In reading Phil Kerpen’s piece "If You Like Your Debit Card and Free Checking Account, Here's an Important Vote to Watch," in Fox News Opinion from May 23, 2011, about interchange fee reform, I was surprised to see such a staunch defense of the broken U.S. payments market.
While I agree with Mr. Kerpen that a functioning free market is the best option for American businesses and consumers, I also know how dangerous broken markets can be to our economy.
The debit card market is a textbook example of a broken market in which monopolistic price discrimination hurts business owners and, ultimately, American consumers.
As the CEO of a trade association representing some of the most free market oriented businesses in this country – grocery stores -- I would naturally expect interchange fee costs to decrease with improvements in technology and increases in volume. The fact is that we have seen the exact opposite effect.
With a virtual duopoly in the market, Visa and MasterCard set swipe fees far in excess of transaction cost in order to attract big banks to issue their cards. Under this backward system, networks’ perverse competitive incentives drive fees even higher — to the delight of the big banks and at the expense of merchants and consumers.
Big bank lobbying ploys regarding new banking fees and the small bank exemption are nothing more than scare tactics meant to influence legislators. Independent analysts and financial experts have confirmed that the exemption will work as anticipated and that the threat of new, increased fees will ring hollow. Banks compete with each other for customers, and new fees constitute bad customer service—especially when the bank down the street avoids them.
Severe competition in the grocery industry forces merchants to innovate and find new efficiencies, but we have seen the exact opposite situation in the United States debit card market, which lags behind the rest of the industrialized world. One thing is clear -- if we continue with the current system or back away at all from debit swipe fee reforms, the United States payments market will remain at a competitive disadvantage with the rest of the world.
It’s time to stop the misinformation and scare tactics. It's time to focus on correcting a broken market. It's time to deliver savings to consumers and small businesses.
Leslie G. Sarasin is president and CEO of the Food Marketing Institute.