tmiw

I've seen stuff from the ACLU encouraging businesses to surcharge, so I wouldn't be too sure on that.

Also, Durbin only applies to the largest issuers (>$10 billion/year), which IIRC is 50-60% of debit cards. That still leaves a lot of other debit cards that net much higher interchange (though not as much as with credit cards).

Deals can be had if you're big enough. Costco for instance allows you to use your Canadian Costco MC at US warehouses (but no other MC/Discover/AmEx credit cards), seemingly in direct violation of the "honor all cards" rule.

Also, wouldn't some cobranded cards not actually run over a CC network when used at that store (and thus potentially mean that the card network rules don't apply)? I'll have to go reading through the network rules again to see if this could be the case.

I think any surcharge amount might cause issues (though it depends on the customer base). California's plastic bag law for example requires a 10c fee to buy a non-single use bag, which caused customer behavior to change pretty quickly after to avoid it. Granted, being good for the environment might be less objectionable than having a share of the business' revenue go to Visa or MC (not to mention that I still see a fair number of people buying bags).

phltraveler

The number of cards Durbin exempt is much lower.

Towards the ACLU angle, their main angle is against stores having anti-cash policies. It's more of a by-line that consumers should understand and support (from their perspective) surcharging, but it's not something that's the primary point (the ACLU is more concerned about many cafes and some concept stores like Amazon that have gone totally cashless).

Do you have a source on this? The inverse isn't permitted (using a US Costco Visa as a payment method at a Canadian Costco, only use of membership ID on the barcode):

I'd be surprised if this were the case on credit since you'd have two cards bearing whatever card network logo that were technically given disparate treatment, but if you can find evidence to the contrary it would be very interesting..

Customer base varies but local coffee shops people generally see as more community, and if they're being transparent among a loyal customer base a 10 cent surcharge for paying cash doesn't seem like the end of the world. I think it's the one category of business that could do it easily without a lot of resistance.

tmiw

I looked further and it's ~60% of transaction volume, not necessarily number of cards (page 6 of the Fed's 2017 debit fee report). ~40% of transactions with exempt cards is still a fair bit that's subject to higher debit interchange.

BTW, you can see if your bank is exempt here (PDF). The list of non-exempt ones is here.

From https://cocowest.ca/2018/04/do-us-co...ne-mastercard/:


This was last year, though, so it very well might not work now.

I haven't found anything for sure yet but this seems to indicate that a lot of co-branded cards are issued by the same bank that processes their card transactions. This could very well mean that transactions with co-branded cards are just handled directly by said bank instead of going out over the network (for efficiency's sake), but they also might not be able to.

I think gas stations are the one (additional?) merchant category that can get away with it. I'm not sure if it's because they've been doing it for a while (either when it became allowed or otherwise) or if it's because some people might not have very many good options when they're low on fuel.

rasheed

A correction here, a Walmart/Capital One MC does not incur the same interchange cost as another MC card taken by the retailer. This is true for all co-branded cards (Target, Macys, Amazon, Costco, etc.) that are used at their namesake retailer. So, the treat all networks equally doesn't apply.

Retailers are allowed to directly network the transaction to the bank issuer in this case. It really is like a store card in this case. I am going to go further here and say that the Visa and MC symbol on the card in the US used at large retailers can be mostly irrelevant if large merchants built direct connections to each card issuing bank via the acquirer (closed loop). This was the idea to push PIN transactions because they had the lower rate and explicit routing alternates (even if the debit network was still owned by Visa or MC). We only know publically of Chase offering some sort of acceptance agreement option for its Chase cards (where Chase not Visa determines the interchange fee). But as we all know, there are so many smaller banks and related that also issue cards who just have to receive whatever Visa allocates to them. I still can't believe more banks didn't pushback on the Visa/Costco agreement. When AmEx and Discover had the Costco option, that was truly closed loop.

Again, it is the small retailer who couldn't do anything like that. I know Wal-Mart does list an abbreviation on their store receipts to indicate how a transaction was routed. I don't know if they actually use different characters for the different routings.

Could a retailer say it will take Chase and not BofA Visa? According to the merchant agreement today, no, but they can definitely negotiate a different fee if they don't accept the default Visa rate. Visa is essentially delegated as the association to negotiate such rates unless a bank makes a separate agreement with the retailer.

One reference: Routing Wars ? Digital Transactions

Synchrony uses the term Dual Card for cobranded retailer cards that also have a V/MC logo. https://www.synchrony.com/factsheet.html

phltraveler

Appreciate the additional info, particularly on the Synchrony side where they claim to have patents on the dual card approach...not sure exactly how as it has not seemed to stop other banks (namely chase) for negotiating payment fees to certain larger merchants.

Perhaps Walmart et al have avoided surcharging their own co-branded major network charge when it's theoretically possible because it's just awkward to explain All credit cards surcharged, except the CapitalOne Walmart Mastercard and then upsetting other Mastercard holders (or maybe just the general take that many with a surcharged credit card, Mastercard or not, would be upset and create disincentive to shop there to a point where it was more harmful than the surcharge gained). Sort of like how Product level surcharging is theoretically possible (e.g. surcharging Mastercard regular cards less than Mastercard World Elite cards which have higher interchange), but hasn't really been seen in practice because of how awkward it is to explain/do signage for).

Also because then it creates friction particularly as the largest brands like Walmart do grocery delivery and in-store pickup. CNP for online transactions has generally mandated the use of credit/debit processed in credit mode, with no surcharge being the norm. It would be (to many consumers) logically inconsistent for Walmart to charge them a surcharge if they bought the item in-store by retrieving it and taking it to the register, but no surcharge if they bought online for in-store pickup. Or if they surcharged both in store scenarios, then it would create incentive for people to buy any items that were not too heavy/hazardous/etc. online for ship-to-home and have Walmart eat the shipping and handling. If Walmart surcharged all three approaches, then Walmart.com would be charging a fee directly to consumers for card acceptance that Amazon and others are not.

rasheed

I think all of these examples of friction make it harder for a large chain to do explicit surcharges. So, what I think almost every major merchant does is charge everyone more. Target RedCard (credit and debit options) is an easy example of this behavior. It can seem off for most consumers particular those who pay with cash or debit that they are subsidizing credit users, but that is how it goes. It seems there is no real need to appease cash/debit consumers by offering specific surcharges.

I mean, why would a person who goes to Target frequently not use RedCard debit versus their own debit? And let's give up on the data element value, Target is well-known for data collection and being able to create a unique Target ID for almost every person who has ever shopped there regardless of payment method.

Every time a retailer offers an everyday discount store card, it just means everyone else is paying a surcharge. It is when the surcharge is identified or explicit, then we get upset. We are always okay if it is buried into the cost of the item it seems.

When a major retailer is actually doing surcharges, they are just trying to negotiate a lower interchange fee, right? The consumer matters little in the mix unless they successfully switch to lower cost payment options. This seems to be getting lost with the smaller merchants who think they are offering a favor to the consumer by taking credit.

On the patent issue, I am unsure how these agreements work, but perhaps there is something similar to what Google/Samsung have in the mobile business for patent sharing. Even Starbucks has an international patent for dual card (closed loop purchase and otherwise).

tmiw

This is probably because being able to pay by card is something that customers expect now. These days, merchants have to explicitly mention they're cash only (for instance) rather than rely on posting card network logos in the window. If the US still mostly used cash/checks for everything, it'd likely be a much different story.

Or they're resigned to accepting cards, so might as well try to make back some of the cost. Otherwise, as mentioned above, I'm not so sure many small businesses would bother accepting cards at all.

phltraveler

It's difficult to quantify the full effects of swipe fees. The cash discount requires the consumer to calculate backwards, debit can still be processed in credit mode and subject to credit interchange at many stores (which is how many checking accounts that are free without an average daily balance requirement work at smaller CUs and banks to waive the monthly fee)

For me, I'm not at Target enough to merit it. When I do buy at Target, it's usually an electronic on sale or clearance where the extended warranty benefit on other cards outweighs. That being said, signing up for another store specific debit card and having it take up space in the wallet is something a lot of people aren't willing to do, even if they go there often.

A lot of people don't like store cards - when I used to shop at Safeway, the local store never registered the alt ID of the phone number correctly. So when I forgot my card, I didn't get discounts - until I found a phone number that people encouraged to use at the stores instead (as sticking it to Safeway's data collection). Anyways, with discount cards the argument is trickier because the discounts are ephemeral - usually the customers without the savings card will pay the same price as they consistently have, and then during the sale period on whatever item the people who use the discount card get a lower price. I guess you could call that paying a surcharge in a sense but mechanically it's a bit different.

A lot of retailers have tried this - Kroger threw in the towel on not accepting Visa at certain brands, and CVS gave up on their CVS Pay and enabled NFC payment (Apple/Google/Samsung Pay/contactless physical cards). Whether or not you can convince enough consumers to use an alternate method to gain leverage on the payment network for better terms is key - so the consumer matters quite a bit in this mix in aggregate.

Most smaller merchants take credit because there is a percentage of your business that will leave if you don't take credit, plus people spend more on credit. Those who impose surcharges figure people will shrug and ignore it or there isn't a reasonable choice. They're not doing it as a favor to their customers, they're doing it because they think it makes more business sense than not accepting credit.

phltraveler

I realize this is basically a two year revive of a thread, but I thought it prudent given some recent experiences I had. Hopefully I did not miss a more current recent thread...

Went to the Jersey Shore. Went to a couple nice establishments.

One was a restaurant running Toast. Limited menu, beer starting at $6, cocktails at $13 (special cocktail $11), entrees at $20+ for a burger.
3% surcharge for credit. No debit surcharge. No brand specific surcharge.

Another was a donut shop running Square hardware. They surcharged credit/debit 2.99%. They also discounted cash by 2.99%. As in, an order of $20.00 would be $20.598 on credit/debit, and an order with cash would be $19.422.

Separately - in NY - I've noticed cash discounting of 2.5-4% being noticeable, but not really popular at certain small establishments.

So to ask in general - has there been a rise in cash discounting? Credit surcharging? My earlier predictions no longer seem as prescient as I thought.

tmiw

I think more are doing it but it's not enough more to be a significant trend. A lot of the relative lack of surcharge/discount increases is probably due to the pandemic, IMO. After all, outside of maybe Venmo, there aren't really many other domestic alternatives to just accepting cards and if cash is being considered "unclean" anyway...

Personally, around here, Arco finally started accepting credit cards (with the usual 10c/gallon surcharge over cash/debit) and a local donut shot finally started accepting cards using Square about a year into the pandemic (with a 50c surcharge). I think the opening of a nearby Dunkin' Donuts location probably had a lot to do with the latter, though, as they were apparently fine with being cash only throughout all of last year.

Points Scrounger

All I've noticed locally are a deli with a notice they only take debit ($5 minimum) and that the supermarket gallon water jug refill machines add a 10 cent surcharge for credit.

rasheed

I've seen many more retailers with surcharges as the platforms and acquirers (Clover, Elavlon, etc.) make it much easier to do.

Notices and signs are not consistent. You might think the goal of a surcharge is to encourage an alternate method (cash), but if I don't really know ahead of card use, it is a missed opportunity.

So, more prevalent, yes, but still not a frequent event.

tmiw

As mentioned above, I think surcharging would be a lot more common if a lower cost payment method were available and widely used. The only one I can see right now that could maybe fall into that category is Venmo, and even then it's not that much less expensive (1.9% vs. 2.5-3% with the more expensive card processors). That may change in a few years, though, depending on how the Fed real-time payments system goes.

Also, speaking of less expensive, in theory merchants aren't supposed to surcharge for debit cards, but that rule is far from universally followed in my experience. This makes sense since there are a lot of smaller merchants out there using stuff like Square that charges the same regardless of the card type. I think I'd be less annoyed with surcharging if the networks would at least enforce that rule, or even if the POS platforms make it a lot more difficult not to follow it.

EasternTraveler

I am never okay with surcharging. You want to offer a cash discount fine, make it off the advertised price.
I believe in all in pricing. Whatever you advertise should be the full price out the door. Yes that would include everything!!!

tmiw

I get it, though. Interchange is at least an order of magnitude less in a lot of other countries, after all (mostly due to government involvement, but still)--why wouldn't they try to steer people towards less expensive options?

The problem comes when the rules that do exist regarding it don't get followed or enforced. For instance, I doubt the ones who are just surcharging all cards instead of just credit cards let Visa and MC know beforehand or are keeping the maximum surcharge to their own costs/4% (whichever is lower). If merchants would at least follow those rules, consumers can choose to continue spending money at those places (with a "less expensive" payment method or just eating the extra fee), or even go to non-surcharging competitors instead.

(OTOH, considering that a lot of people mistakenly believe that (a) debit cards are far less safe than credit cards and (b) cardholders are always liable for debit card fraud, perhaps the choice to those people is really cash vs. credit card and not so much debit card vs. credit card. Depending on how many of those people are out there perhaps surcharging will end up being seen as equivalent to preferring cash, with the negative connotations that entails.)