Debit cards act as electronic checks, transferring funds from a customer's bank account to the merchant's account. Historically, debit card transactions involved manual processing that took days and was prone to fraud, but electronic processing now clears funds within seconds while nearly eliminating fraud. However, Visa and MasterCard's control of the debit card networks allows them to set high "interchange fees" on transactions that are largely passed back to the large banks. This lack of competition has kept fees high despite improved efficiency, harming merchants and consumers. The Durbin Amendment aimed to limit these fees but was resisted by banks through lobbying and new fees.

1. Debit Cards
and
YOU
July, 2011

2. How do Payments work
Customer

3. How do Payments work
Customer
In a Nutshell

4. How do Payments work
Customer
In a Nutshell
Debit Cards act as an “electronic check”
as funds move from your bank account to
the Merchant’s account.
Making Debit more secure for you and
more efficient for your bank. (less teller/atm
exchanges/no check processing)

5. Back in the Day
(when Pea Green was cool…)

6. Back in the Day
(when Pea Green was cool…)
To access your funds for payment,
your Cards/Checks were processed
manually

7. Back in the Day
(when Pea Green was cool…)
To access your funds for payment,
your Cards/Checks were processed
manually
This led to an inordinate amount of waste as manual handling was
involved which led to DAYS for funds to be processed and also led
to fraudulent transactions

8. Back in the Day
(when Pea Green was cool…)
Interchange was introduced to protect banks from fraud risk associated
with paper-based credit card system. 80% of the cost covered Fraud.

9. Back in the Day
(when Pea Green was cool…)
Interchange was introduced to protect banks from fraud risk associated
with paper-based credit card system. 80% of the cost covered Fraud.
Interchange became a ‘per-transaction’
fee the merchant paid based on the
method of consumer payment

10. Today…

11. Today…
Manual processing is replaced with
electronic funds transfers via Point-of-Sales
terminals.
Funds no longer take DAYS to clear, but
SECONDS
Fraud is nearly eliminated

12. So… what about the
cost

13. So… what about the
cost
When you
swipe
your
card…

14. So… what about the
cost
When you
swipe
your
card…
The Transaction is
processed over a
‘Network’

15. So… what about the
cost VISA and MasterCard OWN the
Networks that process over 85%
of all Debit Card Transactions
When you
swipe
your
card…
The Transaction is
processed over a
‘Network’

16. So what’s the
impact of having
superior market
control?

17. My good boy, “when two
companies control a large
proportion of a market, this is
called a DOUPOLY.
The most commonly cited duopoly is
that between VISA and
MASTERCARD, who between them
control a large proportion of the
electronic payment processing market.”

18. So what?
I thought the payment
industry is now more
efficient…

19. Unless you ascribe to Soviet Economics,
CAPITALISM thrives on COMPETITION

20. Unless you ascribe to Soviet Economics,
CAPITALISM thrives on COMPETITION
2 of the largest
Card Brands
VISA MasterCard
Control
80%
of Revenue

21. Unless you ascribe to Soviet Economics,
CAPITALISM thrives on COMPETITION
2 of the largest Visa and MasterCard’s major clients
are big banks.
Card Brands
VISA MasterCard
Control
80%
of Revenue

22. Unless you ascribe to Soviet Economics,
CAPITALISM thrives on COMPETITION
2 of the largest Visa and MasterCard’s major clients
are big banks.
Card Brands
VISA MasterCard 5 of the largest banks control…
Bank of America Capital One
Control
80%
CHASE Citi HSBC
of Revenue
90%
of Revenue

23. In theory, in a purely competitive market, prices should
decrease and quality should improve.

24. In theory, in a purely competitive market, prices should
decrease and quality should improve.
In the case of the Payment Industry, VISA and MasterCard want YOU
as a cardholder. To get to you, they have to go to the bank.
VISA MasterCard
Bank of America
(members… you)

25. In theory, in a purely competitive market, prices should
decrease and quality should improve.
In the case of the Payment Industry, VISA and MasterCard want
YOU as a cardholder. To get to you, they have to go to the
bank.
VISA MasterCard
Bank of America
(members… you)
To get an exclusive contract with the Bank, Visa and
MasterCard sweeten the deal…
VISA offers $4, MasterCard offers $5… on and on it goes…

26. To fund these EXCLUSIVE contracts with the issuing banks, Card
Brands funnel Interchange fees back to the banks.

27. To fund these EXCLUSIVE contracts with the issuing banks, Card
Brands funnel Interchange fees back to the banks.
1971
*Proportion of Interchange Fee going to….

28. To fund these EXCLUSIVE contracts with the issuing banks, Card
Brands funnel Interchange fees back to the banks.
1971 2011
*Proportion of Interchange Fee going to….

29. THAT’S HOW
WHACK! DOES
IT
WORK?

30. Economics of the
Transaction
The Merchant establishes the
business relationship with YOU.
You CHOOSE to buy from the
Merchant based on factors such as
service and price.
What value do you place on the
Banker being involved with the
transaction…

31. ISSUE ONLY “And I’ll give x% of the
MY CARD
Transaction Fee”
The CARD BRAND
The BANKER
You can only
have this
Brand Card $10
The MERCHANT The CUSTOMER

32. ISSUE ONLY “And I’ll give x% of the
MY CARD
Transaction Fee”
The CARD BRAND
The BANKER
You can only
have this
Brand Card $10
The MERCHANT The CUSTOMER

33. ISSUE ONLY “And I’ll give x% of the
MY CARD
Transaction Fee”
The CARD BRAND
The BANKER
You can only
have this
Brand Card $10
$1,000
“OMG! I love this!”
The MERCHANT The CUSTOMER

34. $35
The CARD BRAND
$5
The BANKER
$40
Interchange Fee
You can only
have this
Brand Card $10
$960 $1,000
The MERCHANT The CUSTOMER

35. $35
The CARD BRAND
$5
The BANKER
Would you pay $40 to have the
$40 ability to use a major card brand?
$10
$960 $1,000
The MERCHANT The CUSTOMER

36. $35
The CARD BRAND
$5
The BANKER
Would you pay $40 to have the
$40 ability to use a major card brand?
(why would a merchant?)
$10
$960 $1,000
The MERCHANT The CUSTOMER

37. Question: You sell two products. One costs $10
and the other $1,000

38. Question: You sell two products. One costs $10
and the other $1,000

39. Question: You sell two products. One costs $10
and the other $1,000
If the customer has funds in her account, why should
it cost you (the seller) $0.10 on a $10 Transaction and
$10.00 on a $1,000 transaction when the payment
process is the same for each?

40. Question: You sell two products. One costs $10
and the other $1,000
If the customer has funds in her account, why should
it cost you (the seller) $0.10 on a $10 Transaction and
$10.00 on a $1,000 transaction when the payment
process is the same for each?
Credit Risk…
There is an immediate response if the customer is unable to pay.

41. Question: You sell two products. One costs $10
and the other $1,000
If the customer has funds in her account, why should
it cost you (the seller) $0.10 on a $10 Transaction and
$10.00 on a $1,000 transaction when the payment
process is the same for each?
Credit Risk…
There is an immediate response if the customer is unable to pay.
Fraud?! Good question!

42. Fraud in Debit Card Transactions:

43. Fraud in Debit Card Transactions:
Besides cash, Debit is one of the most ‘risk-free’ forms of payment.
There are two forms of Debit Cards

44. Fraud in Debit Card Transactions:
Besides cash, Debit is one of the most ‘risk-free’ forms of payment.
There are two forms of Debit Cards
Signature PIN
Debit Debit

45. Fraud in Debit Card Transactions:
Besides cash, Debit is one of the most ‘risk-free’ forms of payment.
There are two forms of Debit Cards
Signature PIN
Debit Debit
You enter a secure pin to transact
You sign for the transaction payment. THE MOST SECURE FORM of
PAYMENT.

46. Fraud in Debit Card Transactions:
Besides cash, Debit is one of the most ‘risk-free’ forms of payment.
There are two forms of Debit Cards
Signature PIN
Debit Debit
You enter a secure pin to transact
You sign for the transaction payment. THE MOST SECURE FORM of
PAYMENT.
Signature Debit has a higher
Interchange rate vs PIN Debit.

47. Fraud in Debit Card Transactions:
Besides cash, Debit is one of the most ‘risk-free’ forms of payment.
There are two forms of Debit Cards
Signature PIN
Debit Debit
You enter a secure pin to transact
You sign for the transaction payment. THE MOST SECURE FORM of
PAYMENT.
Signature Debit has a higher
Interchange rate vs PIN Debit.
Do you know what card Banks push you to use???

48. Enter:
The Durbin
Amendment

49. Enter:
The Durbin
Amendment
In 2010, the Durbin Amendment was
included in the Financial Reform Bill.
Unfortunately, the US Government is the
option of last resort to respond to
anti-competitive practices by the Card
Brands and the largest Banks.
The Durbin Amendment would
implement a ‘cap’ on per transaction
interchange fees

50. Nice to see
you again,
Bankers
Bankers’
response to
the Durbin
Amendment

52. BANK CEOS: “If you slash merchant
swipe fees for debit cards, we’ll have to
implement (insert onerous consumer
burden).”

53. BANK CEOS: “If you slash merchant
swipe fees for debit cards, we’ll have to
implement (insert onerous consumer
burden).”
The latest installment of the posturing game features per-transaction spending caps on
debit cards.
Regardless of the amount of money in a consumer’s checking account, their credit
history, or the type of transaction, major banks such as Chase, Citigroup and Bank of
America are threatening to limit debit card spending to between $50 and $100 a pop.

54. Exposing the Hidden
GREED in the
Payment Industry

55. Exposing the Hidden
GREED in the
Payment Industry
CHASE Bank informed its customers via mail that the
Ultimate Rewards Debit Card program is being discontinued
effective July 19, 2011 due to a “recently enacted law known
as the Durbin Amendment.”
No further explanation of why the bank has blamed the
Amendment for its demise

56. Bankers’ Best Friends….

57. Bankers’ Best Friends….
D.C. Lawmakers

58. Bankers’ Best Friends….
D.C. Lawmakers
“Wall Street Government”
-Robert Gnaizda
FEC FILING OF THE DAY: BANKERS GO BIG -- The American Bankers Association
gave $234,764 to lawmakers in March, 2011.

59. Bankers’ Best Friends….
D.C. Lawmakers
“Wall Street Government”
-Robert Gnaizda
FEC FILING OF THE DAY: BANKERS GO BIG -- The American Bankers Association
gave $234,764 to lawmakers in March, 2011.
Total Lobbying by Financial Institutions
outspend all other lobbying efforts 500-to-1.

60. D.C. is insulating Banks’ cartel over
the payment industry

61. D.C. is insulating Banks’ cartel over
the payment industry
International comparison:
American businesses, especially small ones, pay
more to process cards than those in other
nations.

63. Washington is being bought by Bank of America, Chase, Citi,
HSBC, and Capital One. These banks are starting to implement
outrageous banking fees on their members “due to the Durbin
Amendment” (with no explanation of why the Amendment was
created).
WWW.UNFAIRCREDITCARDFEES.COM
Side note: if you’re not totally convinced about the Bank/DC relationship, check out
the movie “Inside Job”