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USA Merchants Reach Credit Card Surcharge Rights Agreement [Effective 1.27.2013]

USA Merchants Reach Credit Card Surcharge Rights Agreement [Effective 1.27.2013]

Old Mar 1, 2019, 5:37 pm
  #451  
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Originally Posted by rasheed
I think what this thread is trying to anticipate is what will happen in the free market with or without further legislation. Keeping to the forum's goals, the net for travel reward cards doesn't look very good unless many merchants decide to pay the higher interchange rates. Even a market change to lower interchange rates (as tmiw referenced) is all bad, the card companies will quickly reduce rebates. If much of Costco's Visa spend was not already on the Citi co-branded card, I would have imagined that other Visa issuers would have created an exception on rewards earned on those purchases. Discover had this .25% earn rate exemption for such retailers, but that does not seem to be the case currently in its current it card option.
The one good thing about interchange going down voluntarily (as opposed to a government-imposed cap) is that the level of decrease will likely be less. Maybe the highest-tier cards only command 1.5 or 2% interchange instead of ~3%, for instance. That would still be enough for rewards cards to net some value for cardholders, although less than currently.

Whether that'd be enough for the likes of Kroger, however, remains to be seen. I suspect they want something close to EU levels, or at the very least have the ability to say "no" to higher tier cards and/or charge extra for them.

Originally Posted by rasheed
The discussion of allowing card surcharges (or rather, more widespread at the checkout cash discounting) is interesting. I don't think I would for most categories pay the higher price (especially for day to day spending). I think it can be hard to get above 2 cents redemption value on miles, and the airlines will be in big trouble if card spending dropped dramatically. My thought is the annual fee explosion of these past few years has been anticipating this (with essentially someone paying the annual fee, but not using the card much subsidizing the big spenders). This is just the new subsidizing methodology if we say those who don't use reward credit cards are currently subsidizing those who do.
Premium international travel can still net >2-3% in some cases, at least before taxes and fees anyway. The math starts getting kinda fuzzy if you weren't going to pay for that class of airline ticket in cash in the first place, though.

As for whether people will pay the surcharges, I think people who already don't carry around much (or any) cash might; the alternative is getting used to using cash again. Also, don't forget that surcharges/minimums aren't allowed for debit cards; while the merchants who currently impose them might not care, larger ones have the resources to be able to show the correct prompts and do the right thing on the POS end to ensure that only credit cards get that treatment.
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Old Mar 1, 2019, 5:49 pm
  #452  
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Originally Posted by tmiw
BTW, how does Smith's fit into the overall grocery ecosystem?
Kroger has 2,782 supermarkets. Of these 21 are Foods Co and 142 are Smith's. This means that Kroger just extended the Visa ban from 0.8% of its store base to 5.1%. I'm not yet convinced they are serious about this. If they implement the same policy at Ralphs or one of their Kroger banner divisions in the midwest or south, then we will be talking. But until then, I think it's mostly posturing. Maybe they are doing it a few stores at a time in order to maximize news coverage.

Originally Posted by tmiw
Anyway, thinking about it some more, I wonder if just accepting surcharges for card transactions is going to be better for rewards cards in the long run. The savvy among us will still find a way to get more than 2-3% return from their points earning (not to mention bonuses from minimum spend) in that scenario, plus it likely won't require any cuts in interchange. Meanwhile, if Kroger and others succeed in getting interchange cut (since that'll be what it takes for them to start accepting Visa et al again), rewards definitely get cut.
I'm starting to think you are right. The loopholes become too "easy" to exploit, and there is pressure to close them. But new loopholes will emerge.

Originally Posted by mikesyr18
Let the free market determine interchange rates. If merchants feel like they're paying too much, they can stop taking certain cards, but deal with the consequences when that $4,000 purchase goes out the window when the customer's Visa card isn't accepted. If 3/4 major networks are always accepted - the one network charging a higher interchange rate will be forced to lower theirs to compete.
That kind of logic only works in a competitive market. Credit card networks essentially operate in an oligopoly, where there is little, if any, price competition.

Only recently have some merchants (Kroger and Walmart) grown to a large enough size that they really have negotiating leverage with the networks. If this trend continues and retailers continue to consolidate (which I don't think is a good thing for consumers) then we may see more of these skirmishes.

Originally Posted by mikesyr18
Suggesting some law that limits interchange fees to 0.7% or something is just some liberal mindset that will hurt everyone in the long run except the merchant, just like with the Durbin Amendment. I'm not sure what our Congress hoped to accomplish by voting in favor of Durbin because consumers and banks certainly haven't benefitted.
How do you know that consumers haven't benefitted? There may have been a reduction in price due to this. Prices are always fluctuating due to various factors so it may not be possible to measure it, but a couple of years ago, food prices hit a multi-decade low.
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Old Mar 1, 2019, 7:41 pm
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Originally Posted by mikesyr18
Suggesting some law that limits interchange fees to 0.7% or something is just some liberal mindset that will hurt everyone in the long run except the merchant, just like with the Durbin Amendment. I'm not sure what our Congress hoped to accomplish by voting in favor of Durbin because consumers and banks certainly haven't benefitted.
How do you determine that neither consumers nor banks benefited from the Durbin amendment?
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Old Mar 1, 2019, 7:51 pm
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Originally Posted by cbn42
That kind of logic only works in a competitive market. Credit card networks essentially operate in an oligopoly, where there is little, if any, price competition.
Competition has been fierce enough to strip AMEX of their former business model to something more similar to Visa and Mastercard's. Gone are the days of AMEX charging a percent or two higher than Visa/MC so they could provide a premium experience to card members. AMEX is now advertising more business friendly (especially small business) terms so they can be accepted in more places than ever. In the vast majority of places, there's at least four networks competing for business.

Can merchants give a discount when the customer chooses PIN debit over "credit" when using a debit card at the register? This would also increase competition and could possibly save the store some money, although I'm not sure how much exactly.

Cellular phone service is the same way... But prices used to be much higher until T-Mobile came in and undercut everyone else. Now you can get a single line with unlimited data, talk, and text for $80 a month because competition (even in an oligopoly) can help lower prices.

Let Visa/MC/Disc/AMEX fight for the lowest interchange fees and highest acceptance.


How do you know that consumers haven't benefitted? There may have been a reduction in price due to this. Prices are always fluctuating due to various factors so it may not be possible to measure it, but a couple of years ago, food prices hit a multi-decade low.
Since Durbin we've seen a loss of debit card rewards programs (mostly), the addition of monthly maintenance fees on checking accounts, an increase in checking account fees, and I'll really go on a limb here - it caused networks and banks to raise awareness on how great credit cards are, since credit cards now generate interchange profits while debit cards ran through debit networks generate next to nothing. Really, it was a dumb decision to implement an amendment that only benefited the merchants who obviously would not pass the savings to customers.
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Old Mar 1, 2019, 7:54 pm
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Originally Posted by fliesdelta
How do you determine that neither consumers nor banks benefited from the Durbin amendment?
I think that answer is obvious. Added fees on checking accounts. Higher fees on checking accounts. Loss of debit card rewards programs.

Durbin was created to benefit the merchants, strip the banks of some of their profits, and the consumer was thrown into the fire with the banks as well since regulation causes prices to rise.
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Old Mar 2, 2019, 1:55 am
  #456  
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Originally Posted by mikesyr18
Competition has been fierce enough to strip AMEX of their former business model to something more similar to Visa and Mastercard's. Gone are the days of AMEX charging a percent or two higher than Visa/MC so they could provide a premium experience to card members. AMEX is now advertising more business friendly (especially small business) terms so they can be accepted in more places than ever.
I don't think it was competition that drove this change. It was AMEX's desire to increase profits by going more mainstream and increasing the size of their customer base.

Originally Posted by mikesyr18
In the vast majority of places, there's at least four networks competing for business.
There are at most 4. Even in the US, one of them (Discover) is a bit on the weaker side, so there are really 3 that compete fiercely. In some other countries, there are fewer.

Originally Posted by mikesyr18
Cellular phone service is the same way... But prices used to be much higher until T-Mobile came in and undercut everyone else. Now you can get a single line with unlimited data, talk, and text for $80 a month because competition (even in an oligopoly) can help lower prices.
Yes, price wars can break out in oligopolies, but they are rare and usually short-lived. I suppose one of the networks could start one if they wanted to, but I don't foresee it happening.

Originally Posted by mikesyr18
Since Durbin we've seen a loss of debit card rewards programs (mostly), the addition of monthly maintenance fees on checking accounts, an increase in checking account fees, and I'll really go on a limb here - it caused networks and banks to raise awareness on how great credit cards are, since credit cards now generate interchange profits while debit cards ran through debit networks generate next to nothing. Really, it was a dumb decision to implement an amendment that only benefited the merchants who obviously would not pass the savings to customers.
So you believe that banks would pass on the savings to customers, but merchants won't?

Since the retail industry is far more competitive than the banking industry, the opposite is most likely true.

Durbin benefits all customers who buy goods and services, at the expense of the wealthier ones who are heavy credit card users.

Originally Posted by mikesyr18
Durbin was created to benefit the merchants, strip the banks of some of their profits, and the consumer was thrown into the fire with the banks as well since regulation causes prices to rise.
Prices to rise? Do you have any evidence for this?
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Old Mar 2, 2019, 2:59 am
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Originally Posted by rasheed
Great question. So, we are still seeing this added Kroger group as a careful addition, still avoiding brands that probably sell higher margin items like Frys or Ralphs. I can speculate that many of these stores don't get as much sales from items such as alcohol due to local laws or traditions.

There is also very heavy competition from other legacy regional brands such as Supervalu or Albertsons and Aldi's West expansion.

I see people pointing out that these retailers will just pocket the savings in interchange fee. I get that thought, but I have personally seen Kroger slash prices on many items. Perhaps it is due to Aldi competition, but there is no doubt that prices on many common grocery items have both sale and store brand prices that I can't see other retailers able to touch. This includes the organic category too.

So, still low risk to Kroger, but definitely hitting areas where grocery price is likely more sensitive. I think Kroger will be easily able to show lower prices if pushed.
Kroger has been increasing prices like crazy in Smiths the past couple months. 20%+ increases all over the store on pet foods, canned goods, etc. Perhaps they will drop the prices back to the "before" levels once they cut off Visa next month. They used to be within 5-10% of WinCo's prices. Not anymore. I get better deals now at Raleys who has never been known as even remotely a price operator.
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Old Mar 2, 2019, 8:52 am
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Originally Posted by cbn42
I don't think it was competition that drove this change. It was AMEX's desire to increase profits by going more mainstream and increasing the size of their customer base.
AMEX charged merchants more so I don't see how profiting from interchange fees due to reduce merchant acceptance was an issue, especially when the cards were primarily used by the wealthy so the amount spent by cardholders was higher.. Visa and MasterCard started breathing down AMEX's neck with cards that were just as good, resulting in AMEX changing their business model. Now it's all about shareholders instead of customers, so AMEX won't offer better cards to their customers... Let's take a look at the Cash Magnet for instance - it's a weak 1.5% back card when banks like Citi offer what's basically the 2% Double Cash, or the Citi Prestige which is cheaper than the Platinum and offers many benefits as well. In another direction, Chase has the Sapphire Reserve and Ultimate
Rewards which is a better program than Membership Rewards. AMEX has simply been mismanaged for the last 10+ years.

There are at most 4. Even in the US, one of them (Discover) is a bit on the weaker side, so there are really 3 that compete fiercely. In some other countries, there are fewer.
Not really sure what you mean here. "Weaker" how? Discover has one of the best banking platforms out there, and their credit cards are decent. Discover is also accepted in more places than AMEX is. Are they as popular as Visa and MasterCard? No, but I'm sure they'll get there eventually as they continue to make improvements.

Sprint is considered on "the weaker side" yet phone service prices have decreased in this country - at least for those who know how to shop for phone service.

Yes, price wars can break out in oligopolies, but they are rare and usually short-lived. I suppose one of the networks could start one if they wanted to, but I don't foresee it happening.
Maybe.

So you believe that banks would pass on the savings to customers, but merchants won't?
Probably not anymore because corporate greed is higher than ever - but banks increased fees and took away rewarding checking accounts after Durbin was passed by Congress. Chances are there'd be twice as many free checking accounts and more rewarding debit cards if this amendment wasn't passed and added to Dodd-Frank.

https://www.forbes.com/sites/norbert.../#6c290fa5740f

I'd much rather earn 1% back on my debit card purchases than save the merchant some money so they can pass the savings to shareholders.

I also bet checking accounts like Chase Total Checking would still be free without a minimum balance requirement if Durbin wasn't passed.
Since the retail industry is far more competitive than the banking industry, the opposite is most likely true.
Banking in this country is very competitive. We're not talking about Canada where mostly everyone just uses the "big five." We have plenty of online only banks, credit unions, and a large number of "large" banks in the USA. The retail sector is less competitive than the banking industry... Amazon, Target, and Walmart swallow most retail business.

Durbin benefits all customers who buy goods and services, at the expense of the wealthier ones who are heavy credit card users.
Based on what information....

Last edited by mikesyr18; Mar 2, 2019 at 8:59 am
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Old Mar 2, 2019, 9:18 am
  #459  
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Originally Posted by cbn42
Prices to rise? Do you have any evidence for this?
It looks like Durbin hasn't had much of an impact on reducing prices and in fact might have caused more merchants to impose surcharges and minimums:

The results further suggest that the regulation had a limited effect on retail prices. Averaging across all sectors, it is estimated that the vast majority of merchants in the survey (77.2 percent) did not change prices post-regulation, very few merchants (1.2 percent) reduced prices, while a sizable fraction of merchants (21.6 percent) increased prices. Finally, the results also suggest a limited and unequal impact on changing debit card restrictions (in terms of minimum amounts, surcharges, and discounts for nondebit payment options), with an estimated 76.6 percent of merchants not changing them postregulation, 12.4 percent increasing them, and 10.9 percent decreasing them. Each of the above results varied significantly by sector.

...

For merchants in the sample who reported that their costs decreased after the Durbin regulation, few of them reduced prices or debit restrictions. This behavior remains a puzzle that deserves further research. On the other hand, if a merchant reported increased costs after the Durbin regulationas a sizeable fraction of them didit tended to raise prices and increase debit restrictions, especially in terms of setting a minimum transaction amount requirement.
The interesting thing is that for those who have reduced their transaction costs, surcharges/minimums haven't received a corresponding decrease. I wonder if there could be more at play with merchants' relationships with the card networks than how much they have to pay to accept their products.

Originally Posted by storewanderer
Kroger has been increasing prices like crazy in Smiths the past couple months. 20%+ increases all over the store on pet foods, canned goods, etc. Perhaps they will drop the prices back to the "before" levels once they cut off Visa next month. They used to be within 5-10% of WinCo's prices. Not anymore. I get better deals now at Raleys who has never been known as even remotely a price operator.
Maybe, maybe not. We'll see.

Originally Posted by mikesyr18
Can merchants give a discount when the customer chooses PIN debit over "credit" when using a debit card at the register? This would also increase competition and could possibly save the store some money, although I'm not sure how much exactly.
Considering that most debit cards have the same interchange (0.05%) regardless of how they're run, there's not much point in doing that.

Originally Posted by mikesyr18
But prices used to be much higher until T-Mobile came in and undercut everyone else. Now you can get a single line with unlimited data, talk, and text for $80 a month because competition (even in an oligopoly) can help lower prices.
The US still has some of the highest mobile phone costs in the world. In other countries with actual mobile competition (read: 4+ viable carriers), rates tend to be at least half of what they are here, if not lower.

Also, T-Mobile was only able to be as big as they are now because of their failed merger with AT&T. Turns out a significant breakup fee can give a carrier enough money for needed network upgrades.

Originally Posted by mikesyr18
the addition of monthly maintenance fees on checking accounts, an increase in checking account fees
I feel like those were a thing before Durbin.
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Old Mar 2, 2019, 9:36 am
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Originally Posted by tmiw
...
The US still has some of the highest mobile phone costs in the world. In other countries with actual mobile competition (read: 4+ viable carriers), rates tend to be at least half of what they are here, if not lower.

Also, T-Mobile was only able to be as big as they are now because of their failed merger with AT&T. Turns out a significant breakup fee can give a carrier enough money for needed network upgrades.
I think the size of this country plays a role in that. There's a lot of land mass to cover, including raised elevations. You then have a higher population so increased bandwidth is necessarry. You also have to remember the government plays a hand in your higher prices as well with their taxes and fees.

Right now I'm paying $50 a month for unlimited talk, text, and 15GB of data on Verizon.

I feel like those were a thing before Durbin.
In the article I cited on my last post - it states:

The total number of banks offering free current accounts fell by 50 percent between 2009 and 2013. In comparison, fee-free banking actually increased at banks not subject to the Durbin Amendment.
And...

(2) More than doubled the minimum monthly holding required on fee-free current accounts between 2009 and 2012, from around $250 to over $750.
(3) Doubled average monthly fees on (non-free) current accounts between 2009 and 2013, from around $6 to more than $12.
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Old Mar 2, 2019, 9:55 am
  #461  
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Originally Posted by mikesyr18
I think the size of this country plays a role in that. There's a lot of land mass to cover, including raised elevations. You then have a higher population so increased bandwidth is necessarry. You also have to remember the government plays a hand in your higher prices as well with their taxes and fees.

Right now I'm paying $50 a month for unlimited talk, text, and 15GB of data on Verizon.
I remember buying a SIM card from Vodafone Australia upon arrival back in 2014 and realizing that the per-GB price was something like $5/GB (vs. the $10/GB that was standard in the US at the time). Australia is a fairly big land mass, mind you.

That said, this is probably a topic for another thread.

Originally Posted by mikesyr18
In the article I cited on my last post
Not sure an opinion piece is a good indication of the actual effects of Durbin. The CRS, on the other hand, has this to say about a proposed bill to repeal Durbin:

Debit card issuers covered by Regulation II had expected to lose interchange fee income under the regulated cap, but the evidence has been uneven particularly for those institutions that process large volumes of debit card operations. Some covered institutions initially experienced declines in debit interchange revenues shortly after rule implementation, but they have since seen some gradual increase over time, which is consistent with the reported growth of debit card transactions since 2009. By contrast, some covered institutions saw an initial increase in interchange revenues but have since seen some gradual decline over time. Generally speaking, the amount of interchange revenue also reflects the amount of transactions, which depends upon economic activity. In other words, lower revenues that would have been anticipated in light of the interchange fee cap may have been offset by a rise in the quantity of debit transactions as the economy continued its recovery from the 2007-2009 recession. Hence, comparisons of the interchange revenues pre- and post-implementation of Regulation II are challenging because both the interchange fees and debit transactions likely changed simultaneously over the period.
In fact, rewards programs themselves might have changed rather than gone away:

When customers use a variety of financial products and services, depository institutions may cross-subsidize their costs and financial risks more effectively. Hence, some financial institutions entered into partnerships with merchants sponsoring customer reward programs to help facilitate the attraction of deposits. Customers receive rewards for shopping with a particular merchant and paying for their purchases using electronic payment cards (i.e., credit, debit, or prepayment card) associated with participating banks.
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Old Mar 3, 2019, 11:28 pm
  #462  
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Originally Posted by mikesyr18
Not really sure what you mean here. "Weaker" how? Discover has one of the best banking platforms out there, and their credit cards are decent. Discover is also accepted in more places than AMEX is. Are they as popular as Visa and MasterCard? No, but I'm sure they'll get there eventually as they continue to make improvements.

Sprint is considered on "the weaker side" yet phone service prices have decreased in this country - at least for those who know how to shop for phone service.
Discover is weaker because it has less market share and therefore less leverage. If they tried to exert their power like Visa is doing with Kroger, then Kroger could dump them without any problem, because practically everyone has another card.

Visa and Mastercard effectively act as a duopoly and set the rates. Discover and Amex basically have to accept them, unless they can provide an extra service to justify a higher rate, which Amex may have been able to do in the past but likely cannot anymore.

Originally Posted by mikesyr18
Probably not anymore because corporate greed is higher than ever - but banks increased fees and took away rewarding checking accounts after Durbin was passed by Congress. Chances are there'd be twice as many free checking accounts and more rewarding debit cards if this amendment wasn't passed and added to Dodd-Frank.
There are still plenty of free checking accounts if anyone wants one. Big banks make it easy to avoid the monthly fee by having direct deposit or a minimum balance, and credit unions often have accounts that are completely free.

Originally Posted by mikesyr18
Banking in this country is very competitive. We're not talking about Canada where mostly everyone just uses the "big five." We have plenty of online only banks, credit unions, and a large number of "large" banks in the USA. The retail sector is less competitive than the banking industry... Amazon, Target, and Walmart swallow most retail business.
By my quick back-of-the-envelope calculations, Amazon, Target and Walmart account for about 20% of the retail business in the US. In contrast, the three largest banks (Chase, Bank of America and Wells Fargo) account for 32% of the nation's bank deposits.


Originally Posted by tmiw
It looks like Durbin hasn't had much of an impact on reducing prices and in fact might have caused more merchants to impose surcharges and minimums:
Given that surcharges and minimums weren't permitted by merchant agreements until after Durbin was passed, I don't see how anyone can reach that conclusion.
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Old Mar 4, 2019, 2:51 am
  #463  
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Originally Posted by cbn42
Given that surcharges and minimums weren't permitted by merchant agreements until after Durbin was passed, I don't see how anyone can reach that conclusion.
That didn't really stop some from doing it before Durbin, unfortunately. Heck, you're supposed to only impose surcharges for credit cards even now but I find that rule isn't really being followed either.
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Old Mar 4, 2019, 4:57 am
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Originally Posted by cbn42
Discover is weaker because it has less market share and therefore less leverage. If they tried to exert their power like Visa is doing with Kroger, then Kroger could dump them without any problem, because practically everyone has another card.
Discover needs to up their card offerings then so more consumers will be attracted to them.

Visa and Mastercard effectively act as a duopoly and set the rates. Discover and Amex basically have to accept them, unless they can provide an extra service to justify a higher rate, which Amex may have been able to do in the past but likely cannot anymore.
That's not Visa and Mastercard's problem that AMEX is mismanaged and Discover can't provide other offerings... There's still competition, however - it's just AMX/Disc have different target markets.

There are still plenty of free checking accounts if anyone wants one. Big banks make it easy to avoid the monthly fee by having direct deposit or a minimum balance, and credit unions often have accounts that are completely free.
It's the principal behind it... When government gets involved, prices go up. Prices went up after Durbin was passed. It doesn't matter if it's "easy" to waive the fees, the fact is the minimums are higher and direct deposits are required now. Most credit unions offer an inferior service when it comes to technology, web interfaces, and other features, so many would rather use a bank like Chase.

By my quick back-of-the-envelope calculations, Amazon, Target and Walmart account for about 20% of the retail business in the US. In contrast, the three largest banks (Chase, Bank of America and Wells Fargo) account for 32% of the nation's bank deposits.
Need sources. Amazon has swallowed retail businesses and Walmart has leverage to force lower prices on their everyday products.

The solution would be for the government to tell Visa/MC/Disc/AMEX to split so there's eight competitors rather than four --- I'd rather see that than forced price controls through regulation.

Last edited by mikesyr18; Mar 4, 2019 at 5:05 am
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Old Mar 4, 2019, 10:08 am
  #465  
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Originally Posted by mikesyr18
It's the principal behind it... When government gets involved, prices go up. Prices went up after Durbin was passed. It doesn't matter if it's "easy" to waive the fees, the fact is the minimums are higher and direct deposits are required now. Most credit unions offer an inferior service when it comes to technology, web interfaces, and other features, so many would rather use a bank like Chase.
Depends on what you're regulating. Adequate regulation, for instance, likely would have gotten chip and PIN (not signature) supported at nearly 100% of US merchants and banks by now. As is, we're supposedly only at 67% or so of merchants supporting chip at all, never mind contactless. And I'm not even sure 100% of issuers have chip-enabled cards, nor am I sure the other 33% of merchants will transition in anything approaching a reasonable timeframe.

Originally Posted by mikesyr18
The solution would be for the government to tell Visa/MC/Disc/AMEX to split so there's eight competitors rather than four --- I'd rather see that than forced price controls through regulation.
What if four is the maximum the market can really support? Technically the US has 13 debit networks in addition to the four credit networks, yet all of the former combined are only supported in something like 50% of card-accepting stores at best.
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