We had a good debate this week about the future for multilateral interchange fees (MIFs) amongst the card companies.
The argument made for change by regulators appears to boil down to that the card operators and issuers are ripping off customers by taking percentage fees opaquely. These fees are applied throughout the process, and the lack of visibility of charging means that customers don’t know they’re being ripped off.
The solution: more transparency.
Now I can see the argument and solution rationale, but I fundamentally disagree with it.
The reason I disagree is that customers are not rational when it comes to money.
They will happily pay fees to ATM operators, currency exchanges, PayPal and more if it is convenient and supports instant gratification.
I should know, as I’m one of them.
Do I count the fees and the breakdown of costs for every transaction?
Do I object when I see the cost of a transaction?
Take the example of booking an airline ticket and you see that there is £4.50 ($6) charge for booking the ticket using a credit card.
Do we get upset with the airline?
Are we pissed off with the card company and the bank?
Or take the example of my own bank who recently started itemising cross-border transactions with the charge per transaction.
Do I appreciate the transparency?
Do I object to the fee per transaction?
Of course I do.
In other words, customers would far rather prefer everything bundled into one charge where the bank fees are hidden, rather than seeing the fees per transaction itemised explicitly.
That does not sit well with regulators, but ask the question: why is this?
We happily pay for fees from service providers, and we don’t mind seeing the explicit charges for our telephone calls or internet provision, so why are we so resentful about bank or card company charges for services rendered?
Because there is this mentality that transactions should be free.
Or there is in certain countries and economies, particularly the UK where banking has been ‘free’ for the last four decades.
Mix this mentality of free with the psychology of money that gets upset with anyone who controls our urges to spend, and you have a dangerous concoction of anger and resentment.
And that’s why customers don’t want to see transparency in banking , as they resent every charge made.
So I’m all for more bundling, and adding an extra 0.01% charge in the process, as it’s better to keep customers happy than to annoy them with those pesky charges.
Cartoon found via Facebook page of Peter Aceto, CEO of ING Direct Canada