Banks and Profits

In this recent (12/16/10) story on Marketplace, we learned that the Federal Reserve is proposing to cap fees that banks can charge retailers for purchases made with debit cards.  In the current system, retailers are charged 2% per transaction for purchases we make with debit cards, with no limit on the fee.   If you buy something for $1, the fee is about 2 cents.   If you buy something for $100, the bank collects $2, and for a $500 purchase, the bank hauls in $10.  These fees are paid by the retailer, but the cost is undoubtedly factored into the prices the retailer charges customers.

The banking industry response (via Scott Talbot, chief lobbyist for an industry trade association) to the proposal is to threaten to make up the lost profits in other ways:

As the banks that are involved in the transaction are unable to recoup their costs for operating this service and allowing merchants to accept debit cards, we're worried that those costs will be shifted down to the consumers.
He says some debit cards may soon charge annual fees. Others may charge a fee for each debit card transaction.

So Mr. Talbot says that with a cap on the fees, banks will be "unable to recoup their costs."  Most of these transactions are electronic, so is Talbot implying that the transaction costs change for a $1 purchase vs. a $100 purchase?  If so, I'd love to hear more about how that works.  If not, and I suspect that it does not, Talbot and his banks can whine somewhere else about how they're going to continue to fund their multimillion dollar bonuses and unconscionable profits.  

Every few years, banks go through cycles in which they decide that the small balance accounts are not generating enough profit and those customers lose their free accounts.  These less profitable customers are simply forced out of the bank to find banking services elsewhere.  Threatening that banks will start raising other fees doesn't impress me.  They've already done that in response to the financial reform law last year.

Banks (mostly) have no loyalty to customers, so we customers will gladly take our business elsewhere when they start charging annual fees for debit cards.