When Retailers Attack Banks, They’re Attacking Themselves

Back in the 1990s and 2000s Amazon’s valuation continued to rise despite quarter after quarter of losses. The answer to this seeming oddity was that investors were looking into the future, and the eventual ability of Amazon to turn a profit.

Crucial about this is that absent investor belief in its future, the Seattle giant wouldn’t exist today. Companies don’t run out of money as much as they run out of investor patience. Had it been expected that Amazon’s nifty retail innovation had no path to profitable operation, it’s safe to say the operation would have shut down long ago due to investors closing their checkbooks.

Consider this seeming statement of the obvious vis-à-vis banks. At present, the debit cards issued by them are the predominant way that their account holders access and spend their money. Stop and think about that.

Banks not only provide their customers with a place to safely store their money, they also provide them with ways to easily access their money in cash form all over the world. And when debit cardholders don’t have cash in pocket, those same banks finance their purchases globally all the while policing odd-seeming purchases as a way of protecting their customers from theft.

About the myriad services banks offer, it’s a waste of words to say they cost money. It’s not costless for banks to provide fraud protection, cash access, and global financing of customer transactions.

Which is why it’s so confounding that retailers are actively lobbying entities like the Federal Reserve to force interchange fees down by decree. Those are the fees banks charge retailers for financing the transactions of their debit card holders. One would think retailers would be kneeling before banks offering effusive thanks. Think about it.  

And in thinking about it, stop for a minute to remember how things used to be. Before the proliferation of ATMs alone, accessing cash was an in-person concept. The only problem was that the persons capable of servicing bank account holders weren’t always working when individuals needed cash. This on its own limited the ability of retailers to transact with would-be customers. Thank goodness for banks and their ATMs.

Some will point out that bank account holders from the past had checking accounts and they could write checks. Well yes, they could and they still can. But this put retailers in the position of having to police their customers, and in some cases put them in the position of having to refuse customers eager to exchange checks for cash, goods and services, or both. Quick, when’s the last time you wrote a check at an Apple Store, McDonald’s, Safeway, or Cracker Barrel?

By issuing debit cards, banks have made it possible for customers to access their cash and transact at all hours anywhere in the world, and in facilitating the latter, they’ve unquestionably made it easier for retailers to do what they do best: sell goods and services. Even better, those same cards free retailers from doing what they’re not best at: policing fraud, bad checks, or both.

Stating what should be obvious, banks have made life much easier for their account holders who access their accounts most often through their debit cards. And in making life easier for their account holders, banks have by definition improved the fortunes of retailers with whom account holders most often transact with via debit cards.

Which is why it’s yet again wholly confounding that retailers are leaning on the Fed to force the interchange fees for debit card usage down. Let’s just call this what it is: an attempt at price control by retailers that will harm retailers most. Do they really want to go back to the days when banks aren’t providing seamless ways for customers to buy what they need when they need it? Hopefully the question answers itself.

Back to Amazon, its ability to remain in business was rooted in investor belief that its operations would eventually bear profitable fruit. Banks need to profit from their operations and services too, and if they do customer and retailer alike benefit. Conversely, retailer attacks on banks amount to retailers attacking themselves. Which raises the question that titles this piece: just what to do retailers have against banks?

Republished from RealClear Markets


  • John Tamny

    John Tamny is a popular speaker and author in the U.S. and around the world. His speech topics include "Government Barriers to Economic Growth," "Why Washington and Wall Street are Better Off Living Apart," and more.

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