Another great victory to the merchants!

Winning the anti-trust case against V/MA/financial institutions and getting paid $7.25b is a shot in the arm to the US merchant community. That too, less than a year after getting the Durbin amendment bill to regulate the debit card fees passed  in a free market economy.   Yes, the arrogance, pride and the power of the financial institutions are tempered. Good!

It is understandable that the retailers are under severe profit margin pressure (read The Retain Industry Global Report ) . As per the report, profit margins of top 200 retailers have come down to a low of 2.4%!    and any reductions in the 2.5 – 3% card fees will be substantial!! Good for the merchants? Yeah, great!!

However, is this good for the consumers? Are they getting benefited? or are they losing out?

First , let us look at what the merchants have gained from all these.

1. A $6b cash back and a $1.2b reduction in future swipe fees.

2. No more restrictions from the payment networks (read Visa and Mastercard) to give disounts based on the payment method

3. A standard fee of 21c  (+ 0.05% + 1c if some security criteria are met) for any debit card transaction

4. Ability to use an alternate debit network for their debit card processing.

Note:

1. Prepaid cards are NOT subjected to this fee restriction

2. Some smaller banks (those with assets of less than $10b) are NOT subjected to this fee restriction.

It is estimated that the merchant community will gain almost $7b – $9b annually from the Durbin amendment (FYI – points 2, 3 & 4 above are due to Durbin amendment)

Now, let us see how the banks are reacting to these changes in order to make up the revenues that have lost/are losing :

1. Reducing or eliminating the rewards on debit cards

2. Implementing additional fees on other banking products (checking account fee, debit card usage fee, etc..)

3. Creating prepaid card based instruments so that they can get higher debit-card fee to the merchant) – (Amex Serve card , Chase Liquid card, and other several other prepaid cards)

The list goes on and on, but you get the picture.

So, here is what the consumers are seeing:

1. Hardly any reduction in the prices from the merchants since the Durbin law came into effect

2. Possible surcharge on credit card usage

3. Minimum amount for credit card acceptance

4. No/reduced rewards from debit card programs

5. New/increased fee from their banks on checking accounts/debit card usage

Has the merchant just become the King? at the cost of the consumer??