I was watching Anthony Albanese's video here on excessive card surcharges. He argues that it is unfair that because one pays in cash, the coffee is $5; with a debit card, it is $5.10. He thinks this is unfair. His solution is to ban debit card surcharges.
To understand the full implications of this policy, we need to examine its effects on consumers and businesses on this clearly well-intentioned policy.
The Consumer Perspective
Let us start with a positive: removing debt surcharges will improve the shopping experience by eliminating unexpected costs at checkout, potentially increasing consumer satisfaction.
However, as card payments have become increasingly popular if the cost of both cash and card transactions must be the same, it would be $5.10. This means that cash users now pay more.
Cash transactions are cheaper because they are more profitable for the merchant. After all, they do not have bank fees. Why shouldn't a consumer benefit from that? As cash is now a good solution, it has nothing wrong; even with our advanced banking system, it's still the most cost-effective way of conducting business.
Banking System Effects
Banning consumer surcharges doesn't eliminate these debt costs. Someone will pay them, as they are not magically going to disappear.
With retail surcharges banned, they become hidden fees. Banks will see an opportunity to increase them. After all, if the public does not know of these fees, there's less pressure on banks to keep fees competitive. It would lead to even higher debt costs.
Business Implications
Due to their limited bargaining power, we see small businesses are charged higher merchant fees than larger companies. Banning surcharges would worsen this disparity, giving larger firms a competitive advantage and making it even harder for small businesses to compete.
A debit card fee isn't just a transaction between a business and a bank. It results from a complex network of banks, payment processors, and other financial institutions, and there is no simple solution.
Conclusion
If I have a crack in the wall, painting over it does not address the problem of what is causing it. Similarly, these debit card fees are not the cause of the problem but the result of their existence.
Cash now is a good solution.
Although the ideas behind banning debit card surcharges are commendable, the broader implications must be considered. Instead of a quick solution that may negatively impact small businesses and potentially raise prices for all consumers, we should pursue a comprehensive approach that addresses the underlying issues within our payment system.
Cost Shifting is not Cost Elimination!
