Last week I read an article in the December 19th issue of The New York Times describing how credit card companies like American Express, Master Card and Visa are considering altering policies that disallow retailers the ability to charge consumers an additional fee when using one of their credit cards.
From the article “The deal comes less than a week after a judge approved a settlement that included a similar change of rules in a huge class-action lawsuit against Visa and MasterCard, billed as the largest private antitrust settlement in American history. The changes clear the way for vendors of all types to institute essentially a two-tier pricing system — charging more at the register to shoppers who pay by credit than to those who use debit cards or cash.”
Retailers may not have the nerve to actually be associated with such a policy. But as the article went on to offer, “Currently, many businesses do pass on to consumers so-called “swipe fees” — which are said to generally range from 1 to 3 percent of the transaction — by building them into the price of the goods and services they sell. That means all customers pay, a system that some contend amounts to poorer consumers subsidizing affluent holders of premium rewards cards.” I knew this but it still irked me to read this for some reason.
Gas station customers are completely familiar with the cash discount versus the credit card surcharge and have adjusted their behaviors accordingly over the years. Perhaps people now more frequently swipe their bank debit card, or walk inside the station and pay cash prior to gas stations offering a cash discount (which really means there’s a credit card surcharge). Or perhaps people just don’t care since they feel they are getting the airline, hotel or reward miles anyway so what’s the big deal about 1-3%? I will leave it to others to debate that issue.
With retail (and gas stations for that matter) stores operating on such a thin margin, a 1-3% cost saving can have a substantial impact on profits. For as long as there have been credit cards the charges for use of those credit cards have been borne by the seller and thought of as a cost of doing business.
Will consumers that spend tens of thousands of dollars annually on their credit cards actually think about the fact that in paying with a credit card you directly bore the full cost of $300 on $10,000 of spend instead of having the store pick up that charge? How about $3,000 on $100,000? It takes a lot of reward points (hundreds of thousands) to achieve $3,000 in actual value.
I imagine that when it is in your face at the register in the store, (online merchants may sidestep this issue altogether by simply absorbing the cost) that some people may think twice about using their credit card. Would knowing there’s a surcharge to use a credit card make you think twice?