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Ceterum censeo Muralem esse delendam Viam(*)

By Owen Paine on Wednesday January 6, 2010 10:53 PM

The cost of keeping the commanding heights private property, episode 79: guest star, James Kwak of Baseline Scenario:

" Visa has been increasing its market share by increasing the prices it charges to merchants; it takes those higher transaction fees and passes some of them on to banks ... giving them an incentive to promote Visa debit cards over other forms of debit cards. Not only that, there are different fees on debit cards depending on whether you use them like a credit card (signing for them) or like an ATM card (entering a PIN). Signing costs the merchant more, so the banks and Visa give you incentives to sign instead of using a PIN. The end result is higher costs for merchants, who pass them on to you.

Ordinarily this should create the opportunity for a new entrant (say, NewCard) to offer lower fees. But there are three problems.... First, individual customers would have no incentive to use NewCard rather than Visa, since any savings get distributed across all customers of a given merchant (through lower prices). Second, there are massive technological and marketing barriers to entry. Third, even if merchants and customers want NewCard, the banks–the distributors of debit cards–don’t."

"Tell me again, how does this benefit society? Theoretically having a couple of big transaction processing networks could lower costs... because of economies of scale. But we’re probably talking a couple of pennies per transaction there, while the fees that Visa charges are an order of magnitude bigger... It struck me that I have in the past cited the debit card as an example of a beneficial financial innovation.... But I’m not sure those benefits are worth the amount that the networks and the banks are sucking out of the system (resulting in higher prices for everyone)."

We need a Gosplan for hi-fi -- and we won't get one this side of the Red harvest moon.


(*) And foidermoah: I t'ink Wall Street must be destroyed.

Comments (1)


far from a gosplan

but here are some obvious reg changes
we won't likely see
despite analogues in other regulated or formerly regulated commercial grid systems

"massive technological and marketing barriers to entry"

free access to any payments grid
for new card systems and no quantity discounting to various card systems

"no incentive to use NewCard rather than Visa"
all card systems by law
100 % pass forward algorithms
ie customer benefits only
no feed back payments to banks
no special quantity discounts to large
merchant users

"even if merchants and customers want NewCard, the banks–the distributors of debit cards–don’t"

banks must offer all cards requested by depositor and availible to the depositor
at other local banks

a full entry card system exchange
could broaden the local access to card systems
choice of bank and choice of card system ought to be independent

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