In Friday’s New York Times (May 21), Ron Lieber reports that the Senate bill requires credit cards issuers to allow competition. For the first time, retailers will be permitted to pass on to consumers the costs of credit card use, so that consumers will have an incentive to use cheaper credit cards rather than more expensive ones, and users of cheap cards or cash will no longer be forced to subsidize inefficient or profiteering issuers. (The bill actually does this backwards, by allowing retailers to offer discounts to customers who use cheaper payment methods, but the effect — if not the psychology — is similar.)
This, of course, is how normal competition works, so anyone who respects markets ought to begin by assuming, until offered some good reason to the contrary, that it is a good idea.
Lieber, however, favorably reports the banking lobbyists claim that if banks are no longer able to hide their high fees from retail customers, they will respond by increasing fees on checking accounts, while derisively rejecting the retail lobby’s contention that if retailers’ costs drop, they will pass the savings on to consumers.
Thus, Lieber’s position seems to be that both banks and retailers exist in a non-competitive world, and banks — but not retailers — are kind people who leave money on the table just because they like their customers.
As for banks, Lieber apparently believes that banks are currently not charging fees on checking out of the goodness of their corporate hearts — after all, if competition will let them charge such fees if the new law passes, it would let them do so now. Real red-blooded profit maximizers wouldn’t do that, so apparently Lieber thinks our banks are run by a group of lily-livered liberal do-gooders — maybe even Christians who believe that it is easier for a camel to pass through a needle than for a rich man to enter into heaven. Presumably he hasn’t been following the bonus news.
On the other hand, Lieber thinks that if shopkeepers see reduced costs when the credit card companies are no longer allowed to legally price-fix, they will keep them. Apparently, Lieber’s world of retail is just as uncompetitive as his banking world, but retailers are less saintly and more homo-economicus.
Lieber’s world is not the one that we inhabit. In our world, banks collect all the fees they can get away with. If they could convince customers to accept additional fees on checking accounts, they would already be charging them. If banks lose some of their excess profits on credit cards, they will simply lose those excess profits.
Conversely, in our world, retailing is highly competitive. If cash is actually cheaper for retailers than credit cards (which is by no means obvious) or if Visa is a better deal than Amex (which seems as certain as anything is in this world of known unknowns), then ordinary market competition should force retailers to pass the savings on to consumers. Lieber’s claim that retailers could just keep this money necessarily means that retailers aren’t constrained by competition — which is always possible, but then why aren’t they charging more now?
There may be good reasons why banks are entitled to be protected from competition and to appropriate monopoly rents from their customers. But these lobbyists haven’t explained what they are, and the New York Times’ economic beat reporters ought to recognize that.