A Cost-of-Doing-Business Handicap

JPMorgan Chase’s decision to end debit-card rewards makes sense for the bank’s bottom line, but it hurts entrepreneurs and startups where they can least afford it—their cash flow.

While the financial institution offers a bevy of credit products for small-business owners, the majority of startups and entrepreneurs often use their personal accounts as the initial run of funding. They count on the perks they can collect as ways to reward their staffs, especially when they can’t always afford the high-flying salaries of the past.

Business clients need to be able to use their cards to facilitate cash flow during tight times, to pay out salaries on occasion, and to pay their vendors. For many, the deciding factor when it comes to selecting a bank involved the rewards they’d earn while pouring much-needed money into a cash-strapped economy.

Marlo Scott, who was one of the entrepreneurs featured in Chase’s Ink credit card launch—a credit product aimed at the small-business market—says that using her personal account helped her establish the credit-worthiness the bank required of its business customers.

Chase is blaming the cut in service on new federal rules, proposed by the Federal Reserve and set to go into effect July 21, that would cap the fees thrifts can charge on debit transactions to 12 cents, an average of a 75 percent drop from current charges.

Rival Wells Fargo’s CEO John Stumpf wrote in a letter to shareholders that limits of debit card merchants’ fees “make no sense.” He added, “What’s next? Will the government require car dealers to sell a new vehicle for $5,000 or grocers a gallon of milk for 50 cents?”

Bank of America is also contemplating what to do about the proposed caps and has joined the fight against the measure. The banks argue that they could lose $12 billion annually on the fees alone.

But the real loser, as it often is, is the entrepreneur—the very backbone of the nation’s economic recovery. The small business sector, which represents 99.7 percent of all employer firms, and is responsible for having generated 64 percent of new jobs in the past 15 years according to the Small Business Administration, will no doubt see yet another obstacle in its way to economic growth when these rewards programs come to an end.

And as the nation struggles to find creative ways of finding funds for innovative, high-growth companies, taking away a key way for those startups to close their cash gaps is only going to make the cost of doing business seem that much more impossible.

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Romy Ribitzky is an associate editor at Portfolio.com.