In JPMorgan’s annual letter to shareholders, CEO Jamie Dimon took retailers to task for pushing for regulations that limit their share of transaction costs.
“It is unfortunate that retailers and banks have been in a battle for years over who should bear the cost of processing money—and that retailers continue to use ‘lawfare’ to get their way,” he wrote.
The regulation in question is the Durbin Amendment or Regulation II, which was enacted as part of the Dodd-Frank Act in 2010. The law sets standards for determining if a debit card interchange fee is “reasonable and proportional to the costs incurred by the issue with respect to the transaction,” according to the Federal Reserve.
Regulation II cut average debit revenues in half from approximately $130 to $60 per transaction, according to Dimon. In his letter, he said that lower balance accounts cost more to maintain than they generate in revenue, and the regulations have made it harder for the bank to recoup.
“In setting the pricing for debit cards, the government looked only at the cost of the debit card swipe, which is illogical as that assumes a debit card is a separate and distinct product from its underlying checking account,” he wrote, outlining how checking counts can come with myriad costs ranging from fraud prevention to staffing at bank branches.
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More expensive alternatives? Under the current law, he added, the average transaction cost for retailers (0.47%) is “far cheaper” than debit card alternatives such as cash, which is “probably more than 4% of the payment” when you account for sorting and delivery to the bank. (Dimon has long advocated to roll back some regulations in the Dodd-Frank Wall Street Reform and Consumer Protection Act, which passed after the 2008 financial crisis.)
“This also makes it ironic that retailers are now adding ‘buy now-pay later’ features as another payment option for their customers, which usually cost the retailer considerably more than processing a debit or even credit card transaction,” he wrote.
- As fintech firm Checkout.com noted on its website, merchants typically pay between 2% and 8% of the sale cost on BNPL transactions.
- Despite these costs, major retailers such as Walmart are adopting BNPL services, expanding the offering to a large portion of US consumers.
Dimon closed out this section of the letter with a warning that a “new battle is brewing,” as third-party fintech firms seek access to bank’s customer data “so they can exploit it for their own purposes and profits.” He said JPMorgan has no problem sharing data, “but only if it is done properly” and is authorized by the consumer.