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Low-income households pump money into retailer wallets

A new research paper by three economists predicts that the little guy will shell out more money as FIs seek relief from the revenue-slashing effects of the interchange cap.

August 25, 2014 by Kevin Christensen — Vice President, Audit, SHAZAM

In the beginning of the debit interchange debate, the nation’s largest retailers gave much lip service to the idea that interchange fees were costing American families big-time money. It was in their customers’ interest, they insisted, for retailers to fight for an interchange cap.

Well, they got one. And although that cap was not as low as they had hoped, they have not made any moves toward passing their savings on to the little guy.

In fact, a new research paper coauthored by three economists predicts the opposite of savings for consumers. The authors expect the little guy to shell out even more money as financial institutions turn to them for relief from the revenue-slashing effects of the interchange cap:

We estimate that as a result of the Durbin Amendment, there will be a transfer of $1 billion to $3 billion annually from low-income households to large retailers and their shareholders, which have been the primary beneficiaries of the Durbin Amendment to date.

Interestingly, nearly a quarter of senior banking executives surveyed view the underbanked (a community whose members often fall into the low-income category) as the customer segment presenting the greatest growth opportunity.

Of course, developing programs and services to build up these communities requires innovation, money, and the freedom to pursue success without the hindrance of regulation.

More than half of senior FI executives in a recent survey said compliance costs are having the greatest negative impact on their institutions’ growth. The majority also said  thatregulatory compliance requirements accounted for as much as 10 percent of their operating costs.

We can’t blame it all on the retailers, however. Elected officials who buy into the consumer protection claims of these profit-hungry giants should be held equally accountable (election day is quickly approaching).

As FIs’ operations become more difficult, prices for these underbanked, low-income services (and the services of the future) will rise.

photo courtesy of 401(k) 2012 | flickr

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