Jag Venugopal's Blog

April 11, 2011

Beat the banks at their own game

Filed under: Digital Living — Jag @ 10:08 pm

David Frum argues [1] that banks should not be allowed to escape from legislation capping debit-card interchange fees. Apparently banks are concerned that if debit-card interchange fees were lowered, many customers and merchants would gravitate to debit cards, thus lowering the profits banks make on the credit-card side of the business.

 I think his fears are overblown. There is no risk that Best Buy, Amazon, Wal-Mart or the local Stop and Shop will start charging more for credit cards than they do for debit card transactions, for routine purchases. They grudgingly fork over credit-card fees to Visa and Mastercard, because customers like to pay with their credit cards, especially for big ticket items where they experience instant gratification, but pay later. They’d rather pay the damn fees and loosen your wallet than pay a smaller percentage in fees and risk losing your business altogether.

Credit cards hold significant advantages over debit cards for those who are careful with their finances. I easily average a free tank of gas per month on my Shell Mastercard. And Chase takes it upon itself to give me 5% cash back on various categories each quarter. Amazon kicks back 3% of all my purchases in the form of a gift card.  All I have to be careful about is to pay off the entire amount by the monthly due date.

More power to the big card-issuing banks, [and cashback to me]. Excuse me while I go look up my checking account balance on my credit union website.

[1]  http://www.cnn.com/2011/OPINION/04/11/frum.bank.debit.fees/index.html?hpt=T2

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