Sunday, November 30, 2008

Retailers Vs. Banks on Charge Fees

I have time for a brief observation on a slow Sunday with little economic news. Bloomberg reports that retailers don't like high bank fees:

The subprime mortgage crisis is giving department and convenience stores and gas stations a new argument in asking Congress for power to negotiate the fees banks charge them to process credit-card transactions.

The banks say credit-card fees cover operating costs, protect banks against default and fraud, and allow them to offer cards with no annual fees and rewards. The charges vary from bank to bank and depend in part on whether the card includes cash rewards or other benefits.


My take on this is straightforward. Retailers are getting spooked that the rest of the Christmas shopping season won't be as rosy as Black Friday's numbers (which I discussed here yesterday). Stores want leverage over a charge that eats into their rapidly thinning margins, but banks need the charges in place to shore up their own troubled business models. If Congress takes up this issue, they will be forced to choose one sector over another in a case of robbing Peter to pay Paul. One or the other industry will be forced to live with thinning margins in a deepening recession.

I believe Congress will table this issue to protect the bailout money they've given to banks. The government has made no such commitment of taxpayer money to retail chains. Retailers will unfortunately suffer, and for some chains this charge may be the backbreaking straw that drives them under. Such an outcome would eventually realize some of the bankers' fears: chain stores will be less likely to accept credit, and smaller banks will issue fewer cards. Oh well, the new year will be all about frugality anyway.

I'm not going to make an investment play on this. I just needed something to talk about.