The Trouble With Debit Cards

The NY Times discusses the problems caused by rewards earning credit/debit cards for merchants and consumers alike. Visa, and to a lesser extent Mastercard, come off looking like health insurance companies. Entities who don’t add significant value to the economy, but manage to skim huge profits and act as a burden anyway. One solution:

Life might be simpler and more efficient if retailers could levy a surcharge that covers their costs to accept cards and let consumers figure out whether to pay it. But the card companies don’t allow that, and Congress hasn’t yet forced their hand, though this is now how things work in Australia (where some retailers charge excessive fees, alas).

And from a few days earlier, here is the Times talking about why the fees are so high.

The banks have used interchange fees as a growing profit center and to pay for cardholder perks like rewards programs. Interchange revenue has increased to $45 billion today, from $20 billion in 2002, driven in part by the surge in debit card use.

The Trouble With Debit Cards

0 thoughts on “The Trouble With Debit Cards

  1. Aaron says:

    The crazy thing about credit cards is that there are even more people in the middle of the transaction who are also skimming.

    There is always a processor who essentially fronts the money to the merchant for a month before Visa pays them for everything they’ve processed that month. They take a cut.

    Then there’s the company that gets the information to the processor. For example, a company that provides merchants with processing software for their website probably also takes a cut (negotiated from the portion allotted for processing with the processing company).

    These are entities that literally exist only to deal with credit card transactions (and presumably also atm card transactions). The “value” added is that the credit card companies and card-issuing banks don’t have to deal with the merchants directly.


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