An unsolicited card arrived in the mail today from the bank.

It's called a VISA Debit card and can be used to make cash purchases by debiting directly from my chequing account. The brochure says it doesn't affect my current debit limit....in fact it can be used for limitless debits. And, I will never pay a fee.

Hmmmmm.

I already have a bank card for debit purchases and I never pay a fee because I never exceed the limit. So why would the bank think I need something called a VISA Debit Card to do the same thing?

Hmmmmm.

Could it be that the bank plans to extract a fee from the retailer every time a VISA Debit Card is used, the same way they charge a fee for a credit card purchase? Am I just being cynical?

Whatever the answer, it's not a card I'll be initializing any time soon. In fact, I may just send it back to the bank.

It is most certainly a card that will extract a fee from the retailer! The bank is looking for ways to increase their revenue to offset losses in other areas so they can continue to pay obscene salaries and bonuses to the bank's CEO.

The various fees (and parties) charged depend on the type and location (in or outside of your bank's network) of your debit card transaction. A Visa debit card can effectively be used wherever there is a Visa network POS terminal or ATM, often in contrast to a 'regular' bank ATM card. But if that bank card can be used on Visa type networks, you're usually charged a fee for the ATM privilege. Likewise, the merchant is charged for your debit purchases, depending on the type of the transaction (PIN or signature).

The following links provide some debit card background and usage details:

- How Visa, Using Card Fees, Dominates a Market
- ATM/Debit Card Facts


PS, FWIW, I fully agree with Joemikeb's sentiment regarding the obscene remuneration practices of bank moguls. If I had an audience like Marcus Porcius Cato, I might even consider a relevant and appropriate speech-concluding statement like he did to great effect...

My bank issued me a Visa Debit card. It works either way, with no fees. There is a difference to the retailers though, the margin they pay to the card processing is a little lower if they run it as debit. So really anytime I "charge" something, be it run as debit or credit, it comes directly out of my account. (functions as a debit card for all intent for me)

I like my bank. They're a former credit union. They give me a token interest on my checking, and higher interest rate on my savings balance. I keep all my money in the savings, and it "overdraft protect transfers" to my checking for anything I charge or bill, with no fees. I think that's their way of giving me a higher interest rate on what is effectively my checking account. None of the usual fees, very small overdraft and stop-check fees, free ATMs all over town. Can take out secured loans against my CDs at extremely low interest rates.

In a settlement that will likely shift (part of) the cost of card payment fees from merchants to customers, MasterCard, Visa and major card issuing banks agreed to pay at least $6 billion to suing retailers, who currently pay about $40 billion annually in such fees.

That's an interesting spin from the American Bankers Association President, Frank Keating: “Let’s be clear — retailers, not consumers, benefit from today’s resolution.”

Right, Frank. The banks are now concerned about consumers, not about the fact that you'll be scooping fewer billions.

It'll be interesting to see how this unfolds. For example, as I understand it, retailers are charged a premium fee for people who use premium cards (the ones that give extra points, et cetera). These are also the cards that the banks charge the customer an annual fee to have.

If the retailers deal with these cards first, and charge extra for a premium card purchase, a lot of users are going to do the math and find that ongoing purchase fees, plus an annual fee to the bank, make extra points less appealing.

The banks are likely to find that they'll now be getting a lot fewer of those annual premium card fees.

Personally, I think if the retailers associations were smart they'd come out with a card of their own that encourages cash spending. It would return to the cash customer the credit card fee that is built into the cost of the item. It could work like this.

The consumer has a card called "Just Cash" which is supported by retailers. Consumers would know which retailers offer the saving because there'd be stickers at the door, the same as there are for credit cards.

When the consumer makes a purchase, and this card is swiped, the cost of the transaction is reduced by the amount of the fee that would otherwise have gone to the credit card company.

The retailer nets the same amount they would have got by paying a fee to the credit card company, and the consumer gets a reward for using cash. Win-win.

Edit: Just thought....if the retailer associations were even smarter, they'd split the savings with the consumer, perhaps taking 1/20th for themselves. Via the card swipe, the 1/20th would be remitted to the retailers association. On millions of transactions, the association could build a substantial financial war chest for future fights with the fat cat banks.

Of course, the fly in the ointment of your suggestion is the fact that those "Just Cash" payments still have to be processed by someone, and as the retailer associations don't have the wherewithal to do that themselves, they'll have to farm it out for a fee, most likely to the already established system of MasterCard, Visa etc.

Many years ago merchants tried several schemes such as reduced prices, discounts for cash transactions, surcharges for the use of credit cards, etc.. The credit card companies countered by suspending the merchant's credit card accounts and by bringing suit for violation of contract. This was litigated, as I recall all the way to the United States Supreme Court, and the merchants lost at every turn because these practices were a patent violation of the contracts the merchants had/have with the credit card companies. Some merchants elected to go without accepting credit cards, which is of course their privilege, but the loss of consumer business either forced the merchants out of business or forced them to eat the credit card expense as a cost of doing business.

The Discover Card was launched by Sears Roebuck and a few other major merchants in an effort to recover the credit card charges, but they have never had enough market penetration to give serious competition to American Express, Mastercard , or Visa and even the merchants that started the Discover Card found they had to accept the competition's cards in order to survive in the market.

The merchant's contract with the banks and credit card companies is such that if a merchant declines to accept a premium card they will be unable to accept any credit card from that company and few, if any, merchants can afford to give up either Visa or Mastercard. A few decline to accept American Express because they are notoriously slow to pay, but even those are few and far between.

That's quite shocking....that two parties can have a contract between them that works against the financial interest of a third party - the person who chooses to pay cash. That person is paying for a service they do not receive when the cost of credit cards is built into the retail price.

I have a credit card merchant account, so I can speak to some of the difficulties merchants have with them.

I don't accept American Express, because they charge *significantly* higher fees than Visa and MasterCard, and those guys already have fees that are quite high enough, thank you.

If you're a retailer in the US, you pretty much need to be able to accept credit cards in order to survive. The credit card companies have you over a barrel, and they know it. So they use every trick in the book to squeeze every last dime out of merchants they can, on top of squeezing consumers for gobs of money as well. (They routinely charge interest rates that would have been criminal in times past. In the 80s, Congress passed a law saying that no state could make or enforce any usury law that applied to interstate entities like banks. At the time, most states outlawed charging interest above 8%. Those days are gone!)

Merchants pay a fixed fee plus a percentage for each transaction. In addition, we pay a monthly fee for each type of card we accept, and for electronic transactions (swipe cards or Internet) a monthly fee for the electronic payment gateway as well.

Most merchant contracts forbid charging less for cash than for credit, except in certain industries like gas stations. (Stores that do charge less for cash, or a fee for credit? Most times, if you call the 800 number on your credit card and report it, the store will lose their merchant account.) They also forbid taking some cards of a given type but not others; if you take Visa, you have to take ALL Visa cards, even "premium" cards with high fees.

If a card is stolen and used at your store, when the card owner does a chargeback, the money is taken out of your account. In addition, the credit card underwriter ALSO charges a "chargeback fee," which can be anywhere from $35 to $90 or more. So as the merchant, you lose the money,, you lose the merchandise, and you get hit with a fee. Chargeback fees are a substantial part of the revenue stream of the underwriters, which is why they don't do more fraud protection than they do. If you get hit with more than a certain number of chargebacks in a year, your fees and rate get hiked, even if none of the chargebacks are your fault.

On the consumer side, Federal statutes limit the consumers loss from stolen CREDIT cards — or card numbers — to $50. The consumer has NO protection from DEBIT card losses other than whatever the issuing bank may recover or may choose to recover from the merchants. The consumer's loss risk for a debit card is their entire net worth.

A friend had his debit card NUMBER stolen when he used it to purchase gasoline at a service station. The thief printed up a new debit card with my friend's number and used the faked card to make over $40,000 in purchases before it was caught. When asked to put in the PIN number the thief had a good story about its being a new card and having problems remembering the PIN number so the merchants obligingly overrode the PIN number entry to approve the purchase/cash withdrawal. The bank's fraud department was eventually able to recover about $30,000 from the merchants — mostly computer and electronics stores and Victoria's Secret — in those cases where the PIN number entry had been overridden by the merchant so my friend's eventual loss was only a little over $10,000 but the obliging merchants ate the $30,000 loss.

In another case I know of the issuing bank suggested the customer file lawsuits against each of the merchants to recover her money and promptly cancelled her debit AND credit cards with a notation to the credit bureaus that made it nearly impossible for her to get anything but "Cash" cards. It took this person nearly a year to eventually clear up the record and get any credit at all.

not always that case. Some people still pay with cash and check. (tho probably the majority of that is people with poor/no credit) Those people are paying the same price for the product. So only MOST of it is built into the purchase price for the credit card users. The ones paying with cash are unwittingly contributing a little bit to that service they are not using, due to the "no cash discounts" rule.

But I thought the credit card companies' main cash cow were the "revolvers" - customers that carried a balance and thus were getting charged interest? Not the merchants?

Remember there are multiple layers of profit making entities that must be served here. The banks that issue the Credit/Debit cards make their money from the "Revolvers" as you called them. (A banker friend calls people who pay their credit card bill in full each month "deadbeats".) Visa and Mastercard on the other hand make their money from the transaction fees charged to the merchants. American Express, Diners Club, Discover, etc. cards are issued directly to the consumer and there is no intermediary bank. The majority of American Express cards are paid off each month so there are not many floaters, which means the bulk of their revenue stream comes from renewal fees and merchant fees plus whatever income stream is generated through ancillary services such as travel arrangements and investment services.

As a "deadbeat" I have to admit I take some pleasure in learning that my behaviour aggravates the bank.


Unless I misunderstand what you're saying, I believe it's a bit more complicated and much more to the advantage of the bank or company whose name is on the card, according to an article I read. I don't recall exactly where I read the article (or I'd provide the link) but this is the understanding I got from it.

The credit card companies (VISA, MasterCard, et al) make their living acting as the gatekeeper and take a fixed toll fee every time a card is used. It is in their interest to increase the number of tolls, and one way is by increasing the number of host banks or companies that use their toll booth.

The other transaction fees, although set and collected by the toll booth, actually go to the bank or company whose name is on the card. And, that's where it really works against the retailer.

For example, if VISA and MasterCard are both competing to be the credit card for The Bob and Mary Bank (TBMB) they need to show TBMB that their card will bring greater profits. Therefore the card offering the higher transaction fees is more likely to win TBMB's business.

The huge amount of money from those transaction fees has not been lost on companies other than banks, which would explain why so many are now promoting their own credit cards. I assume that purchases at their store are a wash but they collect a pile for purchases made in other stores.

Look very closely at those cards and you will see that although it may say AcmeCard on the front if you read the fine print it is still a Visa or Mastercard. Large enough merchants may have setup their own captive bank to handle the financial transactions or they may have an agreement with one of the "too big to fail" banks to act as the intermediary financial institution. But rest assured there is a banking entity involved.

Oil companies and major chain stores had their own in house credit cards for purchases only at their stores long before Visa/Mastercard/AMEX/et. al. were on the scene. But in the last few years many of those in house cards were converted to Visa or Mastercard, in some cases even without the customer's permission or knowledge. That may have proven to not be viable however as I have recently noticed some of those companies are once again offering their own brand specific credit cards instead of a Brand X Visa card. Maybe the bank's merchant fees were too steep?

> The majority of American Express cards are paid off each month so there are not many floaters, which means the bulk of their revenue stream comes from renewal fees and merchant fees plus whatever income stream is generated through ancillary services such as travel arrangements and investment services

The American Express card was initially a charge card, and cardholders were required to pay their bills in full every month; it first became a credit card in recent years. (The Optima card, which was introduced in 1987, was AmEx's first credit card.)

I doubt that it still holds true (Edit: to the same degree), but at one point AmEx derived a substantial portion of its income from the float on the travelers checks people throw in their dresser drawer when they return from a trip that lay there until their next trip.

I have been an American Express card "member" for over thirty years precisely because I HAD to pay in full at the end of each month. That way I was never tempted to get into major card debt. I still think that is a good idea.

I was an AmEx cardholder from the late sixties until the late seventies...a purple card for the first few years, and I was perfectly happy to (have to) pay my entire balance every month, as I now do with my MasterCard, "deadbeat" that I am.

I recall, probably in the early 70's, reading an article about the "cash float" that American Express always sat on. It included the phenomenon you mentioned as well as the fact that there was a delay between the time travellers bought the checks, actually spent them, and the point when retailers processed them for payment.

At any given time, American Express was sitting on a float of $2 billion, and that was 40 years ago so you can imagine what it meant. I remember thinking that they didn't even need to charge the 10%, or whatever it was, for the travellers checks.

I've had my Amex about as long as you; it was my first card and enabled me to start establishing my credit. I don't think anyone's mentioned their hefty membership fees which must contribute something to their bottom line.

I've noticed, however, over the past couple of years that more and more places are accepting Amex, which must indicate that the bank cards have become more onerous to merchants.