The New York Times Credit and Debit Card Series raises a lot of interesting consumer questions, namely whether the emerging electronic currency system is simply a hidden private tax on commerce that largely benefits the big banks (yeah, those same ones we recently bailed out with taxpayer dollars):
For the financial year ended in June, Visa handled 40 billion transactions....While the cost per transaction may seem small, at Best Buy ... “these skyrocketing fees add up to hundreds of millions of dollars every year,” said Dee O’Malley, director of financial services. “Every additional dollar we are forced to pay credit card companies is another dollar we can’t use to hire employees, or pass along to our customers in the form of savings.”
...some merchants are infuriated by a separate, larger fee, called interchange, that Visa makes them pay each time a debit or credit card is swiped. The fees, roughly 1 to 3 percent of each purchase, are forwarded to the cardholder’s bank to cover costs and promote the issuance of more Visa cards. - How Visa, Using Card Fees, Dominates a Market (NYT)
Most notably, credit cards have enabled online commerce. And, credit and debit cards offer tremendous advantages to carrying cash. However, as more and more transactions move from cash to the credit and debit card network, we've carved out a tiny portion but extremely large aggregate revenue stream for the private sector:
In the United States alone, banks that issue credit cards get an estimated $40 billion to $50 billion in income annually from interchange fees, which are the biggest single component of fees charged to merchants. - U.S. Looks to Australia on Credit Card Fees (NYT)
With debit transactions forecast to overtake cash purchases by 2012, the model has investors swooning: Visa’s stock traded at $88.14 on Monday, near a 52-week high, while shares of MasterCard, at $256.84 each, have soared by more than 450 percent since the company went public in 2006. - How Visa, Using Card Fees, Dominates a Market (NYT)
We all appreciate the convenience of ATMs but instead of passing along the savings of fewer bank tellers and branches, the banks created a whole new set of fees for themselves. Americans increasingly have to pay to get access to their money. I once dated a girl who withdrew $20 at a time from her ATM despite the $2 transaction fee.
Want to travel abroad? Getting cash from an ATM or using your credit card may cost you up to 3% (BoingBoing). Even just buying international travel tickets from inside the U.S. can incur these fees. Note: here are some ways to avoid this and here is a way to find better cards.
One of the duties of the U.S. Treasury is "effectively, promoting economic growth and stability". The Times series implicitly asks: is the electronic credit and debit card network creating a drag on our economy?
The prevalence of privatized digital payment systems is raising the prices of consumer products on pretty much everything we buy:
...the 1 to 3 percent or more of every transaction that merchants pay to accept the cards is a significant cost, and the small local retailers that make neighborhoods vibrant often pay a higher percentage. Stores then build those fees into higher prices, so people who aren’t earning any rewards can end up subsidizing those who do. - The Damage of Card Rewards (NYT)
Just as there are calls for the Treasury to stop minting pennies that cost more to produce than they're worth, I think it may be time for the government to recognize that providing secure, U.S. backed digital currency without the privatized tax imposed by MasterCard and Visa:
“A dollar is no longer a dollar in this country,” said Mallory Duncan, senior vice president of the National Retail Federation, a trade association. “It’s a Visa dollar. It’s only worth 99 cents because they take a piece of every one.” - How Visa, Using Card Fees, Dominates a Market (NYT)
There was a day and age where MasterCard and Visa provided a service of convenience that consumers were free to pay for. Today, having a credit card is a necessity - you can't rent a car without one.
Just as the government moves information and services online, it's time for it to provide digital options for our currency. Cash is a pre-Internet era currency.
In the United States, the Government Accountability Office last week issued a report showing that consumers who did not use credit cards “may be made worse off by paying higher prices for goods and services, as merchants pass on their increasing card acceptance costs to their customers.” - U.S. Looks to Australia on Credit Card Fees (NYT)
"Merchants say they cannot refuse Visa cards because it would result in lower sales." - How Visa, Using Card Fees, Dominates a Market (NYT)
We could choose to regulate MasterCard and Visa, but given what we've seen this year with healthcare, can we really trust Congress to legislate a fair take?
The free market seems to be producing a cartel which is fixing prices and placing a drag on our economy. I want a public option.
If Medicare administrates for 6% what the private health insurers charge 20 - 30% to administrate, just think how ridiculously inexpensive our great country could make a public digital currency.
