topic Re: Merchants may be allowed to charge extra for credit cards in Credit in the News

Merchants may be allowed to charge extra for credit cards

Dadaluma83 — Mon, 09 Jul 2012 23:29:27 GMT

If this does come true I will not under any circumstance shop at a place that charged extra for credit cards.

I would think and hope if this happens many merchants wouldn't impose the surcharge just because people are already sick of fees and paying extra for using a credit card would upset a lot of people, and if most merchants did impose the surcharge I would cancel all my rewards cards and pay exclusively cash only or paypal and only use one no annual fee and no frills credit card for emergencies or when it was necessary such as a hotel or rental car.

Personally the way I look at it is Visa and Mastercard are providing a service that the merchant purchases. If they don't like the terms and conditions of that service then don't buy the service.

What next? Will the merchants want to charge extra for parking for people who drive to the store as opposed to use public transit? Maybe tack on a little surcharge to each person to cover the costs of air conditioning in the summer or heating in the winter?

Thoughts?

http://online.wsj.com/article/SB10001424052702304022004577516613196796338.html?mod=WSJ_hps_MIDDLETopStories

Re: Merchants may be allowed to charge extra for credit cards

Revelate — Tue, 10 Jul 2012 01:00:26 GMT

*shrug*

Either the merchant charges extra, or they just raise their prices to cover the cost. Either way we pay for it at the end of the day. Might actually lower the cost of goods by 2% or thereabouts making it a wash anyway. Market will still determine an equilibrium price in most cases.

Re: Merchants may be allowed to charge extra for credit cards

cassembler — Tue, 10 Jul 2012 02:41:05 GMT

It basically equates to a tax that the card processors can (and will) levy on the public. They'll use the money to offer more generous rewards, which we end up paying for with higher prices. More people sign up for more cards, and viola! Cash is further reduced from the equation, further pressuring merchants to accept cards.

The end result is that cash users come out the worst, since they pay the same elevated prices merchants charge to cover the credit card costs; but ultimately all consumers lose. Oligopolies suck sometimes.

Re: Merchants may be allowed to charge extra for credit cards

stan_the_man — Tue, 10 Jul 2012 02:43:19 GMT

I was at a BBQ joint on Thanksgiving eve last year and they said that they offer a 3% discount for using cash. I would have done it if I wasn't earning 5% in rewards from my Citi Forward.

BTW -- I believe the way it works is the it is a cash discount, rather than a CC surcharge in most businesses.

Re: Merchants may be allowed to charge extra for credit cards

stan_the_man — Tue, 10 Jul 2012 03:16:29 GMT

cassembler wrote:
It basically equates to a tax that the card processors can (and will) levy on the public. They'll use the money to offer more generous rewards, which we end up paying for with higher prices. More people sign up for more cards, and viola! Cash is further reduced from the equation, further pressuring merchants to accept cards.

The end result is that cash users come out the worst, since they pay the same elevated prices merchants charge to cover the credit card costs; but ultimately all consumers lose. Oligopolies suck sometimes.

It seems like every time one of these merchant swipe fees articles gets posted I'm defending the CCCs/networks/merchant banks and attacking the merchants. Here goes again.

The most important thing you can ever understand is that no form of payment ever comes without cost and risk of acceptance. Most merchants overlook the benefits of CC acceptance and just see the cost, and they also have no clue what it costs them to accept other forms of payment.

Here is some examples of the business costs of various forms of payment:

CASH:

Robbery (both in terms of actual cash loss and violence)
Embezzelment
Employee Skimming (not ringing up transactions)
Counterfeit Currency
Increased Beginning & End Of Shift Time (to count cash drawers)
Register Dropsafes
Office Dropsafes
Armored Car Services
Bank Fees (to process larger deposits)
Bonding Insurance
Employee Incompetence (employees who can't count)

CHECKS:

Counterfeit Checks/Check Fraud
Insuffifcient Funds
Check Verification Service
Increased Transaction Time (to account for the time it takes to process the check)
Bank Fees

CREDIT CARDS:

Merchant Swipe Fees
Merchant Account Fees
Credit Card Terminals
Data/Internet Lines
Chargebacks
Fraud (situations where the fraud comes back to the merchant)

For consumers, the direct costs are:

CASH:

Loss/Theft
Access Costs/Fees (ATM fees, teller fees, etc.)
Storage

CHECKS:

Banks Fees
Check Printing Fees
Increased Fraud Risk
Privacy Risk (full name, address, telephone number and driver's license number is usually part of the check acceptance process)

CREDIT CARDS:

Annual/Monthly Fees

BTW -- Have you ever noticed that many cash heavy businesses offer some form of reward if you report not receiving a receipt to a manager? It's because they have a high rate of employee skimming without that policy in place.

Re: Merchants may be allowed to charge extra for credit cards

Dadaluma83 — Tue, 10 Jul 2012 05:14:00 GMT

cassembler wrote:
It basically equates to a tax that the card processors can (and will) levy on the public. They'll use the money to offer more generous rewards, which we end up paying for with higher prices. More people sign up for more cards, and viola! Cash is further reduced from the equation, further pressuring merchants to accept cards.

The end result is that cash users come out the worst, since they pay the same elevated prices merchants charge to cover the credit card costs; but ultimately all consumers lose. Oligopolies suck sometimes.

Actually it is basically a tax that the merchants can and will levy on the public if they get the chance. Card processors are fighting it.

A cash discount and a surcharge while they may seem like simple semantics they are actually very different. Yes the merchant builds the cost of accepting credit cards into the price of the goods, the same way they build the cost of the electricity to run the building, the labor cost to pay the employees, the rent on the building, etc into the price.

Merchants are allowed to offer a cash discount but by and large they don't do it except for a handful of gas stations. They want that extra swipe fee money for themselves. A surcharge just punishes people who use a credit card, not reward cash paying customers.

Lets say a bag of chips cost 4 dollars. With a cash discount the advertised price can be 4 dollars, but if you pay in cash you can buy it for 3.80 lets say. A merchant is allowed to do that now by the durbin amendment. It rewards cash paying customers.

However with a surcharge the cash paying customer pays 4 dollars for the bag of chips, the same price they are paying now, while the credit card customer will pay 4.10 for it. Nobody wins but the merchant. Cash paying customers stay the same, and credit card users are punished.

The merchants basically want to accept electronic payments for free, or at a very little cost. They will not lower their prices from where they are now. They will merely make the customer pay the processing costs.

Re: Merchants may be allowed to charge extra for credit cards

thrasher865 — Tue, 10 Jul 2012 12:28:06 GMT

cassembler wrote:
It basically equates to a tax that the card processors can (and will) levy on the public. They'll use the money to offer more generous rewards, which we end up paying for with higher prices. More people sign up for more cards, and viola! Cash is further reduced from the equation, further pressuring merchants to accept cards.

The end result is that cash users come out the worst, since they pay the same elevated prices merchants charge to cover the credit card costs; but ultimately all consumers lose. Oligopolies suck sometimes.

Nope. This will have quite the opposite effect. It will make rewards cards much more worthless. Even if you get 5% cash back, you then have to pay 2%+ on your transaction. Card issuers will have to bump up the rewards just so the consumer can break even on using their cards.

Re: Merchants may be allowed to charge extra for credit cards

thrasher865 — Tue, 10 Jul 2012 12:29:14 GMT

stan_the_man wrote:

BTW -- I believe the way it works is the it is a cash discount, rather than a CC surcharge in most businesses.

Thats the way it works now, due to Visa and MC's merchant agreements. After this lawsuit, it will be a surcharge.

Re: Merchants may be allowed to charge extra for credit cards

Dadaluma83 — Tue, 10 Jul 2012 14:17:12 GMT

Well looks like the merchants true colors are showing. I don't mean the mom and pop places I mean big retail like Wal Mart and Home Depot that were the driving force behind all this.

The whole argument that brought on the Durbin amendment that swipe fees are too expensive and if they were lowered the merchants would pass the savings on to the customer. Well that was a load of baloney and this proves it.

Merchants don't want to offer a cash discount, even though it is perfectly legal to do so to reward people who use a cheaper method of payment. Instead they want to keep charging the same, and charge credit card customers extra. Of course the consumer loses out in all this. Banks are looking to recover costs lost from the durbin amendment by charging more fees or increasing current ones, the merchants are looking to nickle and dime their customers too.

So what sort of fee will the merchants look to next? How about charge for parking? After all the cost to maintain the parking lot is built into the price of goods that everyone pays. So people who take public transportation are subsidizing people who drive their own vehicle. Same argument as cash vs credit.

This is just aggrivating because instead of now where I just walk into a store and do my shopping, after this every time I go into a store for the first time I will have to ask if they charge extra for credit card payments. Even if I am paying with cash, I will walk out on principle.

Re: Merchants may be allowed to charge extra for credit cards

sunshine7157 — Tue, 10 Jul 2012 15:26:27 GMT

Dadaluma83 wrote:
Well looks like the merchants true colors are showing. I don't mean the mom and pop places I mean big retail like Wal Mart and Home Depot that were the driving force behind all this.

The whole argument that brought on the Durbin amendment that swipe fees are too expensive and if they were lowered the merchants would pass the savings on to the customer. Well that was a load of baloney and this proves it.

Merchants don't want to offer a cash discount, even though it is perfectly legal to do so to reward people who use a cheaper method of payment. Instead they want to keep charging the same, and charge credit card customers extra. Of course the consumer loses out in all this. Banks are looking to recover costs lost from the durbin amendment by charging more fees or increasing current ones, the merchants are looking to nickle and dime their customers too.

So what sort of fee will the merchants look to next? How about charge for parking? After all the cost to maintain the parking lot is built into the price of goods that everyone pays. So people who take public transportation are subsidizing people who drive their own vehicle. Same argument as cash vs credit.

This is just aggrivating because instead of now where I just walk into a store and do my shopping, after this every time I go into a store for the first time I will have to ask if they charge extra for credit card payments. Even if I am paying with cash, I will walk out on principle.

Agreed.

Re: Merchants may be allowed to charge extra for credit cards

marty56 — Tue, 10 Jul 2012 22:02:33 GMT

I would support this since online sales are really hurting small business - forcing them to cut margins and it better than not taking CCs at all.

OT - Amazon just started charging tax in Texas. In part from complaint of local business.

Re: Merchants may be allowed to charge extra for credit cards

cassembler — Wed, 11 Jul 2012 01:44:04 GMT

thrasher865 wrote:
cassembler wrote:
It basically equates to a tax that the card processors can (and will) levy on the public. They'll use the money to offer more generous rewards, which we end up paying for with higher prices. More people sign up for more cards, and viola! Cash is further reduced from the equation, further pressuring merchants to accept cards.

The end result is that cash users come out the worst, since they pay the same elevated prices merchants charge to cover the credit card costs; but ultimately all consumers lose. Oligopolies suck sometimes.
Nope. This will have quite the opposite effect. It will make rewards cards much more worthless. Even if you get 5% cash back, you then have to pay 2%+ on your transaction. Card issuers will have to bump up the rewards just so the consumer can break even on using their cards.

You're right - I misread the article. I was thinking processors were pushing for higher fees, not merchants pushing for surcharges.

Re: Merchants may be allowed to charge extra for credit cards

bettercreditguy1 — Thu, 12 Jul 2012 07:27:16 GMT

I am a merchant and also a cc user. Rewards cards cost the merchant more as the Merchant pays the cash back/ extra rewards from his profit, not the cc card issuer. This is why people whom have a Titanium Card (really high limits) can not use a charge card for new automobile purchase. Example, a 5% cash rewards on a $50,000. car would be a hit in the amount of $ 2500. just for the reward portion plus the transaction fees, etc. The merchant also must adhere to cc card isuer guidlines and soon will be required to upgrade swipe card readers to read the new implant chips. New swipe card terminals can approach $700.00 each. Pros and cons of each payment media were discussed earlier. However, it is almost safely impossible to carry enough cash to pay for gasoline, a back to the school trip at the mall, a week long vacation, etc. The other item not discussed is when a merchant accepts a cc for a payment, there is a waiting period of up to five days before those funds are transferred to the merchant account thus creating a float or short term loan.

Re: Merchants may be allowed to charge extra for credit cards

stan_the_man — Thu, 12 Jul 2012 13:39:04 GMT

bettercreditguy1 wrote:
I am a merchant and also a cc user. Rewards cards cost the merchant more as the Merchant pays the cash back/ extra rewards from his profit, not the cc card issuer. This is why people whom have a Titanium Card (really high limits) can not use a charge card for new automobile purchase. Example, a 5% cash rewards on a $50,000. car would be a hit in the amount of $ 2500. just for the reward portion plus the transaction fees, etc. The merchant also must adhere to cc card isuer guidlines and soon will be required to upgrade swipe card readers to read the new implant chips. New swipe card terminals can approach $700.00 each. Pros and cons of each payment media were discussed earlier. However, it is almost safely impossible to carry enough cash to pay for gasoline, a back to the school trip at the mall, a week long vacation, etc. The other item not discussed is when a merchant accepts a cc for a payment, there is a waiting period of up to five days before those funds are transferred to the merchant account thus creating a float or short term loan.

You were probably misinformed about how the rewards work. Yes, certain premium cards do have higher swipe fees (and these cards usually pay higher rewards); however, you would never pay for 5% cashback though -- the merchant doesn't directly pay for any rewards:

http://usa.visa.com/download/merchants/visa-usa-interchange-reimbursement-fees-june2012.pdf

Re: Merchants may be allowed to charge extra for credit cards

FrugalRican — Thu, 12 Jul 2012 13:44:00 GMT

+1 Stan.

As a former business owner, it was the swipe fee that could become a killer.

I've never heard of having to pay for someone's rewards on their card.

Re: Merchants may be allowed to charge extra for credit cards

Revelate — Thu, 12 Jul 2012 14:30:43 GMT

FrugalRican wrote:
+1 Stan.

As a former business owner, it was the swipe fee that could become a killer.
I've never heard of having to pay for someone's rewards on their card.

Whoa, you guys are auto-dimissing what could be right, and is at least partially so.

There are different tiers when it comes to processing merchant transactions, and under at least the typical 3 tier model I know regular bland cards are tier 1 (fully qualified) and rewards cards are tier 2 (partially qualified). I don't know where they fall on a 6 tier model which I've heard is being more and more used or what the specific differences are.

Anyway, to my limited knowledge the rates on tier 2 are higher than tier 1; I don't know if this is the full rewards price, but it's non-zero.

Re: Merchants may be allowed to charge extra for credit cards

FrugalRican — Thu, 12 Jul 2012 14:41:59 GMT

You're paying "something", but it's not specifically the "reward structure" of that particular card.

At least, 6 years ago, that's not how it was for me... "paying for rewards".

Do merchants pay MORE for processing a rewards card? Yes.

Are they paying the full amount of the rewards owed to the consumer? No.

Re: Merchants may be allowed to charge extra for credit cards

stan_the_man — Thu, 12 Jul 2012 14:47:24 GMT

Revelate wrote:
FrugalRican wrote:
+1 Stan.

As a former business owner, it was the swipe fee that could become a killer.
I've never heard of having to pay for someone's rewards on their card.

Whoa, you guys are auto-dimissing what could be right, and is at least partially so.

There are different tiers when it comes to processing merchant transactions, and under at least the typical 3 tier model I know regular bland cards are tier 1 (fully qualified) and rewards cards are tier 2 (partially qualified). I don't know where they fall on a 6 tier model which I've heard is being more and more used or what the specific differences are.

Anyway, to my limited knowledge the rates on tier 2 are higher than tier 1; I don't know if this is the full rewards price, but it's non-zero.

The spread ranges from 0% on up to a max of 95 basis points (0.95%) for Visa cards:

http://usa.visa.com/download/merchants/visa-usa-interchange-reimbursement-fees-june2012.pdf

One issue smaller merchants may run in to is that merchant service providers heavily advertise the swipe fees for the lowest cost/tier of cards and bury the costs of the more expensive cards. They do this, because 1) the system is complex but also 2) because it allows them to hide important details. It's entirely possible that you pay more than a 1% spread between the cheapest and most expensive cards because of that marketing.

Re: Merchants may be allowed to charge extra for credit cards

trumpet-205 — Thu, 12 Jul 2012 16:46:54 GMT

marty56 wrote:
I would support this since online sales are really hurting small business - forcing them to cut margins and it better than not taking CCs at all.

OT - Amazon just started charging tax in Texas. In part from complaint of local business.

Not really, if any online sales pay more on interchange fee than retailers. On average online sale pays 1% more interchange fee since card is not present during transaction. Like all retailer (be it B&M or online), their profit margin is around 2% to 3%, not a lot.

These merchants already included interchange fee into the price. I really don't see the point of whining. You could say that if using certain payment method you can get a discount, like Target REDCard gives you 5% discount on the spot, to discourge the use of regular CC.

But charging additional fee to accept CC is downright stupid.

Re: Merchants may be allowed to charge extra for credit cards

Dadaluma83 — Fri, 13 Jul 2012 02:32:34 GMT

So if this goes into effect looks like I am back to paper cash and debit cards. will keep a no AF card to keep my score up.No way will I pay extra to use a card. In fact as a way to screw with the merchant and make their life as difficult as possible I will pay paper cash whever possible and use debit only when cash isnt accepted, like online.

I have done some google searching on this topic of course but one thing I haven't really figured out is if this surcharge only applies to credit cards, or if it will cover debit cards as well. I can just see some rather greedy merchants try to tack on the surcharge for debit as well.

It will really hurt online purchases like plane tickets, hotels, car rentals because a credit card is basically your only choice.

I hope a compromise can be worked into this. The big argument is when someone buys like a 75 cent bag of chips on the card the merchant actually loses money. A fair compromise would be to surcharge purchases less than 10 dollars so the merchant doesnt get their profit margin eaten up on small purchases. Large purchases should already have the interchange fee built into the price. Another way could be to surcharge only swiped transactions because card not present transactions like online it is kinda hard not to use a card and would be totally unfair to the customer if in order to buy something online they had to use their credit card, and pay 3% or whatever of the cost of the product as well.