I could have made this a “Biggest and Bloatedest” post and I should have taken the opportunity back when it was fresh in my mind. But this is more of a rant on recent news. To summarize my B&B story, I said goodbye to Wells Fargo because after they sucked up Wachovia, they started tacking on fees all over the place. I never got hit with any, but who wants to live in a minefield? So I left for a credit union.
During my research of what bank to go to, I discovered that the “debit card usage fee” was more widespread than I initially thought. Again, this doesn’t affect me, but out of principle, this knocked a lot of banks out of the running. Bank of America is the latest one to start charging for debit card usage and all of a sudden it’s causing an uproar. Now the government wants to know if these fees are possibly illegal.
I’m not going to get into the legality of the new fees, but I’ve done a little thinking on it. I think more about the dickishness of the fees. The banks are saying this new regulation by the government will cost them about $7 billion a year. And to recover this money, they need to start charging customers money to access their money. This new regulation will cap the fee imposed per debit card transaction at 21 cents instead of an average of 44 cents.
So, the banks charge the card holders $5/mo to regain this money. This covers the cost of about 22 debit transactions a month per card user ($5/(.44-.21)). The card user loses out if they don’t make at least this many transactions, since they have to pay for it with even one transaction.
Disregarding all that, how do you quantify the cost of a transaction? It’s much the same thing with SMS messages on mobile plans. The cost is negligible. It costs the same to process one debit transaction as it does millions (within reason of course, you’d need faster servers, larger databases, higher bandwidth). But the point is, it’s all digital. Remember, the fee has been cut in half and the banks say they’ll lose $7 billion a year. There is no way it costs $14 billion every single year to process electronic transactions.
The big expenses would be labor and IT infrastructure. 20,000 employees making an average of $50,000 a year is one billion. Too small? 40,000 employees is $2 billion. Those are employees whose sole purpose is processing debit card transactions. There’s still 12 billion left to spend. You can’t argue the data centers, network connections, servers, and other IT equipment is the rest. That’s shared resources and would be an expense spread among departments. And that would be like buying a whole new infrastructure every year. Equipment is depreciated over many years. And I know from dealing with banks that they are not on the cutting edge of IT since they still use XP and Internet Explorer 6.0.
Now for another angle. The merchants are suddenly getting their debit card processing fees cut in half. Isn’t this wonderful for small businesses? Having millions of small business across the country suddenly getting a slight boost in profits, possibly being able to pass the savings to the consumer (blind optimism, yes). But instead, the banks refuse to take a cut in pay, despite everyone else sacrificing profits, income, and faith in their banks.
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