durbin Amendment, which took effect five years ago.
Under this reform, there must now be two competitors available to handle transactions, bringing some competition to the market.
And reform also limited price-fixing by cutting somewhat the outrageous fees banks were charging and giving them an incentive to compete instead.
As you can see from the 500-percent markup banks are still getting, debit reform has a way to go to bring unfettered competition to the market.
Still, in our own business, debit reform saved us $1 million last year in these outlandish swipe fees. We used that money to open over 30 new furniture stores across our eight-state market. That means new jobs and all the capital investment that go with these openings.
An economist who studied reform, in fact, found that in the first year alone it saved consumers $6 billion and supported 37,000 jobs.
In Georgia, the numbers were $163 million and more than 1,000 jobs.
But the big banks have been complaining ever since. (debit reform doesn’t cover small banks and credit unions.)
In September they persuaded the House Financial Services Committee to narrowly approve a bill repealing debit reform. Even a little competition was just too much for these gigantic financial institutions.
That’s why it’s important for consumers – and voters – to know about this obscure $50 billion swipe-fee business that raises prices for everything from furniture to food, even if you don’t use a card.
In fact, swipe fees hurt most the poorest people – the ones who don’t usually even have a card, according to a Harvard Business School study.
Now, Georgia’s making a nice recovery from the Great Recession. Job growth is strong. Home sales are rising – always good news for people like us who sell furniture – and foreclosures are way down.
Why would Congress want to repeal reforms that lower prices for consumers, help small businesses and bolster the health of our economy? Why would Congress want to hurt the largest creators of jobs in the private market place?
In fact, I can’t think of a single reason how this would benefit anyone but banks already making profits that would be the envy of any businessperson – and especially retailers, whose profit margins are usually in the low single-digits.
Congress needs to take debit reform further, not repeal it. And it needs to address credit cards, where profit margins dwarf debit cards, and which Congress and regulators have yet to address.
So now we know what’s really in our wallets.
Mr. Badcock is executive vice president of the Badcock &more furniture chain of 330 stores, including 75 in Georgia.