The Debit Card Fight Is About More Than Just Debit Cards

Mallory Duncan Chairman, Merchants Payments Coalition
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Why are banks so obsessed with repealing debit card swipe fee reform? In a word – misdirection. For those who are not amateur Houdinis, misdirection is the flourish a stage magician uses to distract the audience from his biggest secrets. The banks’ phony battle over debit fees serves the same purpose.

Debit reform has been settled law for the better part of a decade. Repeal would bring back the monumental unfairness of the rigged, uncompetitive market that existed before debit reform was enacted, and undo a reform that saves retailers and their customers billions of dollars a year. Few would want that.

Bringing debit swipe fees under control has focused a spotlight on the need to extend free-market reform to credit cards as well. Reversing the progress made with debit cards would mean less competition and an immediate increase in debit swipe fees that would lead to higher prices for consumers for everything from tires to toothpaste. Everyone has seen the benefits of competition in the debit arena and many are beginning to recognize the need for reform of credit cards, where the lack of a free market means we’re straddled with still-soaring swipe fees. But rather than defending credit cards, banks are directing everyone’s attention to debit cards, an issue that few in Congress want to fight again.

So why are the big banks so focused on the past? Because if they can keep Congress’s attention directed backwards, few will notice the big banks’ and card companies’ efforts to lay the groundwork for a non-competitive future in the rapidly evolving world of financial technology.

It won’t be long before credit cards are obsolete, and banks and card companies know that. Computerization and mobile technology has put an unprecedented array of competitive options literally in the palm of the public’s hands. Digital currency, be it Bitcoin, coupons, other new loyalty options or person-to-person transfers accessed via virtual codes and stored in autonomous vaults are all broadly possible. What they are not, however, are credit cards.

If you have an arrangement that’s currently structured to skim scores of billions of dollars every year off consumer transactions without the hassle of competition, you don’t want anything to end that. But mobile payments probably would. So card companies and banks are attempting to transfer their near-monopoly over card payments to phones, using tired old techniques to do it.

For example, when the smaller regional networks for transmitting debit transactions from the merchant to the bank threatened to become too competitive for the likes of the largest networks, banks were “incentivized” to block smaller competing networks. The monopoly was preserved. More recently, when new chip cards were rolled out, the big card companies refused to agree on a single global standard. Instead, they only allowed competition on a separate platform that Visa then took steps to block. Congress passed debit reform to make it easier for regulators to stop some of this behavior. And they have.

In the 1950s, automakers sought to have competing public transit systems removed to clear a path for their vehicles. Today, the big card companies are attempting to mandate the installation of exclusionary mobile readers and proprietary tokenization schemes to clear their road by crowding out competitive technologies. They are attempting to supplant our mobile future with their anachronistic past.

Competition is the mother of innovation. Given a fighting chance, genuinely new financial technology options will enable, safe, fast, efficient transactions that won’t swipe $400 a year in hidden fees from every household for an outdated, fraud-prone system.  Congress can exercise its oversight to ensure that entrenched players don’t tilt the playing field. That won’t happen, however, if banks and card companies successfully misdirect Congress’s attention by incessantly demanding that it expend its energies re-legislating the past.

Mallory Duncan is senior vice president and general counsel of the National Retail Federation and chairman of the Merchants Payments Coalition.