Often1

Anybody who thinks that there are "free miles" or "no foreign transaction fees" or anything "free" is naive. Credit cards cost money to issue and to process and those costs are increased by "free stuff."

Merchants have contractually eaten those fees and, in theory, included those as operating costs and therefore in pricing.

Now, with the end of eating the costs and including in final pricing, consumers have a choice.

I suspect that large transactions won't see consumer fees (airline tickets and the like), but that small stuff (under $100) will.

There may be competition for customers in business centers, but in smaller places, it's going to be tough on the consumer to find a no fee merchant and people will face the risks associated with carrying cash and the costs of driving 15-20 miles further to make a purchase.

If this truly resulted in lower base prices for products, it would be a good deal in the end. Those who pay cash would see the savings and those who use CC's would pay the freight. But, I don't see that kind of pricing really kicking in and while there may be a few outraged FT types who refuse to shop at retail, that will go away quickly because the convenience of CC's can't be beat (and the consumer protections go up in smoke without them).

mia

I think it will have more to do with the margins in the merchant's category than transaction size. I don't foresee full service department stores or restaurants adding a surcharge. However, I think off-price retailers, and those battling direct internet competition (e.g. books, recordings, electronics) will do something, but it may not be heavy-handed. Bear in mind that many large retailers are also partnered with card-issuing banks, and they may cut a deal which encourages use of their own card, or cards from the same issuer.

Overlayed on this will be the elimination of sales tax exemptions for many internet sellers. While logically separate, I think the two changes will occur simultaneously and the retail environment will look very different in a decade.

AA_EXP09

What about a merchant with many items that have different profit margins?
I can buy medicine at CVS and the profit margin on that is big.
Or, I can buy GCs there and the profit margin will be low.
What happens then, if all surcharges must be equal?

bubu-SNA

I think that allowing surcharges for credit card use is a BIG mistake and is very anti-consumer. Then there is the fact that it will lead to a drop in business & sales tax revenues (i'll explain later).

Yes low volume merchants get gouged by the processing fees vs. the high volume merchants but such is life. If you want to level the playing field for merchants regarding fees, impose caps on what the maximum processing fee can be.

Credit card processing fees are A COST OF DOING BUSINESS. From experience the 2%-3% lost to the credit card processor are right in line with the cost of having to manage cash, especially at a high volume establishment. Think Costco.

Getting back to the tax revenue statement I lead off with...With smaller merchants its not about the surcharge costs a credit card brings, its about the ability to "cook" the books, aka tax liability (and the ability to steal the sales tax)...and in more nefarious cases straight money laundering. Credit card use severely hamper all of this behavior by smaller businesses.

...thats my take on cc surcharges and smaller places outright refusing to take cards in some cases.

mia

Let's suppose that network A charges the merchant 3%, while network M charges 1.5%, and network D charges 0.75%. Shouldn't the merchant be able to steer customers to use network D? When merchants are able to show customers the relative costs of different payment methods the processing networks will have a powerful incentive to compete with each other on price. This isn't about cards vs cash, this is about which card provides the best value.

AA_EXP09

But what if my Visa Infinite (which earns rewards) uses network A, and Visa Gold (no rewards) uses network D?
Card numbers
45140116xxxxxxxx
45121100xxxxxxxx

cbn42

How could you tell? Did you compare the prices before and after the surcharge was implemented? If so, did you factor in the effects of inflation, wage differences, fluctuations in demand, and all other factors that can impact hotel prices?

Given that interchange fees are usually only 1-3% of the total, and prices of most products regularly fluctuate by more than that, it is impossible to conclude that the merchant is not passing on the savings. But assuming the market is competitive, the consumer will see the savings sooner or later.

This development is pro-consumer, unless you are one of the elite consumers who was raking in the "free" miles or points, in which case, your annual travel subsidy will now be smaller.

kdw133

News flash: everyone is already paying for the swipe fees, whether you use a credit card or not.

As many have said in defense of CCs, it is a cost of doing business. And costs get passed on to the customer. Since merchants aren't currently allowed to add a surcharge specific to those charging purchases, all prices are slightly inflated to cover the fees from the portion of customers who will use CCs. It's just those of us who are using reward CCs that are at least getting some of that fee back in the form of CC rewards.

I agree I don't think we'll see an immediate drop in prices if this surcharge becomes widespread. Instead, merchants will enjoy their increased margins for a while and just raise prices more slowly over time until an equilibrium is reached again.

I've talked about this subject with my barber, an average small business owner. It drives him mad yet he has to offer it because it's what customers expect. The CC companies charge him ~3% every time someone pays with a CC. So now that $20 haircut is only getting him $19.40 in revenue. It adds up to $600-$800 a month in swipe fees. That's big money to a small business. I think what really drives him and other merchants nuts is it has zero effect on how he conducts business. Trust me, he can take a $20 bill much easier than swiping a CC.

You also can't let the threat of illegal activites be an argument for CCs and thus keeping swipe fees hidden (employee theft, merchants hiding cash purchases for tax purposes). These are separate issues and should be handled accordingly.

Visa, MC, and Amex make a lot of money. Tons and tons of money. I don't have the desire to look it up right now, but I would guess a large portion of that comes from swipe fees. They do have a legitimate purpose, but have become too focused on making money off of this stupid round-and-round game. The CC companies force the merchants to pay a fee, the merchants hide and pass on this fee to you, then the CC company "rewards" a small portion of all consumers with a small portion of that fee and keep the rest for themselves. Sweet deal.

Although the surcharge would be bad for those of us who play the game, it would be good for consumers as a whole.

boilers

[QUOTE=kdw133;18919761]
I've talked about this subject with my barber, an average small business owner. It drives him mad yet he has to offer it because it's what customers expect. The CC companies charge him ~3% every time someone pays with a CC. So now that $20 haircut is only getting him $19.40 in revenue. It adds up to $600-$800 a month in swipe fees. That's big money to a small business. I think what really drives him and other merchants nuts is it has zero effect on how he conducts business. Trust me, he can take a $20 bill much easier than swiping a CC.

You also can't let the threat of illegal activites be an argument for CCs and thus keeping swipe fees hidden (employee theft, merchants hiding cash purchases for tax purposes). These are separate issues and should be handled accordingly.

QUOTE]

It is all relative. He will care less about his 0.60 from cc transaction fees when he loses his $3-$4 tip b/c all I have is a $20. If I can't swipe the card that is the end result. Same with waiters and waitresses at restaurants, etc.

LAX88

I don't think that's correct. Your example may be about that, but that's not what this lawsuit is about, even indirectly. All the petitioners aim to do is lower their cost of doing business.

Happy

Only IF the merchants really pass on the savings in the form of lowering prices. Somehow I am convinced this is a BIG IF, and probably would never going to happen. One just needs to look at what has evolved in Australia and UK, after the surcharges are allowed. Prices have not come down at all, so the consumers who pay cash are not benefited as what the merchants claimed. The credit card users face higher cost to own a CC with less benefits. Nobody gains except the merchants.

kebosabi

The interesting thing about this is that this is also going along concurrently with carrot-and-stick incentives by MasterCard, VISA, Discover and AMEX's EMV conversion plans in the US which will drop the expensive annual PCI-DSS fees to the merchants if 75% or more of their customers start using the EMV chip instead of the magnetic stripe.


So in a way, the merchants have several choices to make:

1A Pay for the one time cost of upgrading to newer terminals which can process chipped cards and try to encourage their customers to start using the EMV chip so as to hit the 75% mark to avoid the annual PCI-DSS fees. Discount incentives might work to promote and make their customers get used to the idea to use the chip at checkout (i.e.: use the EMV chip and get 10% off etc.)

1B See the cost of upgrade of terminals as too much so continue relying on the mag-stripe, pay the annual PCI-DSS fees, and be held liable for any fraudulent charges that come their way for continuing to use the swiping of the magnetic stripe

2A Eat up the 3% margin for taking credit cards as a cost of doing business so as to make yourself more competitive versus your competitors.

2B Pass along the 3% fee to the consumer. Hope customers will keep coming back to your store instead of the other guy.


In a way, 1A+2A would be the best for consumers and 1A/1B+2B would be the best for merchants.

My best guess is big name chain retailers like BestBuy, Target, Home Depot, and Wal-Mart will use 1A+2A as to keep their customers coming to their stores. They have multiple locations across the US and per each store they have dozens or more terminals. There's a big cost incentive to these guys to save millions in annual PCI-DSS fees if they can somehow manage to convince their customers to pay with the chip instead of the swipe. They may also want to keep sucking up the 3% fee so as to make people continue to come to BestBuy over say Paul's TV etc.


In contrast, small businesses like Joe's Bicycle Store will go for 1A/1B+2B. They probably only have one swiping machine at their store and they may not see that it's worth paying $600 or more for a newer machine when their current swiper still has years of life left. The risk of using counterfeit cards at mom-and-pop stores also tend to be low compared to bigger name retail stores so they may just continue to use the swiper. These small scale stores are also in direct competition with bigger name retailers which earns profits by the bulk, so they may have to pass along the credit card fee to the consumer in order to stay in business and still make a profit.

chelmkamp

I don't have much sympathy for your barber. It's Econ 101. If you want to maintain a competitive edge, you provide a level of service your customer base expects (in this case, accepting CC payments). If that increases your cost of doing business, you increase the price of services accordingly, to the most efficient point on the supply/demand curve. If your customers expect you to have leather barber stools like your competitors next door, and you make that investment to add them, you may not be able to charge $20 for a haircut anymore -- you charge $21.50. You don't charge a "leather seats" fee and yet continue to hang a plaque outside your door advertising a lower base price for a haircut than your neighbor.

+1

I stayed at the Crowne Plaza in Auckland one week before they tacked on their credit card fee, and again two weeks later. The base price of the room was the same it was when I booked several months before, the same as it was advertised on their website, but I paid 3% more for my second stay. I had no say in the matter -- I had already booked the hotel months prior, and didn't find out about the CC fee until the second time I checked in. By that time, I wasn't able to get out of my booking and go to a hotel without the fee. According to Visa Asia, this was all permissible because of new NZ laws.

This is the key issue. I'm fine with merchants working the cost of business (including accepting credit cards) into the advertised price. I'm NOT fine with businesses tacking on fees to allow them to skirt advertising the real price of the service or product to the consumer.

mia

It depends how you think this will play out after the contractual restriction is removed. Chain merchants could use it only as a bargaining tool, "If you do not lower our transaction fees we will add a surcharge to accept your cards." On the other hand a merchant which has an exclusive deal with one credit card network might say, "Costco now accepts all credit cards, but there is a surcharge if you use Discover, MasterCard or VISA rather than our preferred network, American Express," and this could become the model for similar deals with other chains. MasterCard and VISA are now competitors, I think we will see more "exclusive" or "preferred" deals with large merchants.

A recurring complaint from chains is that MasterCard and VISA have an "all or nothing" acceptance policy, which forces them to accept (for example) VISA Platinum and Signature cards with higher fees -or- not to accept VISA at all. The ability to add surcharges would allow merchants to distinguish debit from credit and basic from premium cards, but whether this would result in a flattening of the fees, surcharges for using premium cards, or something else remains to be seen. It's technically easy to surcharge premium cards, but the marketing would be a challenge.

The example of foreign transaction fees is useful. When these were hidden in the exchange rates customers were largely oblivious. When they were itemized customers were outraged because many thought they were "new", or that the settlement had accomplished little for consumers, but now we see the fees withering due to exposure and competition. I expect that merchant card surcharges would produce a similar initial negative reaction, but if presented as a discount for payment with a debit card they will be popular and enduring.

AA_EXP09

In YVR Chinatown I can get my hair cut for $8 cash, in comparison.