retail news in context, analysis with attitude

by Kevin Coupe

The Associated Press reports that as the nation’s banks try to figure out how to recoup revenue in the event of new regulations that severely limit their ability to charge debit card swipe fees, Chase Manhattan Bank is considering at least one possibility that could be onerous for retailers - limiting debit card transactions to $50 or $100 apiece.

According to the story, “The idea is one of many being floated internally in response to a proposed regulation that would sharply limit the fees banks collect from stores whenever customers swipe their debit cards. Chase estimates the proposal could slash its revenue by $1.3 billion a year.”

The proposed regulation by the Federal Reserve already is creating changes in the marketplace, as banks look to generate revenue from other sources. Free checking is slowly be phased out by some banks, and other banks are testing user fees that would replace swipe fees.

Of course, the story also notes that the financial services industry “says that debit card fees help underwrite the costs of providing consumers with free or low-cost checking accounts. By limiting the fees they collect from merchants, banks warn that they'll need to pass costs onto consumers” - ignoring the fact that retailers now likely are passing those swipe fees onto consumers in the form of higher prices.

Now, the AP suggests that “as for a cap on debit card purchases, analysts say it's unlikely any bank would risk alienating customers with such an extreme move. The bank would need to first undertake a massive education campaign to avoid sending angry customers fleeing to competitors.” But the fact that banks would even consider such a proposal is a measure of how desperate they are to protect their revenue sources.

In the end, retailers need to make sure they are on the right side of history in this battle - and that means being advocates for the consumer. That should be the benchmark by which every decision is made - is the consumer benefitting, or is the consumer getting the short end?

Retailers that behave with this position in mind - and that educate their shoppers about these issues and their responses - may well give themselves an important differential and competitive advantage.

And that’s our Monday Eye-Opener.
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