Credit card swipe fees start Sunday 1/27

[epilnk]

Am I misunderstanding something here?

It remains to be seen whether the merchants that choose to take advantage of this settlement will actually lower their prices for cash customers.

At this point, it's just a theory.

Many believe that merchants will keep their prices the same for cash customers, and add the fee for credit card customers, meaning no customers win.

I think it's important to carefully observe which businesses choose to pass along the swipe fees, and note whether they lower their prices by a comparable amount. If not, they deserve to be called out on it.

I'm guessing the more likely outcome is that a price differential develops as prices more gradually adjust, not that there is a short term lowering of prices. Unfortunately since I live in CA I guess I won't have the option of declining the fee entirely, so I'll just continue my current practice of using credit at big box stores, but cash or debit for small local businesses. I pay the same price either way, but choose whether the difference goes into the local economy or to Visa.

[Mister Whale]

Amen, brother Jack, AMEN. Like me, you must be a retailer, probably one with a lot of small transactions every day.

I have posted my personal experiences here regarding credit card fees and my experiences with accepting cash (I accepted cash only, about 4000-5000 transactions a day between several locations, until a few years ago -- today, about half of my transactions are with credit cards). And like you, I was shouted down with strawman arguments.

The power of the "free money" is strong here, IMO -- strong enough to make an ordinarily sensible group of folks fairly delusional in their rush to defend credit card companies and their monopoly on electronic payment options.

Nobody is forcing you to do anything. The new rules give you a choice which you didn't have before. A choice is exactly the opposite of force.

People who continue to use cash instead of switching to electronic payment increase the costs to business and society as a whole associated with the use of cash. Because we all pay the same prices, it seems pretty obvious that I have to pay for that Brinks truck out front.

You are making claims out of thin air. You see, there is a very good way of determining those costs you hypothesize. Free markets make a choice and optimize efficiency. If retailers decide that paying 2% to 4% of their revenues to credit card companies is cheaper than handling cash, then they will make that choice. If they find that it is not worth giving up 2% to 4% of their revenues to credit card companies rather than handle cash, then they will make that choice. Consumers also get a choice of whether they want to pay a 2% to 4% sales tax on all of their purchases. You will have your choice of patronizing all cash/debit or all credit businesses. Free markets are about choice. Granted, the credit card market is still far from a free market because of other anti-competitive restrictions.

And as tbf points out, the real battle is not between cash and credit -- it is between debit and credit. Previously you were forced to pay the same amount when using debit and credit, even though debit fees are much lower.

These businesses that charge a 4% fee on top of my CC purchases will lose my business. Take note of it now, Retailers.

They are already charging you for it at every business you patronize and apparently you didn't know it. You just can't see it because the Visa and Mastercard rules are intended to conceal it from you. Wouldn't it be nice to see it up front and have a choice whether you want to pay it or choose a different business? You couldn't do that under the old rules.

I would also add that I don't think I am imagining those cash trucks I see.

However, you may be imagining that those drivers are skimming off 2% to 4% of everything they carry.

[jeffyscott]

ARCO gas stations in my area stopped taking credit cards over 25 years ago. The price of gas at an ARCO is usually about 10 cents a gallon cheaper.

Very few offer a cash discount in my area and as long as I am getting a 3-5% rebate on gas, 10 cents per gallon is too small a discount at the current price. I'd be paying more for less convenience.

Since I'd have the hassle of going in the store, the cash discount would have to be more that the CC rebate. If they had a discount to pay at the pump with debit card, then the discount would just have to be equal to the rebate.

[jpsfranks]

ARCO gas stations in my area stopped taking credit cards over 25 years ago. The price of gas at an ARCO is usually about 10 cents a gallon cheaper.

Very few offer a cash discount in my area and as long as I am getting a 3-5% rebate on gas, 10 cents per gallon is too small a discount at the current price. I'd be paying more for less convenience.

Since I'd have the hassle of going in the store, the cash discount would have to be more that the CC rebate. If they had a discount to pay at the pump with debit card, then the discount would just have to be equal to the rebate.

ARCOs in my area (Seattle) recently started accepting credit cards and have two prices, one for cash/pin debit and one for credit (per my observation the cash/debit price has been $0.10/gallon cheaper). They also dropped the pin debit fee ($0.35). They have been advertising the change a lot and I had assumed until now it applied to all ARCOs, but it looks like it's just a pilot in Seattle at the moment.

http://www.arco.com/sectiongenericartic ... Id=7071531

[Alex Frakt]

FWIW, I manage my wife's small (two attorney) law firm. Most of our work is flat fee, payable in advance. We did not accept credit or debit cards for the first seven or eight years we were in business. When we decided to take them, the best offer we could get was a 2.7% fee for all Visa/MC/Discover cards and 3% for AMEX plus a small transaction charge. To make things fair to our customers and comply with the merchant services agreement, we raised our prices 3%, but always let people know there is a 3% discount for payment by cash or check.

For those wondering about the costs of handling cash and check, in our case it is 0 dollars. Our bank is literally across the street from my office, there is no charge for depositing cash and I never go above my 75 free transactions per month, so there is no charge for depositing the checks either. It does take 30 minutes or so of my time each week to set up a deposit or two, but that's part of my job, it's not like I could hire myself out for that 30 minutes instead.

[rkhusky]

Here is a brief article on some research into the cost of money: http://ieeexplore.ieee.org/stamp/stamp. ... r=06203983.

[sscritic]

ARCOs in my area (Seattle) recently started accepting credit cards and have two prices, one for cash/pin debit and one for credit (per my observation the cash/debit price has been $0.10/gallon cheaper). They also dropped the pin debit fee ($0.35). They have been advertising the change a lot and I had assumed until now it applied to all ARCOs, but it looks like it's just a pilot in Seattle at the moment.

http://www.arco.com/sectiongenericartic ... Id=7071531

Correct in my experience. It's not in LA.

[sscritic]

Ok, so the fees have been in effect for 24 hours. Where are the reports from the field? Who has been charged a swipe fee?

If you haven't run across it yet, go spend more money today. They must be out there somewhere.

Just look at the title of this thread. We were promised there would be fees on 1/27. Doesn't anyone keep their promises anymore?

[JamesSFO]

It's not just the pure cost of cash, there is a key element of credit cards which is the credit piece. For many businesses, having customers with access to credit enables those customers to buy more and that is a key benefit for those businesses.

[ResNullius]

Another way to look at this. Consider the fact that prior to Sunday every business, large or small, had already factored in the transaction costs of accepting credit cards as a part of their overhead. If these same business now add a charge, they now would be charging customers twice for the same thing. Business should first drop their prices, then they could raise them back in order to avoid charging the customer twice. I'll be looking to the signage and notices, and I'll never return to a place that imposes these additional charges. I doubt seriously that many businesses will attempt to impose these new charges.

[understandingJH]

Actually there are more negatives beyond the reward card holding bunch, see http://www.laweconcenter.org/images/articles/zywicki_interchange.pdf.

Uh, you do realize that this study was paid for by Mastercard, don't you?

And the problem with that is what exactly? In short, the study should stand on it's own merit, not based on who funded it.

Read up on genetic logic fallacies, here, here, and here.

Also read up on Circumstantial Ad Hominem attacks here and here.

[SSSS]

Ok, so the fees have been in effect for 24 hours. Where are the reports from the field? Who has been charged a swipe fee?

If you haven't run across it yet, go spend more money today. They must be out there somewhere.

Yeah, I started the thread moreso for scouting & field reports than for arguments about whether it's good or bad for merchants to charge the fees.

I went to two restaurants yesterday and they were both clear. I'll be scouting a third restaurant shortly.

There may be places that are planning on charging but haven't implemented yet due to the requirements for signage, notification, and point-of-sale reprogramming.

Somebody has to be planning on charging, otherwise they wouldn't have spent millions of dollars on a multi-year lawsuit.

[JamesSFO]

Actually there are more negatives beyond the reward card holding bunch, see http://www.laweconcenter.org/images/articles/zywicki_interchange.pdf.

Uh, you do realize that this study was paid for by Mastercard, don't you?

And the problem with that is what exactly? In short, the study should stand on it's own merit, not based on who funded it.

Read up on genetic logic fallacies, here, here, and here.

Also read up on Circumstantial Ad Hominem attacks here and here.

Irrespective of the funding source, there is useful information for people to read when considering the role of credit cards (and interchange fees).

I would also ask do you have examples of contrary studies (from) any (funding) source?

[HueyLD]

Bought a few things from a grocery store (the second largest grocer in the nation). No surcharge yet even though they are allowed to surcharge here.

I also heard on the CBS news that Wal-Mart has indicated that it won't implement such a surcharge. However, we never know if any merchant will start charging in the future. I think it's fair to provide cash discount for customers because it does cost merchants more to accept credit cards. When and if cash discounts become a common practice, I will just carry more cash around. Hopefully the robbery rate won't go up as a result of having more cash in various hands.

What will happen to the prediction of a "cashless" society?

[rkhusky]

I'll be looking to the signage and notices, and I'll never return to a place that imposes these additional charges. I doubt seriously that many businesses will attempt to impose these new charges.

It's a herd thing. Once enough merchants in a certain segment begin accessing the fees (or offering a cash discount), the rest will follow. I would guess it would start in areas that have thin profit margins, like large grocery stores or fast food restaurants.

[understandingJH]

Hereis a study not necessarily on the specific issues discussed thus far, but it does have an interesting chart at the end about how CC companies make their money:

2001 for Visa and MasterCard:

Interest 71%
Interchange 14%
Penalty Fees 7%
Cash-Advance 5%
Annual Fees 2%
Enhancements 1%

1999 for AMEX:

Merchant Fees 70%
Card Fees 16%
Finance Charges 14%

[SSSS]

I'll be looking to the signage and notices, and I'll never return to a place that imposes these additional charges. I doubt seriously that many businesses will attempt to impose these new charges.

It's a herd thing. Once enough merchants in a certain segment begin accessing the fees (or offering a cash discount), the rest will follow. I would guess it would start in areas that have thin profit margins, like large grocery stores or fast food restaurants.

Keep in mind that most national chains won't be able to implement the fee due to having a presence in the 10 states that ban it. So local chains that charge the fee will be at a competitive disadvantage to national chains.

You also have to factor in how much grocery stores will have to spend restocking merchandise that customers abandon at checkout after finding out about the fee and deciding to go elsewhere. Even though the businesses are required to post signage on their entrance, I suspect there will be many cases where customers don't notice the signage & choose to abandon at the register.

[sscritic]

Somebody has to be planning on charging, otherwise they wouldn't have spent millions of dollars on a multi-year lawsuit.

First crazy theory: They sued just on principle with no intent to implement.

Second crazy theory: The actually sued to force VISA and MC to pay them when they accepted a card, and this was the best they could get in the settlement.

[sscritic]

Even though the businesses are required to post signage on their entrance, I suspect there will be many cases where customers don't notice the signage & choose to abandon at the register.

If only those who can't read signs like "Express Lane, 10 items or less" would choose to abandon at the register rather than persist with their purchases.

Pet Peeve number 238 on my list (I have a lot of them).

[HueyLD]

When I traveled in other countries, it was not unusual for merchants to charge credit card customers a 3-4% fee and they told me as soon as I pulled out my credit card. I don't see why they cannot at least try to implement a surcharge in the U.S.

The free market competitive force is going to decide if such surcharges are sustainable. I think we can each decide if we want to shop at places that surcharge their credit card customers.

[JRA]

I think we will have to wait and see how this plays out, but I suspect that the consumer, not a law, will determine to what degree merchants are able to charge these fees. Since I don't see society returning to a cash/check economy, I suspect that little will change and that some merchants will go through the school of hard knocks before things settle down.

[ThatGuy]

If only those who can't read signs like "Express Lane, 10 items or less" would choose to abandon at the register rather than persist with their purchases.

I've done this many a time. Any time I get up to a register and there's a sign for a credit surcharge I walk away, and refuse to come back to that store. I hate carrying cash, and if California loses it's way and I start having to pay for credit, I'll move to debit. I'd really prefer not to have tons of withdrawals from my checking account, however. It's easier to see what's going on when the transactions are in a separate account and I just make one large payment from checking each month.

[Default User BR]

It's a herd thing. Once enough merchants in a certain segment begin accessing the fees (or offering a cash discount), the rest will follow. I would guess it would start in areas that have thin profit margins, like large grocery stores or fast food restaurants.

Cash discount was already available to them. Few merchants outside of gas stations took advantage. I predict that few will ever do surcharges.


Brian

[Default User BR]

First crazy theory: They sued just on principle with no intent to implement.

Second crazy theory: The actually sued to force VISA and MC to pay them when they accepted a card, and this was the best they could get in the settlement.

That's what I was thinking, or maybe lower merchant fees. I think this was a tactical move by the CC companies to throw the ball into the other court.


Brian

[SSSS]

California

Isn't California one of the 10 states where passing credit card fees on to customers is a violation of state law?

[sscritic]

California

Isn't California one of the 10 states where passing credit card fees on to customers is a violation of state law?

"loses its way" To be read as changes its laws. The word "if" was another clue.

[Epsilon Delta]

If only those who can't read signs like "Express Lane, 10 items or less" would choose to abandon at the register rather than persist with their purchases.

Pet Peeve number 238 on my list (I have a lot of them).

If businesses would use grammatically correct signs fewer people would disregard them.

[rkhusky]

Keep in mind that most national chains won't be able to implement the fee due to having a presence in the 10 states that ban it. So local chains that charge the fee will be at a competitive disadvantage to national chains.

I wonder if a national chain could sue, by claiming that states don't have the authority to ban fees, based on the Commerce Clause.

[Jack]

I've done this many a time. Any time I get up to a register and there's a sign for a credit surcharge I walk away, and refuse to come back to that store.

You are already paying a surcharge of 2% to 4% on every purchase you make. It is just as if there were a 2% to 4% sales tax on every purchase. The old credit card company rules are just hiding that surcharge from you. You can see why the credit card companies spent millions of dollars fighting transparency on surcharges because it has obviously been successful in convincing most people that they aren't paying it.

It is always amusing to read the rewards card threads in which people congratulate themselves on paying the banks, say, a 3% surcharge and proudly getting 1% back. They banks are playing you like chumps and laughing all the way to the bank, so to speak.

[ThatGuy]

No Jack, the price is the same whether I pay by check, debit, or credit at the Supermarket, or Amazon, or countless other places. Adding a surcharge on top of that listed price means I won't shop there anymore. I don't pay extra for shipping, nor will I for a credit card. I don't care if the surcharge is hidden, the cost of feeding cattle is hidden as well.

I go where the price is lowest.

[Alex Frakt]

I've done this many a time. Any time I get up to a register and there's a sign for a credit surcharge I walk away, and refuse to come back to that store.

You are already paying a surcharge of 2% to 4% on every purchase you make. It is just as if there were a 2% to 4% sales tax on every purchase. The old credit card company rules are just hiding that surcharge from you. You can see why the credit card companies spent millions of dollars fighting transparency on surcharges because it has obviously been successful in convincing most people that they aren't paying it.

Exactly. Merchants calculate their costs and set their prices accordingly. If they can't surcharge, they will raise all of their prices sufficiently to cover the credit card service fees. BTW, the cost of handling the extra cash if credit card use lessens is close to $0. There are certain fixed costs to handling cash, but they are already paying those to handle their current cash sales. The marginal cost of processing bills and coins is extremely low.

[ThatGuy]

Except it's not a surcharge on the 26th, it's a cost of doing business. Like paying for the lights to be on, or the internet for transactions to occur.

Now it can be a specifically broken out cost, when countless other things are not. Bottomline, the price paid is the determining factor for my money, and I dislike high prices or extra gotcha charges.

[Alex Frakt]

No Jack, the price is the same whether I pay by check, debit, or credit at the Supermarket, or Amazon, or countless other places. Adding a surcharge on top of that listed price means I won't shop there anymore. I don't pay extra for shipping, nor will I for a credit card. I don't care if the surcharge is hidden, the cost of feeding cattle is hidden as well.

I go where the price is lowest.

Of course you pay for shipping and credit card processing and cattle feed. If you are being economically rational, all that matters is the final cost, not whether specific charges are bundled or unbundled.

[HueyLD]

Of course you pay for shipping and credit card processing and cattle feed. If you are being economically rational, all that matters is the final cost, not whether specific charges are bundled or unbundled.

+1.

For example, Costco may advertise "free shipping" on its website for certain items, but the web cost for a free shipping item is almost always higher than the warehouse cost by the amount of shipping charge.

In fact, a lot of places do offer cash discounts, but you have to ask for them. For places that charge the same prices for cash or credit, cash buyers are subsidizing credit card buyers for sure and using credit cards then is a no brainer. The new surcharge should give customers a choice of convenience vs. cost.

I, too, prefer price transparency and I would take cash discount in most instances.

[marbat]

I work at one of AXP/V/MA, and specifically have been on a project focusing on this area.

To make some things clearer:

• Surcharging on V/MA is not legal where AXP is not also surcharged but is accepted. This means that if AXP is surcharged, V/MA can be as well. However, surcharging is currently against AXP's terms of service, so the Merchant would risk large compliance fees by AXP if they were to surcharge AXP.
• Surcharging is not legal in the 10 named states, which make up a large percentage of Credit card transactions.
• Surcharging on Debit is not legal. This includes PIN and Signature debit (even when you hit "Credit" after swiping your Debit card).
• Surcharging cannot exceed cost of acceptance, or if cost of acceptance is unknown, a Merchant can use the average cost of acceptance for their Merchant Segment, as published by V/MA. There is a maximum surcharge cap of 4%. If anyone is paying more than 4% to accept Credit cards, they are getting ripped off by their Acquiring Bank, not AXP/V/MA. All Merchants should be asking for "Interchange Plus" rate contracts, which give the best possible Merchant Discount Rates. Interchange Plus contracts typically see a cost of acceptance for Credit in the 1.2-2.7% range, and for Debit in the 0.25-1.25% range (mostly closer to 0.25% since most Debit Interchange is regulated).
• Merchants who want to surcharge must complete the respective V or MA registration process and must have clearly displayed signage at the Point of Entry and Point of Sale. Through the registration process, there are technical requirements that the Merchant must fulfill, including sending per-transaction surcharge cost through their POS systems to the payment network.
• Like everyone is mentioning, the cost of Credit card acceptance is already built into the price you pay for goods. Allowing surcharging for Merchants that already accept cards will let them run an extra fee as a profit center and try to blame it on V/MA. If you think that the price of goods will go down because surcharging is now allowed, you are unfortunately delusional . The one (and essentially, only) area where surcharging makes sense is for businesses that previously were unable to accept cards, because now they will be able to legally offset cost and open acceptance.
• Interchange is the fee paid by the Acquiring bank to the Issuing bank. The Acquiring bank passes it down to the Merchant, so effectively the Merchant is paying the Issuing bank for providing its Cardholders. No Interchange is ever collected by V/MA. A bunch of misdirected hate here! V/MA do not profit off of Merchants or Cardholders - the only fees they charge are to banks, and they are very minor in comparison to Interchange.

If anyone has any questions about this topic, feel free to post them here or PM me!

edit: a cash discount is a much better way to achieve a benefit to a cash-paying customer because it actually passes the savings from the Merchant to the customer!

[Default User BR]

Exactly. Merchants calculate their costs and set their prices accordingly. If they can't surcharge, they will raise all of their prices sufficiently to cover the credit card service fees.

But that's shared by all customers, not just the credit-card users. It is not the case that the CC user's costs will necessarily remain the same whether the surcharge is there or not. Sellers might lower prices, or they might figure people are used to that level and the surcharge will be extra profit, at least in the short term. Generally competition will level things over time.


Brian

[marbat]

Exactly. Merchants calculate their costs and set their prices accordingly. If they can't surcharge, they will raise all of their prices sufficiently to cover the credit card service fees.

But that's shared by all customers, not just the credit-card users. It is not the case that the CC user's costs will necessarily remain the same whether the surcharge is there or not. Sellers might lower prices, or they might figure people are used to that level and the surcharge will be extra profit, at least in the short term. Generally competition will level things over time.


Brian

You are exactly right Brian. A better mechanism is the cash discount. This way, the fee doesn't become a profit center for the Merchant who wants to trick its customers into paying more. There will be 0 Merchants that lower prices as a result of newly-legalized surcharging, because the Merchants that compete heavily on price already offer cash discounts!

[interplanetjanet]

I'd really prefer not to have tons of withdrawals from my checking account, however. It's easier to see what's going on when the transactions are in a separate account and I just make one large payment from checking each month.

One solution to that problem is to have a separate "debit" account with a buffer in it. Use this for debit and/or ATM transactions, and then "pay it off" monthly. I do this and have separate accounts for both debit transactions and paper checks with no overdraft, this also compartmentalizes the damage in the event of a debit card or check compromise. I'd experienced both of those in the past, though none have happened since I implemented this system (of course!).

I normally use credit for the majority of purchases and, living in California, this decision doesn't have an immediate consequence for me. However, I plan on running all the transactions I normally use credit for through my "debit" account in the months leading up to a (hopefully soon) mortgage application, to avoid the appearance of any debt which could throw off my DTI.

[jeffyscott]

ARCO gas stations in my area stopped taking credit cards over 25 years ago. The price of gas at an ARCO is usually about 10 cents a gallon cheaper.

Very few offer a cash discount in my area and as long as I am getting a 3-5% rebate on gas, 10 cents per gallon is too small a discount at the current price. I'd be paying more for less convenience.

The only station I had noticed with separate cash/credit prices posted appears to have given up on their experiment. I'm not sure when they started with the cash discount, but it was in place for only a few months, at most. I happened to notice today that they are back to posting just one price.

[linuxuser]

Almost all the gas stations in central NJ have cash/credit price except for Hess.

[marbat]

Wanted to throw in one more thing:

From our assessment, surcharging is most likely to be successful (not competed away as consumers realize it doesn't help them) in an eCommerce scenario where there is no ease of product substitution. Let's say hypothetically, American Express removes their no-surcharge rule (most likely involuntarily), which then opens Visa/MasterCard surcharging to all locations that accept American Express. The obvious example that comes to mind is the airlines. Want to buy your tickets from us? That'll be a 2% surcharge. Want to pay in cash? Too bad, you can only book online. Basically turns into 2% of pure profit for them.

[JamesSFO]

Somebody has to be planning on charging, otherwise they wouldn't have spent millions of dollars on a multi-year lawsuit.

First crazy theory: They sued just on principle with no intent to implement.

Second crazy theory: The actually sued to force VISA and MC to pay them when they accepted a card, and this was the best they could get in the settlement.

My guess is it was part of a variety of negotiating tactics around the interchange fees and is another option for merchants to use in negotiations as opposed to actually implementing.

[jeffyscott]

The obvious example that comes to mind is the airlines. Want to buy your tickets from us? That'll be a 2% surcharge. Want to pay in cash? Too bad, you can only book online. Basically turns into 2% of pure profit for them.

You could simply use your debit card to avoid the fee.

[marbat]

The obvious example that comes to mind is the airlines. Want to buy your tickets from us? That'll be a 2% surcharge. Want to pay in cash? Too bad, you can only book online. Basically turns into 2% of pure profit for them.

You could simply use your debit card to avoid the fee.

You have a corporate issued debit card that you're required to use for all your work-related flights?

I know it's not YOUR money, but it's still extra profit for them.

[RyeWhiskey]

I'm relatively new to the world of credit cards, but assuming the charges are between 2% and 4%, doesn't this effectively make using a cashback card a necessity when using credit? And another question, if companies have been passing the cost of using credit cards on to the customers all along, doesn't this mean that if you weren't using cashback you were actually losing money?

[Jack]

Like everyone is mentioning, the cost of Credit card acceptance is already built into the price you pay for goods. Allowing surcharging for Merchants that already accept cards will let them run an extra fee as a profit center and try to blame it on V/MA. If you think that the price of goods will go down because surcharging is now allowed, you are unfortunately delusional . The one (and essentially, only) area where surcharging makes sense is for businesses that previously were unable to accept cards, because now they will be able to legally offset cost and open acceptance.

Surely you must be saying that you do not believe in free markets. How do you think prices are set? Do you believe that merchants do not compete? If you believe that merchants as a whole can arbitrarily add a 4% surcharge to their products, your must also believe that merchants can arbitrarily add 4% to their prices even without surcharges. Do you think customers are too stupid for free markets to set prices? Let me modify your statement from above:

"Allowing surcharging shipping fees for Merchants that already accept cards have free shipping will let them run an extra fee as a profit center and try to blame it on V/MA FedEx. If you think that the price of goods will go down because surcharging shipping fees are now allowed, you are unfortunately delusional."

Yet we have functioning markets in which some retailers include shipping in the price and other retailers add shipping fees on to the price for the same product. And customers are perfectly capable of figuring out which is the better deal. And they also have the choice of avoiding shipping charges entirely by picking up the item at the store. You want to prevent merchants from competing and prevent customers from having choices.

Interchange is the fee paid by the Acquiring bank to the Issuing bank. The Acquiring bank passes it down to the Merchant, so effectively the Merchant is paying the Issuing bank for providing its Cardholders. No Interchange is ever collected by V/MA. A bunch of misdirected hate here! V/MA do not profit off of Merchants or Cardholders - the only fees they charge are to banks, and they are very minor in comparison to Interchange.

Visa and MasterCard don't charge you fees! They are paid by the banks!
That's exactly what front-load mutual fund salesmen say. I don't charge you commissions! I'm paid by the mutual fund! It's the same dishonesty. Visa and MasterCard charge a fee on each transaction that is added to all the other fees merchants must pay. It eventually comes out of the customer's pocket.

Visa and MasterCard are the ones who set the interchange fees. Visa and MasterCard are the ones who set the anti-competitive rules that prevent transparency and hide their fees. Visa and MasterCard are the ones who lobby state legislatures for laws to prevent the visibility of credit card charges. Visa and MasterCard are the one who have spent millions to prevent customer choices.

[jeffyscott]

You have a corporate issued debit card that you're required to use for all your work-related flights?

I know it's not YOUR money, but it's still extra profit for them.

I don't have a corporate card of any sort, nor do I have work related flights. If the entity paying the bill does not want to pay this hypothetical fee, the entity will need to find another way to handle this charge. When do profits become "extra"? How much of the percentage that MC/Visa/Discover/Amex collect on every transaction made with their cards is "extra" profit?

[marbat]

It seems that you're harboring a little bit of hostility, so I hope that we're able to keep this conversation civil because I'd love to give you guys an insider's perspective while at the same time listening to how outsiders perceive things. Let's try to be friends! The last thing I want to do after a day of work is argue about work

Surely you must be saying that you do not believe in free markets.

I most certainly do believe in free markets over the long term. What I described is what will happen in the short term, as another poster picked up on. In the long term, what we've seen is that the surcharges go away because Merchants find that their customers become unwilling to pay them and shop at the Merchant's competitors. The problem with driving prices down is that surcharging is only on Credit, and not Debit. For most Merchants, it is very cumbersome to keep track of two different prices. And if you're doing product-level surcharging (think Visa Classic vs. Visa Signature or American Express Gold vs. Platinum), the problem gets even worse! Also to be clear, I wouldn't be against surcharging on all plastic (Debit included), but I still think surcharging wouldn't take off. From a psychological perspective, people don't respond well to penalties, but they do respond well to rewards. Why not offer a cash/Debit discount instead? It's the same thing, except with less potential for short-term Merchant abuse of the customer because of the greater transparency. Surcharging serves the same purpose, except, makes our brands look bad while doing it.

If you believe that merchants as a whole can arbitrarily add a 4% surcharge to their products, your must also believe that merchants can arbitrarily add 4% to their prices even without surcharges. Do you think customers are too stupid for free markets to set prices?

I believe that if a Merchant added a visible 4% surcharge to their products when paying with Credit, customers will do anything they can to avoid paying with Credit, including shopping elsewhere. If a Merchant adds a visible 4% surcharge across the board, customers will also do everything they can to shop elsewhere. The price of the item wouldn't decrease because Merchants can't surcharge Debit, so if anything, the surcharge would just go away. I guess that's the setting prices you're referring to? I don't think the customer is too stupid at all - in fact, in our studies, they're pretty good about going to the Merchants that don't surcharge instead. Again, why not do a discount for cash/Debit? Same effect, except without damaging our brand by making the cardholder feel like they are being penalized.

"Allowing surcharging shipping fees for Merchants that already accept cards have free shipping will let them run an extra fee as a profit center and try to blame it on V/MA FedEx. If you think that the price of goods will go down because surcharging shipping fees are now allowed, you are unfortunately delusional."

Yet we have functioning markets in which some retailers include shipping in the price and other retailers add shipping fees on to the price for the same product. And customers are perfectly capable of figuring out which is the better deal. And they also have the choice of avoiding shipping charges entirely by picking up the item at the store. You want to prevent merchants from competing and prevent customers from having choices.

I see your point, and I've considered it before. To be clear, I'm not against surcharging except in specific exploitative short-term cases that will, like you said, eventually be competed away (like the airline example). I just don't think it's a good business strategy if you're a Merchant because of the associated customer-facing optics. People are used to paying or not paying for shipping. They aren't used to paying or not paying for using a Credit card. Although you and I may be smart enough to figure out when it makes sense to pay the surcharge, not everyone is. Like it or not, Credit cards are much more complicated than shipping, and it's easier for a Merchant to take advantage of someone that doesn't understand them than it is for a Merchant to find someone that doesn't understand shipping . The reason that V/MA fought so hard for reasonable surcharge caps to be put in place is because "in the wild" Merchants had long been turning illegal surcharging into a profit center. For example, even if they were paying a 2.75% MDR, they were charging upwards of 10% for use of a Credit card. That's damaging to a payment network's brand, and I do believe that the networks have a right to limit that.

Visa and MasterCard don't charge you fees! They are paid by the banks!
That's exactly what front-load mutual fund salesmen say. I don't charge you commissions! I'm paid by the mutual fund! It's the same dishonesty. Visa and MasterCard charge a fee on each transaction that is added to all the other fees merchants must pay. It eventually comes out of the customer's pocket.

Average V/MA pricing to Issuing and Acquiring banks combined is about 0.20% (Debit) to 0.25% (Credit). I think it's safe to say that's fairly small compared to the average Interchange rates. The effect of passing it to consumers is minimal in comparison to the rest of the Merchant Discount Rate - Interchange and Acquiring bank markups. I don't think the comparison to loaded mutual funds is fair, because front-load mutual funds are pure commission with no benefit to the fund buyer (no expected outperformance compared to indexes). By choosing to use a card, cardholders have a more convenient experience, rewards programs, insurance, etc. By choosing to accept a card, Merchants are shown to encourage larger ticket sizes, faster check out times, and low overhead eCommerce, while decreasing internal theft and the cost of handling money.

Visa and MasterCard are the ones who set the interchange fees. Visa and MasterCard are the ones who set the anti-competitive rules that prevent transparency and hide their fees. Visa and MasterCard are the ones who lobby state legislatures for laws to prevent the visibility of credit card charges. Visa and MasterCard are the one who have spent millions to prevent customer choices.

V/MA do "set" Interchange. However, it's completely dictated by the banks, and is a balancing act. This is a very good example of a free market (except in the case of Durbin regulated Debit that we won't go into). Interchange has to be low enough so that Merchant acceptance (Acquiring) is encouraged, but high enough so that Issuers have an incentive to Issue cards. It is completely set by what Acquiring banks are willing to pay and what the payment demands are from Issuing banks. What exactly are the anti-competitive rules that you're referring to? What fees are hidden? If a Merchant gets Interchange Plus pricing, everything is visible to them. I'm genuinely curious about this, so please don't take this as me being argumentative! I'm just not sure what to respond to.

As a side note, personally, I HATE lobbying, and I wish AXP/V/MA didn't do it. It seems like mostly a preventative measure, because I believe that all three have incredibly useful, commerce-enabling businesses without which the state of the economy today would be very different. I've always been of the opinion that if people want to surcharge, we should let them. They'll figure out on their own that it's not a good idea, or the market will adjust eventually and it won't matter.

[marbat]

I'm relatively new to the world of credit cards, but assuming the charges are between 2% and 4%, doesn't this effectively make using a cashback card a necessity when using credit? And another question, if companies have been passing the cost of using credit cards on to the customers all along, doesn't this mean that if you weren't using cashback you were actually losing money?

That's the way I look at it. Although the "built in" charges are much closer to 2% than 4%. That is, unless you find value in the other benefits of Credit cards (deferred payment, insurance, extended warranties, concierge services, travel loyalty programs, etc.).

Of course, using Debit, you're probably worse off since there aren't many Debit rewards cards, and Debit cards have worse value-added benefits. You didn't really think processing electronic payments was free, did you?!

[rkhusky]

Sometimes surcharging sticks. Consider airlines. We now have surcharges for food, luggage, blankets, headsets, seating preference, boarding preference. Even though there are some airlines that don't charge all these, once the majority do, they tend to stick around and consumers get used to them. They become the new normal.