retail news in context, analysis with attitude

Reuters reports that Walmart and McDonald’s executives “say new U.S. rules limiting debit card processing fees will not cut their costs as much as they hoped, and could actually boost their expenses ... that debit card processing costs, or interchange fees, were not low enough despite the new limits to have a real impact on retailers.”

As part of broader financial reform, hidden swipe fees charged by banks on a per-transaction basis have been limited to between 21 and 24 cents, which is about half what the banks used to charge; the original proposal was that they should be cut to a maximum of 12 cents, but the Federal Reserve backed off such strict limitations.

According to the story, “Banks have said the new rule is a windfall for retailers, moving as much as $8 billion in revenues off lenders' books.”

Robert Donovan, U.S. assistant treasurer for McDonald's, says that his company “and other U.S. retailers that rely on a high volume of small dollar transactions could see an increase in their debit card processing costs, because prior debit costs for smaller purchases had lower fees.”

An example: Redbox, which recently raised its rental fees from $1 to $1.20, blaming the increase in part on an increase in small transaction debit card fees.

However, Richard Peck, 7-Eleven's senior director for corporate finance, tells Reuters that while some fees may go up, there at least will be certainty about what the fees are, which will allow his company to be more precise in its projections.

And Michael Cook, treasurer for Wal-Mart, “said the discounter viewed the debit fee overhaul as a precursor to overhauling credit card processing fees,” therefore making it “a good start,” Reuters reports.
KC's View:
You want to make an omelette, you have to break a few eggs. Debit card fee regulation was a critical first step in forcing the banks to be more transparent about their fee structures. Consumers - and citizens - ought to have an enormous problem with hidden and usurious fees. Banks - like the dinosaurs in Jurassic Park - will “always find a way” to come up with new revenues, but the law ought to be that they can’t hide them.