💳 "Who really pays the price? Exploring the impact of rising debit card fees on Aruba’s economy."

Cards and Cents: The Challenges of Debit Card Fees in Aruba

The recent shift in how debit card transactions are processed in Aruba has sparked concern among local businesses, particularly those represented by Comerciante Uni di Aruba (CUA) under Frans Ponson. The core issue lies in the change from the Maestro platform to Mastercard, which has transformed the debit card into something akin to a credit card – with fees to match. This has added a financial burden to merchants that, without intervention, could lead to price increases affecting the entire population. See the press conference here.

What Has Changed?

Previously, debit card transactions in Aruba operated through Maestro, which didn’t impose additional transaction fees on merchants. With the switch to Mastercard, however, banks are now charging merchants a percentage-based fee for each debit card transaction, similar to the fees for credit card use. Importantly, merchants are prohibited from passing these fees directly onto consumers, whether locals or tourists.

This starkly contrasts with practices in other parts of the world, such as the United States, where merchants have greater freedom to disclose and offset these costs. Signs posted in businesses in New York, for example, notify customers of surcharges for credit card transactions, stating explicitly that the fees reflect the cost of processing the cards. One sign specifies a 2.75% fee for credit card use, clarifying that cash transactions are exempt from such surcharges. These policies allow transparency for customers while protecting merchants from absorbing all transaction-related costs.

In Aruba, however, merchants are blocked from implementing such practices. Credit and debit card fees are treated the same despite their functional differences. With no regulatory protection, merchants are forced to absorb the fees entirely, placing them at a disadvantage compared to their counterparts in jurisdictions with more progressive payment regulations.

The Role of Mastercard

Mastercards plays a central role in this issue. Its decision to shift Aruba’s debit card system from the Maestro platform to the Mastercard framework has created a system where debit cards incur the same fees as credit cards. In other jurisdictions, Mastercard is subject to stricter regulations that cap the expenses it can charge merchants. However, in Aruba, the lack of regulatory oversight allows Mastercard to enforce these fees unchecked, forcing merchants to absorb additional costs and leaving consumers to bear the consequences.

The Banks: Silent Beneficiaries

While local banks point fingers at Mastercard as the primary culprit, they fail to acknowledge their role in this issue. The banks – perfectly aligned via the Aruba Banker’s Association – benefit significantly from these fees, earning a percentage of every transaction. Instead of advocating for fairer practices or supporting merchants in their struggle, banks quietly profit from the system, making them silent accomplices in the financial strain placed on local businesses and consumers.

The Government: Collecting Foreign Exchange Taxes

The government also profits from every debit and credit card transaction through foreign exchange taxes applied when a card is swiped. These taxes quietly flow into government coffers, making the government another beneficiary of the current system. Yet, despite this financial benefit, the outgoing Minister of Finance failed to act on a draft law prepared by the Central Bank of Aruba. This legislation could have regulated card fees and curtailed Mastercard’s predatory practices. By neglecting to present the bill to Parliament, the minister allowed the current system to persist, leaving merchants and consumers unprotected.

AFTA: Missing in Action

Adding to the frustration is the silence of the Aruba Fair Trade Authority (AFTA). As a key representative of the business community, AFTA has a responsibility to speak out against unfair practices that harm its members. Yet, it has failed to take a stance on this issue, leaving merchants to fend for themselves. Inaction from AFTA weakens local businesses’ position and exacerbates the challenges they face in dealing with powerful financial institutions.

The Big Losers: Consumers and Merchants

The real losers are the local consumers and merchants. Consumers lose buying power with every florin deposited into their accounts, as banking fees silently erode their purchasing capacity. Merchants, meanwhile, see their costs skyrocket. Many have no choice but to raise prices to recover these costs, setting off a chain reaction of inflation that affects the entire economy. The alternative is switching to cash.

Learning from International Practices

Countries like the United States and European Union members have implemented laws that allow merchants to be transparent about processing fees and pass these costs directly to consumers when necessary. As the signs from New York demonstrate, this approach creates clarity for customers while enabling businesses to manage their expenses more effectively.

Besides surcharges for credit card use, the European Union has also capped the fees payment processors like Mastercard can charge for debit and credit card transactions. Such measures ensure fairness and prevent financial institutions from using their market power. On the other hand, Aruba lacks comparable protections, exposing merchants and consumers to inflated fees.

Lessons from India: A Blueprint for Aruba’s Payment Challenges

India provides a powerful example of how political will, regulatory oversight, and technological innovation can transform a nation’s payment landscape. The Reserve Bank of India (RBI) spearheaded a digital payment revolution with the launch of the Unified Payment Interface (UPI). Designed to facilitate instant, secure, and low-cost account-to-account transfers, UPI has fundamentally changed how India handles money.

Before UPI, India relied heavily on cash, accounting for over 90% of transactions. UPI changed the game by introducing an easy-to-use platform that allows users to make instant payments 24/7 across multiple banks through mobile apps. UPI has empowered millions of merchants and consumers by combining the convenience of digital wallets with the security of bank accounts. It’s now the preferred payment method for various transactions, reducing the hassle of managing cash and change while boosting productivity across socio-economic strata.

UPI’s success is not just confined to consumer convenience. Beyond convenience, UPI has reduced reliance on global card schemes, promoted financial inclusion, and contributed to India’s GDP. According to the International Monetary Fund (IMF), the RBI’s proactive role in fostering digital payments has been a key driver of India’s payment revolution, highlighting how regulatory support can accelerate financial transformation (IMF, 2022). Its success is spreading globally, with countries like Bhutan, Singapore, and France adopting UPI for transactions.

This UPI model holds critical lessons for Aruba. As Aruba grapples with rising debit card transaction costs and the stranglehold of global card schemes like Mastercard, Aruba can look to UPI for inspiration. For every debit card transaction processed locally, money is drawn from the same account, which could facilitate instant payment via the Central Bank’s I-Pago. The difference? Lower costs, faster processing, and reduced financial burden on merchants and consumers alike.

Aruba has immense potential to innovate with Central Bank of Aruba’s  I-Pago as a localized digital payment system. Instant payments could create a parallel system that promotes competition and reduces dependency on foreign systems. A move like this would alleviate the immediate issue of exorbitant debit card fees and position Aruba as a leader in payment innovation in the Caribbean.

The lessons from India are clear: instant payment systems can disintermediate global card schemes, empower local financial ecosystems, and boost the economy. By embracing this long-term strategy, Aruba can achieve transformational change that no reliance on global card schemes can ever match. It’s time to think beyond traditional payment methods and take steps toward a sustainable digital payment future.

Consequences of Inaction

If no action is taken, several negative outcomes are inevitable:

  • Rising Costs: Merchants as anticipated by CUA in its video, will pass these costs onto consumers, effectively creating an additional burden akin to another BBO tax.
  • Economic Disruption: Some businesses have already stopped accepting debit cards or have begun charging consumers a percentage fee, even if doing so risks losing their payment processing services.
  • Reduced Convenience: Cash-only systems or bank transfers could become the norm, reducing consumers’ convenience and discouraging digital payment adoption.
  • Inflationary Pressure: Additional price increases would exacerbate inflation, worsening the population’s financial strain.

What Needs to Happen?

The new government must prioritize action on this issue. Specifically:

  • The Central Bank’s draft law should be urgently presented and passed to regulate fees and ensure transparency in the payment system.
  • Mastercard and local banks must face greater scrutiny to curb their dominant positions and prevent exploitative practices.
  • Regulatory reforms should follow U.S. and European models, allowing merchants to disclose processing fees and differentiate between credit and debit card charges.

Looking Ahead: A Call for Change

Aruba is at a crossroads. Without swift intervention, businesses and consumers will bear the brunt of an unfair system that benefits banks, payment processors, and the government. The silence of government officials and industry groups like AFTA has created a vacuum of accountability, but the new administration must act decisively to protect the local economy.

At the same time, Aruba has an opportunity to modernize its payment systems. Embracing digital payments that minimize fees, such as those used in India, could provide a long-term solution. However, these changes require leadership and cooperation between the government, merchants, and the financial sector.

Conclusion

The transition to Mastercard for debit card transactions has exposed Aruba’s critical lack of regulatory oversight. The inaction of the outgoing Minister of Finance, the silence of AFTA, and the quiet profiteering by banks and the government have left merchants and consumers to bear the cost of rising fees. Despite the Central Bank of Aruba drafting legislation to regulate these fees and protect merchants and consumers, the failure to move this forward has left the country vulnerable to exploitation. Without swift intervention, the local economy risks further inflation, reduced consumer power, and greater financial inequality.

However, there are lessons to be learned from countries like India, where regulatory vision and innovation have transformed the payment landscape. India’s Unified Payment Interface (UPI) shows how empowering local payment systems can reduce reliance on global card schemes, promote financial inclusion, and lower costs for businesses and consumers. By adopting a similar model and working with the Central Bank of Aruba to implement modern payment solutions like I-Pago, Aruba can alleviate the immediate burden of high fees and create a modern, efficient, and inclusive payment system that supports long-term economic resilience.

Learning from these international practices, Aruba must implement reforms that bring fairness, transparency, and innovation to its payment systems. The new government and the Central Bank of Aruba can lead this change if they act in time. After all, every card swipe and cent counts for the future of our economy.

See you next week. For more in-depth columns like this, visit my website at www.lincolngomez.com, where you can also find all my blogs and podcasts!

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