MPR Authored
Mega Banks Enter Alternative Payments Market
August 23, 2011
The banks are losing the fight against the Durbin Amendment but don’t count them out yet. The threat of billions dollars losses from interchange fees revenue has inspired them to innovate. So much so that alternative payment processors such as PayPal will soon face the wrath of a sleeping giant.
Bank of America, JP Morgan and Wells Fargo have teamed up to form clearXchange, a payment system for simple bank to bank transfers. In what they have dubbed a ‘coopetition’ (cooperative competition), there’s no new bank or merchant account needed. “PayPal and other systems require you to create an account separate from your bank account to transfer money, this new service will let customers simply log in to their existing bank account and enter the recipient’s name and e-mail address or phone number. The person they’re paying will then instantaneously receive an alert that money is being sent their way.”
And this doesn’t just compete against PayPal, it threatens cash and check payments as well. No longer will you be able to tell your friend that you don’t have any cash on you when they ask for the $20 you owe. D’oh!
Major retailers like Walmart stand to win big as a result of the Durbin Amendment, a triumph that will ultimately come to haunt them. With no interchange fees to earn, banks will get bored of debit cards and eventually phase them out. clearXchange is the new dawn of electronic payments and revenue for the big banks. And guess what? Durbin’s laws aren’t applicable to it. What have we done?
– deBanked
Merchant Processing Resource Will Be Closed for Summer Break
August 23, 2011
deBanked / Merchant Cash Advance Resource will be closed for a summer break through June 21st. We have given our editors and authors some time off. You are still welcome to chat openly in the forums. A moderator will check in from time to time. We would like to thank all of our readers for checking in with us and look forward to sharing more useful and insightful news when we come back.
Happy summer!
– deBanked
Bank Loan Advertisements are nothing but a bait and switch
August 23, 2011
We stay in touch with many people in the financial industry, and not just Merchant Cash Advance. Back in late March we learned that lending was so tight, that credit cards were barely attainable. That was when the unemployment rate was 8.8% and as of May 2011, it’s back up to 9.1%. That was when the economy was expected to grow by 2.9% in 2011 but is now on pace for 2.7%. The point? If it was impossible to get a loan back in March, then how much worse could it get?
An insider shares it can get worse, much worse. Our friend Tim (name changed) is the manager of the small business lending unit of a major national bank. Any loan less than $1 Million dollars is considered to be for small business. Tim’s unit is on track to do more loans this year than last year and none of them are going to retail stores or restaurants. Did we hear that right?
“Retail stores and restaurants are too flakey to give money to.” That wasn’t just his opinion either because that’s actually part of the bank’s underwriting policy. They are completely prohibited from lending to those business types. So we had to ask…
What if they had 25 years in business? Declined.
What if the guarantors had 800 credit? Declined.
What if they had $5 Million in cash reserves in the bank? Declined.
What if…? Declined. Declined. Declined.
There is no criteria that would make them eligible, period. Tim admits that the interest charged on a loan is not profitable by itself anyway so to take any degree of default risk even if it’s small, is not worth it. Instead, they rely on their loan clients to open a business checking account with them, use their merchant processing, and sign up for other services on which they can charge fees and earn income. Their unit has an average turnover time of 3 months from the time the application is submitted to the time the loan is funded.
“We usually get a jump on setting them up with all our services right when they apply for the loan, so we can start earning on them right away,” Tim said. We wondered why they wouldn’t let restaurants and retail stores apply then. “Oh we let them apply for loans… we just don’t tell them they’re declined until after we’ve locked them into other fee generating services. They’re unlikely to pack up and change banks after that so it works out for us.”
There’s a term for this tactic and it’s called a ‘bait and switch.’ There really seem to be no loans for the businesses that need them, an assertion bolstered by the Small Business Administration’s 2011 1st Quarter report. Lending to small businesses has fallen by $15 Billion.
So where’s the money?
There are still alternative sources available, but we’ve yet to find anything that rivals the speed and flexibility of a Merchant Cash Advance (MCA). Too many small businesses hold out the hope that a bank will help them and pass up the opportunity to obtain alternative financing like a MCA. But how many missed opportunities will it take until it’s too late? How many businesses will sign up for checking accounts and expensive merchant processing, only to find out that no loan is coming and all they’ve acquired is an expensive long term contract for no value in exchange.
If you’re a restaurant or retail store, you can research our directory of verified funding providers HERE. Don’t wait for the bank to approve a loan they’re not allowed to approve and instead get what’s most important, the capital to grow.
– The Merchant Cash Advance Resource
Debit Card Reform to Be Finalized June 29th
August 23, 2011Posted on June 28, 2011 at 12:14 AM
The Federal Reserve is scheduled to finalize debit card reform on June 29th as dictated in the Durbin Amendment of the Wall Street Reform Act. The rough draft of the legislation that was issued back in December 2010 mandates a 12 cent cap on interchange fees. Interchange is the array of fees paid to the banks that issue the cards every time their cards are used.
Proof Interchange Reform Will Fail
There is some speculation that the Fed may raise the cap to an amount slightly higher than the original 12 cents. Ultimately, banks stand to lose billions of dollars over the next year since the law takes effect on July 21, 2011. We will update you on the outcome.
– deBanked
Blackjack! 21 Cent Debit Card Interchange Fee Plus 5 Basis Points
August 23, 2011Originally Published on June 30th, 2011.
After holding their breath for six months, card issuing banks finally exhaled today after the Federal Reserve announced the finalized debit interchange fees. The original proposed 12 cent cap was vehemently opposed, sparking an ugly battle that pitted large retail chains against banks. The end result?
A 21 cent interchange cap
BlackJack!
This is complemented by an additional 5 basis point variable charge that can be assessed to recover losses from fraud. Though nearly double the original proposal, card issuing banks still stand to lose billions in revenue. And as for the retailers? Well they’re not likely to experience any savings. It’s the law of unintended consequences, an outcome already proven by similar legislation in Australia. [Interchange Regulation and Reduction: Proof it Will Fail]
So billions may be lost but at 21 cents, it’s enough to turn a profit. That means we’re unlikely to witness the end of debit cards altogether, a scenario that reform opponents predicted (including us) would happen if a cap went into effect. But of course we can’t be sure. When the free markets are regulated with price controls, things start to get funky.
The original July 21st implementation deadline has been pushed back to October 1st to allow banks and acquirers to prepare for the change. It’s fair considering the actual regulations and rules are outlined in a lengthy 307 page snoozer of a document.
But while we’re taking our time to fully digest the final law, keep this in mind:
A retailer is not going to be paying 21 cents a transaction at the point of sale. Rather that’s the maximum a credit card processor/acquirer can pay to the card issuing banks.
So the retailer may be in a contract with their processor to pay 1% per debit card transaction. A customer purchases a $100 item with their Bank of America Visa Debit Card. $1 (which is 1% of $100) is charged to the retailer. Only 21 cents of that can be paid to Bank of America (the card issuing beneficiary of interchange fees). The rest is retained by the processor.
So the card issuing bank is limited, and to some degree the payment network such as Visa as well, but the other parties do not appear to be affected, including the ultimate cost that retailers will pay. Doh! And that my friends, is what all the intense fighting has been about since December 28th, 2010.
We’ll keep you updated.
– deBanked
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