Again, another news blurb without clarification: Maybe three weeks ago now, there was a news story about Wal-Mart suing Visa and MasterCard regarding charges to retailers whenever consumers use their debit cards??? I couldn’t make heads or tails out of the story. However, MasterCard settled out of court at the last possible moment, as Visa had already lost their case, IIRC. Can someone help fill me in? What was all the hub-bub, bub??? - Jinx
Here’s the gist of it: It’s more expensive for Wal-Mart and other retailers who take debit cards to have the cards processed through Visa/Mastercard’s system, and much cheaper to have them ran throught the debit system. (If you sign your name, you’re using Visa/Mastercard’s system, if you punch in your PIN, then you’re using the debit system.) Visa/Mastercard insisted that Wal-Mart, et. al. that if the card had the Visa/Mastercard logo on it, it be processed using the Visa/Mastercard system. Wal-Mart and others disagreed, took Visa/Mastercard to court over the matter. Visa/Mastercard did a lot of flag waving about how they were looking out for the consumer, blah, blah, blah. A few days before the case was scheduled to go to court, Mastercard bailed on Visa and settled out of court with Wal-Mart. Visa vowed to fight the good fight, and then promptly settled out of court as well the day before it was to go to court.
I searched google news and found this and this that indicate there was a settlement reached with Mastercard and Visa from a class-action suit (Walmart, Sears and "other retailers) regarding merchant fees.
I’ll note (on a minor tangent) that with my Visa debit, my bank charges me for a debit purchase at stores like Wal-Mart, but not for a credit purchase. When the choice is between me paying my bank, or Wal-Mart paying Visa, you better believe I’m using it as a credit card anyway.
Are those kinds of charges due to the bank being charged by Visa - perhaps as incentive to get the customers to do exactly what I am doing?
The difference in fees is major. A debit transaction will generally run the retailer under 10 cents, while the credit transactions are about 2% of the total purchase. So, if you go and buy $100 worth of stuff and use the debit card, the retailer has to pay about 10 cents. If you use the credit card, the retailer has to pay about $2. You can see how quickly these fees can cut into revenues.
Then it seems like it would be advantageous to the retailer to somehow reduce the amount the consumer pays on debit transactions - by paying them? Refunds? I’m not sure how practical it is to implement. In the example asterion gives, though, if I was avoiding the debit card to avoid a 50 cent transaction fee, but Wal-Mart paid it instead, it would cost them a net of 60 cents instead of $2. Obviously, there’s a purchase point where the reverse is cheaper. (But I wonder if the credit cards don’t have a minimum transaction fee on them anyway, which would eliminate this.)
The merchant account contracts for retailers who wish to accept credit cards forbid them from establishing a minimum purchase or price differential for credit card purchases. AFAIK, nobody has tried to sue over that yet …
I’ve never noticed (or looked for) this debit card transaction fee on my bank statement. What does it amount to?
Thanks, all! Tuckerfan, I had heard this, too, but: a) How the heck can the card reader know if there’s a logo on my card, in the first place? b) I thought ALL cards have these logos, nowadays?
I don’t use, and have never seen, a debit card…so maybe I’m wrong? - Jinx 
Not all cards have that logo and those that do, have an encoding in the magnetic strip which tells the card reader what they are.
I would expect that it’s specific to your bank. Mine charges 50 cents per debit transaction, but has no charge per credit card transaction. It’s listed in a few lines at the end of each bank statement. The charge schedule was spelled out in the account agreements we were given from the bank.
The only times we end up using the debit transaction are when we’re in a hurry and want cash back somewhere (we can get this from our debit transactions, but not from the credit transaction), and don’t want to take the time to go by the bank’s ATM.
Wow, I’ve never had a debit card that had associated fees from me directly to the bank.
The bank is also getting the processing fee that the store has to pay. There isn’t any reason to charge the consumer again.
The only reason I can think for a bank to do this would be if their debit card product is a rebranded purchase from another bank (large banks do big business letting smaller banks resell their services with a different picture on the letter head), and they were somehow excluded from the fee revenue that the cards generate through direct charges to the merchants.
SOMETIMES, it’s specific to your bank. Let’s say I banked with 1st Bank of Ohio, and I went to Walmart did a debit transaction that went throught the STAR ATM network.
My bank MAY or MAY NOT charge me a fee for the privilege of performing a debit transaction using their banking facilities. Let’s say that it was .50.
However, in addition, the STAR ATM network, might charge, for example, .35 per transaction that passes through it, much like the Jersey Turnpike charges cars that pass through.
These transit fees are also something to watch out for at ATM machines… and they may cause you to wind up paying for a transaction at a “surcharge-free” ATM machine, even if your bank is disinterested in charging you per debit transaction.
In the end, I would wind up paying $.85 in addition to the purchase price for this transaction.
Depending on how my bank itemizes my monthly statement, the fees may show up alongside my regular purchase, or they may get lumped in in another category.
To put this oversimplistically, banks charge you when you make them do stuff.
A face-to-face transaction with a teller takes an average of two minutes. The teller gets paid let’s say 7/hr.
So, it costs them just under .25 each and every time you withdraw or deposit cash in person, on average. And of course we haven’t even discussed idle time for tellers, or benefits.
In order to be profitable, they’d have to charge you at least $.25, possibly more, for each face to face transaction.
ATM machines cost $5K-$40K new. They last for years, but do cost money to keep operating. It costs money to operate them as well.
Mainframes that keep track of account balances have prices in the hundreds of thousands, sometimes the millions.
Mainframe operators and sysadmins all cost substantial amounts. And of course banks have a lot of dead weight, including real estate, regulatory officers, fraud, etc.
In the end, any transaction costs them some money. The issue is how much it costs you to bank with a given financial institution at the end of the year, not whether their fees are for stupid reasons.
If a given bank is cheaper than another and provides an equivalent product or service, then you should use it.
If it ISN’T the best deal after you account for your usage of it, though, you should walk.
This is why right now I bank with two separate credit unions. I keep my savings in the one with the good APRs, and I keep the checking account that I pull cash money out of in the one that offers free ATM access (going through NO network but its own).
Banks aren’t free to operate. Complaining about service fees is silly, just don’t bank anywhere that has unreasonable ones.
I would actually be happier with a bank that had service fees that very closely reflected activity costs attached to all transactions, and had higher interest rates paid on my deposits.
All right, if the debit transaction is markedly less expensive than the credit transaction (for the retailer; 10 cents versus 2 dollars), then I have the following question, which might not make sense:
Credit cards have been around a long time. How come retailers haven’t complained before about each transaction costing them 2%? Or am I missing something important here?
It is not that the transaction costs them 2% if the customer uses a credit card that bothers the retailers. They are willing to pay 2% in exchange for more volume.
But when the customer could either use Debit (10 cents) or Credit (typically 35 cents plus just under 2%) on the same card, the retailer would prefer to be able to FORCE the customer to use the Debit option. The retailers rightly believe that they gain nothing by using Visa Debit versus using ATM debit in this situation
But if you had forced the customer in such a fashion prior to this settlement, the credit card company would basically remove your ability to charge credit cards OR debit cards.
Part of this stems from the fact that let’s say, for example, Best Buy knows that many customers will buy more expensive electronics if they don’t have to pay immediately for them, than they would if they had to pay immediately. I might get a 40" instead of a 25" TV because I can stretch payments out over 3 months. And their margin covers the 2% hit.
On a side note, VISA and Mastercard have about the same fees. Discover is pricier, and American Express is even more expensive than Discover. That’s one reason some stores are reluctant to take American Express.
Okay, so if I just gave them my credit card and used that, they wouldn’t mind - but if I gave them my debit card, they’d want me to use it as a debit card?
I understand what you’re saying, but logically their position would make sense only if there were no cards that were credit only. Right now, there are choices (1) credit card, (2a) bank debit card, and (2b) bank credit card; and the retailers want us to not use (2a). Is that right?
And if people want to use the credit card to stretch out the payments… well heck, what’s stopping them? They can get credit cards that allow them to do that; they don’t have to use the bank’s card.
—quote—
Okay, so if I just gave them my credit card and used that, they wouldn’t mind - but if I gave them my debit card, they’d want me to use it as a debit card?
—end quote—
Yes. And this little inconsistency you just demonstrated is, to me at least, proof positive that whole darned lawsuit is flat-out frivolous. The fact is though, that the stakes were so high that both Visa and Mastercard settled purely to stay out of harm’s way.
A judgement for the asking amount of the class (which includes TONS of merchants, not just Walmart) would have in fact bankrupted both Visa and Mastercard.
Many sites have speculated that Visa/MC COULD have won. But they chickened out, and I suppose if I was a shareholder I’d understand why.
As a consumer though, it kinda’ ticks me off.
—quote—
And if people want to use the credit card to stretch out the payments… well heck, what’s stopping them? They can get credit cards that allow them to do that; they don’t have to use the bank’s card.
—end quote—
I don’t quite understand what you’re getting at here… I thought I should tell you that, since I believe you may have been addressing me.
—quote—
I understand what you’re saying, but logically their position would make sense only if there were no cards that were credit only. Right now, there are choices (1) credit card, (2a) bank debit card, and (2b) bank credit card; and the retailers want us to not use (2a). Is that right?
—end quote—
HOLD UP. Now it makes sense to me.
Your not quite right. They don’t mind you using a credit card.
Here are your options…
- Credit Card, used AS a credit card
- Credit Card, used AS an ATM card
- Debit Card, used AS a credit card, meaning it acts like a real Visa, etc except it draws on real money rather than a line of credit
- Debit Card, used AS an ATM card.
- ATM card, used AS an ATM card.
Wal-Mart appears to like 1, 2, 4 and 5.
However, when you use 3, they’d rather you use 4, since it costs them less, and they know that typically you CAN use 4 in any situation in which you can use 3.
In general, 2, 4 and 5 would cost them less money. Typical cost might be around 10cents per transaction.
1 and 3 will likely cost approximately $.35/XACT plus .019 times the total amount of the goods and services purchased, depending on whether you use VISA, MC, Discover or Amex.
Small, low-volume merchants pay somewhat more for Credit card processing. Of course Wal-Mart will negotiate the absolute best possible price.