Monday, May 17, 2010

Let the Soundbite Friendly Legislation Continue Hurting Small Business

You wake up one morning and turn on the news to hear "Congress is passing new regulations to help protect the consumer and small businesses from predatory charges and rates from big banks and transactionists like Capital One and Mastercard and Visa and J.P. Morgan".

"What a good idea - Congress is working to safeguard small businesses..." you think as you put on your clothes and head downstairs to grab your keys and head to your local coffee shop to get your favorite "what's new" coffee bean and one of those scones that can only be accomplished through the small bakery care of your locally owned corner coffee shop. Way better than those things at Star$ for sure.

You walk in with intention of getting your usual for about $4 paying with your newfound budget tool known as the debit card - an electronic and convenient way to manage your money and avoid ATM fees. Sorry you are to learn that your local coffee shop has set a minimum debit card transaction amount of $5 on all orders.

Upon hearing this news, you ask "what?" of the counter salesperson who then tells you that Congress passed legislation to allow them to force you to buy so much before they're willing to process your Visa or Mastercard. Not dismayed, you say - "That's fine, I'll pay cash" and look in your bill fold - oops you stopped carrying the greenback because it seemed it didn't matter and you were cutting down on those ATM fees. Well, now - you're either paying the ATM fees or your buying more stuff - or you're leaving buying nothing due to the frustration of the whole thing. What kind of a consumer / small business protection were you expecting from Congress, really?

The real effects of the soundbite friendly legislation will predictably do just the opposite of that which they intended leading you to lower your approval rating of your local congressman and senator, but here's some other things they'll do:

1.) Put small businesses at a disadvantage as the starbucks with a cash flow and profit advantage over the corner shop, will happily accept the $4 the corner shop won't. they'll eat the difference, but gain volume to make up for you're assistance by the government in price setting interchange fees. The corner shop that thought they were getting a break from the "no minimum transaction amount" contract terms will find they've only signed their own business death warrant.

2.) You'll fight with your small local retailers more as you learn they've all now determined their own minimum purchase amount and you'll constantly be finding out how you don't quite meet their minimum. Customers behind you will here this too and think "man, this shop is pretty presumptious to make me spend a minimum to use my convenient card to purchase this." They'll shop at the small merchant less and this will kill small businesses.

3.) You can easily see how this will put a minimum purchase on the gas pumps too, right?

4.) How about the fact that its only going to affect Debit cards and not Credit cards. Though I consider this good in that it's limited - it will raise the consumers credit card debt and raise the risk of going backward on the use of debit card as a better budgetary tool more tied to their checking account balance than a lofty credit limit. Hello 2007 - lets repeat!

5.) So you've said - that's ok - I'll just carry more cash. Except that now you're heading to the ATM, either searching for your local bank or inevitably stopping at one of Bank of America's ATM and paying a fee (that helps consumers, right?). Sooner or later you get tired of paying fees, so you just open a BofA checking account - and you've just helped put a nail in the coffin of another regional bank!

I could go on and on, but by now you get the point of the lunacy of trying to price fix markets and meddle with what is the largest and most beneficial transaction processing network in the world responsible for increasing the velocity of trade by amounts the world would be lucky to ever repeat. Don't blame Visa - they make your checkout speedy, blame Congress for saving their job while trying to brainwash you into thinking they're trying to help.