Swipe Fees: Two BankThink posts this week sought to debunk the banking industry's predictions that the recent court ruling opening up the possibility of a lower cap for debit interchange will lead to disaster. David Balto, an antitrust lawyer and former Federal Trade Commission official, scoffed at the claim that banks would be forced to raise fees for consumers. "These are the same lines large banks have been using for years to combat banking regulation. Even casual observers will recall Bank of America's threat back in 2011 to charge $5 per month for debit card transactions to make up for supposed lost swipe fee revenue. This fee never came to fruition due to the rash of criticism and consumer complaints." David True, a consultant and MasterCard veteran, took a somewhat different perspective. Banks may indeed have to charge cardholders for services that merchants used to subsidize, but that's just as well, he argued. "If we want market-set prices, charging customers sounds like a good thing: the buyers see the price of product (say a rewards card) and what they get for that price. They then compare that price/benefit with what other sellers offer before making a decision to purchase.
Moving customers from free to paid products sounds daunting, but is wholly possible. How many people would have thought, 30 years ago, that a company called HBO would have 28 million subscribers paying a monthly fee for television?" Setting aside the question of whether lower interchange would affect pricing for bank products, one reader questioned the argument that merchants would pass on their savings to shoppers. "Consumers will not win but ultimately may not lose much either," this person commented. "Merchants want to reduce interchange fees because it increases their margins. That will give merchants more leeway to cut prices at times and increase profits at other times. There certainly is not going to be an immediate 2% cut in retail prices at all retailers." And in case you missed it, check out consultant John Costa's satirical take on the interchange wars, "The Merchant and the King," which sparked a lively debate among readers involving imaginary bushels of corn and burlap dresses.
Regulation vs. Innovation: American Banker Reporter Sean Sposito's blockbuster story showing how California's Money Transmission Act blocked a payments innovator from getting off the ground scratched the surface of a major issue, one reader commented. "A bigger question than whether California authorities are overstepping their bounds or are inhibiting innovation is how regulation of financial services companies will occur in the future. As the fintech world splinters with both traditional and non-traditional players participating, there needs to be centralized regulatory governance.
If each state is allowed to set their own rules, fractured compliance will dissuade new players from entering the fintech space and the consumer will lose." Another commenter concurred that balkanized regulation is inappropriate for nationwide businesses, but cautioned that some supervision is necessary for new companies in the financial sphere. "Regulators should set high bars for allowing any business to hold funds belonging to other people." And a commenter on Reddit had a hard time sympathizing with Aaron Greenspan, the famously litigious founder of FaceCash profiled in Sposito's article. "I know he thinks this is a good way to achieve his mission, but there's a lot of collateral damage here," the Redditor wrote, referring to the litany of other tech companies named as defendants in suits Greenspan has filed.
Compliance Potpourri: Abby McCloskey of the American Enterprise Institute criticized the Dodd-Frank Act's criteria for determining whether a bank is "systemically important." Or rather, its criterion, since there's only one: size. As a result, regional banks are needlessly subjected to the heightened regulatory requirements for SIFIs. "No one thinks PNC or Zions Bank pose an existential danger to the U.S. economy," she wrote. "The Federal Deposit Insurance Corp. could handle their failure in a weekend." Congress should dispense with the "arbitrary" $50 billion in assets threshold for banks and determine a bank's systemic risk according to factors like interconnectedness and liquidity, as Dodd-Frank already does for nonbanks, McCloskey wrote.
Alazane Solis of Enterprise Community Partners called the Corker-Warner bill a good first step on the road to housing finance reform, but wrote that it needs to provide more assistance to the multifamily market, the underserved segments of society and troubled borrowers.
Do Bank Mergers Work? No, says Harvard Winters, pointing to lackluster results of big transactions. Yes, says Philip Timyan, noting that for shareholders of struggling banks, being acquired is better than being seized by regulators on a Friday. What do you think? Vote in our reader poll on American Banker's homepage, on the right hand side about halfway down.
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