Bring on the price war.

Price wars are great; they are the very epitome of what our American capitalist economic ideals are all about: competition.

But for the last several years something else has been going on. For the last several years, every single swipe of your debit card — every single “submit payment” click or iPhone tap for your favorite song, every single “$0.35 debit card fee” gasoline pump authorization button press you’ve been forced to accept has been much, much higher than it needs to be … about 800 percent higher:

their initial analysis that concluded the actual cost of a debt transaction was only 4 cents.”

You read correctly. A few days ago (before being bought by Mr. Jeff Bezos), The Washington Post broke the news that a Federal judge had overthrown the cap.

In a strongly worded decision, U.S. District Judge Richard Leon said that the Federal Reserve had not properly interpreted the 2010 financial overhaul law, which directed it to revamp the way banks charge merchants for accepting debit cards. The Fed rule “runs completely afoul of the text, design and purpose” of an amendment authored by Sen. Richard J. Durbin (D-Ill.) to limit these fees to the actual cost of processing debit card transactions.

What does this mean? It means that our capitalist system is not working properly. For the last several years, we’ve all essentially been forced, when engaging in natural economic activity, into padding profits of banks and other payments processors (such as my former employer, Balanced and its competitors WePay, Stripe and PayPal) who should be competing with each other for merchants’ business. But instead, they all charge about the same fees. With collusion, they and the banks they’ve cozied up to know that “guaranteed” profit margin is much better — more money to throw around and lobby to keep things just they way they are, more huge VC rounds for those willing to hop in bed with the big banks, more barriers to entry for the little guys.

In other words: what it all boils down to is suckage: the more money payment processors siphon off, the less revenue the actual merchants receive; the less revenue merchants receive, the more they charge. This naturally results in higher prices for just about everyone (including those who pay with cash!), and pretty much everything is a whole lot of foul.

By 2009, banks were reaping $16.2 billion in revenue from the fees.

This was ~4 years ago; a more modern calculation would surely yield a much higher number. Indeed, as mentioned in my recent post the Durbin amendment was specifically targeted at this discrepancy.

Basic economics shows that rather than engage in a price war, it is more profitable for them all to agree to tout like it’s “law” that these “Interchange Fees” set by the government are just not negotiable. While this is a partial truth — that the Fed set a non-negotiable portion, that non-negotiable portion is actually the “max” but confusion around fixed and variable components inflated both sides.

Let’s break down the costs of the actual information. Could it really be so simple? Yes. It is not nearly as complicated as they’d like us to think; from my recent post on Hacker News