Debit Card Fees Slide Share

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Debit Card Fees Slide Share

  1. 1. Debit Cards and YOUJuly, 2011
  2. 2. How do Payments work Customer
  3. 3. How do Payments work Customer In a Nutshell
  4. 4. How do Payments work Customer In a Nutshell Debit Cards act as an “electronic check” as funds move from your bank account to the Merchant’s account. Making Debit more secure for you and more efficient for your bank. (less teller/atm exchanges/no check processing)
  5. 5. Back in the Day (when Pea Green was cool…)
  6. 6. Back in the Day (when Pea Green was cool…)To access your funds for payment,your Cards/Checks were processedmanually
  7. 7. Back in the Day (when Pea Green was cool…)To access your funds for payment,your Cards/Checks were processedmanuallyThis led to an inordinate amount of waste as manual handling wasinvolved which led to DAYS for funds to be processed and also ledto fraudulent transactions
  8. 8. Back in the Day (when Pea Green was cool…)Interchange was introduced to protect banks from fraud risk associated with paper-based credit card system. 80% of the cost covered Fraud.
  9. 9. Back in the Day (when Pea Green was cool…)Interchange was introduced to protect banks from fraud risk associated with paper-based credit card system. 80% of the cost covered Fraud.Interchange became a ‘per-transaction’ fee the merchant paid based on the method of consumer payment
  10. 10. Today…
  11. 11. Today… Manual processing is replaced with electronic funds transfers via Point-of-Sales terminals. Funds no longer take DAYS to clear, but SECONDS Fraud is nearly eliminated
  12. 12. So… what about thecost
  13. 13. So… what about thecostWhen youswipeyourcard…
  14. 14. So… what about thecostWhen youswipeyourcard… The Transaction is processed over a ‘Network’
  15. 15. So… what about thecost VISA and MasterCard OWN the Networks that process over 85% of all Debit Card TransactionsWhen youswipeyourcard… The Transaction is processed over a ‘Network’
  16. 16. So what’s theimpact of having superior market control?
  17. 17. My good boy, “when two companies control a large proportion of a market, this is called a DOUPOLY. The most commonly cited duopoly is that between VISA and MASTERCARD, who between them control a large proportion of theelectronic payment processing market.”
  18. 18. So what?I thought the paymentindustry is now moreefficient…
  19. 19. Unless you ascribe to Soviet Economics,CAPITALISM thrives on COMPETITION
  20. 20. Unless you ascribe to Soviet Economics, CAPITALISM thrives on COMPETITION 2 of the largest Card BrandsVISA MasterCard Control 80% of Revenue
  21. 21. Unless you ascribe to Soviet Economics, CAPITALISM thrives on COMPETITION 2 of the largest Visa and MasterCard’s major clients are big banks. Card BrandsVISA MasterCard Control 80% of Revenue
  22. 22. Unless you ascribe to Soviet Economics, CAPITALISM thrives on COMPETITION 2 of the largest Visa and MasterCard’s major clients are big banks. Card BrandsVISA MasterCard 5 of the largest banks control… Bank of America Capital One Control 80% CHASE Citi HSBC of Revenue 90% of Revenue
  23. 23. In theory, in a purely competitive market, prices shoulddecrease and quality should improve.
  24. 24. In theory, in a purely competitive market, prices should decrease and quality should improve.In the case of the Payment Industry, VISA and MasterCard want YOUas a cardholder. To get to you, they have to go to the bank. VISA MasterCard Bank of America (members… you)
  25. 25. In theory, in a purely competitive market, prices should decrease and quality should improve.In the case of the Payment Industry, VISA and MasterCard wantYOU as a cardholder. To get to you, they have to go to thebank. VISA MasterCard Bank of America (members… you) To get an exclusive contract with the Bank, Visa and MasterCard sweeten the deal… VISA offers $4, MasterCard offers $5… on and on it goes…
  26. 26. To fund these EXCLUSIVE contracts with the issuing banks, CardBrands funnel Interchange fees back to the banks.
  27. 27. To fund these EXCLUSIVE contracts with the issuing banks, Card Brands funnel Interchange fees back to the banks. 1971*Proportion of Interchange Fee going to….
  28. 28. To fund these EXCLUSIVE contracts with the issuing banks, Card Brands funnel Interchange fees back to the banks. 1971 2011*Proportion of Interchange Fee going to….
  29. 29. THAT’S HOWWHACK! DOES IT WORK?
  30. 30. Economics of theTransactionThe Merchant establishes thebusiness relationship with YOU.You CHOOSE to buy from theMerchant based on factors such asservice and price.What value do you place on theBanker being involved with thetransaction…
  31. 31. ISSUE ONLY “And I’ll give x% of the MY CARD Transaction Fee” The CARD BRAND The BANKER You can only have this Brand Card $10The MERCHANT The CUSTOMER
  32. 32. ISSUE ONLY “And I’ll give x% of the MY CARD Transaction Fee” The CARD BRAND The BANKER You can only have this Brand Card $10The MERCHANT The CUSTOMER
  33. 33. ISSUE ONLY “And I’ll give x% of the MY CARD Transaction Fee” The CARD BRAND The BANKER You can only have this Brand Card $10 $1,000 “OMG! I love this!”The MERCHANT The CUSTOMER
  34. 34. $35 The CARD BRAND $5 The BANKER $40 Interchange Fee You can only have this Brand Card $10 $960 $1,000The MERCHANT The CUSTOMER
  35. 35. $35 The CARD BRAND $5 The BANKER Would you pay $40 to have the $40 ability to use a major card brand? $10 $960 $1,000The MERCHANT The CUSTOMER
  36. 36. $35 The CARD BRAND $5 The BANKER Would you pay $40 to have the $40 ability to use a major card brand? (why would a merchant?) $10 $960 $1,000The MERCHANT The CUSTOMER
  37. 37. Question: You sell two products. One costs $10and the other $1,000
  38. 38. Question: You sell two products. One costs $10and the other $1,000
  39. 39. Question: You sell two products. One costs $10and the other $1,000If the customer has funds in her account, why shouldit cost you (the seller) $0.10 on a $10 Transaction and$10.00 on a $1,000 transaction when the paymentprocess is the same for each?
  40. 40. Question: You sell two products. One costs $10and the other $1,000If the customer has funds in her account, why shouldit cost you (the seller) $0.10 on a $10 Transaction and$10.00 on a $1,000 transaction when the paymentprocess is the same for each? Credit Risk… There is an immediate response if the customer is unable to pay.
  41. 41. Question: You sell two products. One costs $10and the other $1,000If the customer has funds in her account, why shouldit cost you (the seller) $0.10 on a $10 Transaction and$10.00 on a $1,000 transaction when the paymentprocess is the same for each? Credit Risk… There is an immediate response if the customer is unable to pay. Fraud?! Good question!
  42. 42. Fraud in Debit Card Transactions:
  43. 43. Fraud in Debit Card Transactions: Besides cash, Debit is one of the most ‘risk-free’ forms of payment. There are two forms of Debit Cards
  44. 44. Fraud in Debit Card Transactions: Besides cash, Debit is one of the most ‘risk-free’ forms of payment. There are two forms of Debit Cards Signature PIN Debit Debit
  45. 45. Fraud in Debit Card Transactions: Besides cash, Debit is one of the most ‘risk-free’ forms of payment. There are two forms of Debit Cards Signature PIN Debit Debit You enter a secure pin to transact You sign for the transaction payment. THE MOST SECURE FORM of PAYMENT.
  46. 46. Fraud in Debit Card Transactions: Besides cash, Debit is one of the most ‘risk-free’ forms of payment. There are two forms of Debit Cards Signature PIN Debit Debit You enter a secure pin to transact You sign for the transaction payment. THE MOST SECURE FORM of PAYMENT. Signature Debit has a higher Interchange rate vs PIN Debit.
  47. 47. Fraud in Debit Card Transactions: Besides cash, Debit is one of the most ‘risk-free’ forms of payment. There are two forms of Debit Cards Signature PIN Debit Debit You enter a secure pin to transact You sign for the transaction payment. THE MOST SECURE FORM of PAYMENT. Signature Debit has a higher Interchange rate vs PIN Debit. Do you know what card Banks push you to use???
  48. 48. Enter:The DurbinAmendment
  49. 49. Enter:The DurbinAmendmentIn 2010, the Durbin Amendment wasincluded in the Financial Reform Bill.Unfortunately, the US Government is theoption of last resort to respond toanti-competitive practices by the CardBrands and the largest Banks.The Durbin Amendment wouldimplement a ‘cap’ on per transactioninterchange fees
  50. 50. Nice to seeyou again, Bankers Bankers’response to the DurbinAmendment
  51. 51. BANK CEOS: “If you slash merchantswipe fees for debit cards, we’ll have toimplement (insert onerous consumerburden).”
  52. 52. BANK CEOS: “If you slash merchant swipe fees for debit cards, we’ll have to implement (insert onerous consumer burden).”The latest installment of the posturing game features per-transaction spending caps on debit cards. Regardless of the amount of money in a consumer’s checking account, their credithistory, or the type of transaction, major banks such as Chase, Citigroup and Bank ofAmerica are threatening to limit debit card spending to between $50 and $100 a pop.
  53. 53. Exposing the HiddenGREED in thePayment Industry
  54. 54. Exposing the HiddenGREED in thePayment IndustryCHASE Bank informed its customers via mail that theUltimate Rewards Debit Card program is being discontinuedeffective July 19, 2011 due to a “recently enacted law knownas the Durbin Amendment.”No further explanation of why the bank has blamed theAmendment for its demise
  55. 55. Bankers’ Best Friends….
  56. 56. Bankers’ Best Friends…. D.C. Lawmakers
  57. 57. Bankers’ Best Friends…. D.C. Lawmakers “Wall Street Government” -Robert GnaizdaFEC FILING OF THE DAY: BANKERS GO BIG -- The American Bankers Associationgave $234,764 to lawmakers in March, 2011.
  58. 58. Bankers’ Best Friends…. D.C. Lawmakers “Wall Street Government” -Robert GnaizdaFEC FILING OF THE DAY: BANKERS GO BIG -- The American Bankers Associationgave $234,764 to lawmakers in March, 2011. Total Lobbying by Financial Institutions outspend all other lobbying efforts 500-to-1.
  59. 59. D.C. is insulating Banks’ cartel overthe payment industry
  60. 60. D.C. is insulating Banks’ cartel overthe payment industry International comparison: American businesses, especially small ones, pay more to process cards than those in other nations.
  61. 61. Washington is being bought by Bank of America, Chase, Citi,HSBC, and Capital One. These banks are starting to implementoutrageous banking fees on their members “due to the DurbinAmendment” (with no explanation of why the Amendment wascreated). WWW.UNFAIRCREDITCARDFEES.COM Side note: if you’re not totally convinced about the Bank/DC relationship, check out the movie “Inside Job”

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