While I happily take my “rewards” points and convert them to dollars, it’s worth noting that such card benefits inherently benefit the wealthy–those who can afford to use cards and pay them off (those who can’t pay them off are kidding themselves that the rewards are worth it). Which seems inherently un-good, though I’m not sure what a realistic solution would be.
The idea of credit is generally going to favor the wealthy. Ceteris paribus, the rich will have better credit and thus their cost of borrowing is lower anyway. Look at it like this: using your credit card benefits you at the cost of people who use cash, and taking cash costs the retailer far more than 3% per transaction.
Credit cards have been a massive exercise in “Consumer cross-subsidization” aka reverse Robin Hood for decades. Lower incomes tend to borrow, while most card users pay off their bills every month. You used to have to pay an annual fee for a credit card, until banks figured out that getting any chance for a consumer to pay 16-25% on their balances was worth giving up the annual fee.
Hey, access to credit can be helpful. But rewards cards are ridiculous. The fees get passed on to the merchants, who pass them on to the customers: those who pay cash or those not using a rewards card get screwed. In Australia, they cap credit card merchant fees, which curbs this nonsense.
I trust that any sort of regulation curbing rewards programs would be met by a flood of influential consumer outrage. So yeah: it’s a heavy lift. Full disclosure: I have a rewards card but also a not-rewards card and mostly use the latter. But not entirely!
Can a business charge for using a credit card?
Usually yes, but they have to jump through hoops (like gas stations do). State laws vary, recent court decisions make it murky. Can A Business Charge For Using A Credit Card? | Bankrate
Do Small Merchants have Lobbyists In Washington?
Yes. They supported (wrote?) the Credit Card Competition Act of 2023.
Advocacy piece: Fight to Rein in Credit Card “Swipe Fees” Explained in Op-Ed
From Senator Durbin’s website: https://www.durbin.senate.gov/imo/media/doc/The%20Credit%20Card%20Competition%20Act%20of%202023%20-%20one-pager.pdf
The bill proposes that credit cards issued by gigantic banks must work with 2 competing credit card networks, one of which is not Mastercard/Visa.Weak tea, but I’ll take it as it has a chance of passing.
Cite? Real question: I think it provides important context.
I am solidly middle class, yet I pay off my CC each month. I just set my autopay for that, and it works.
Take a look at my post 15. Now, I am not gonna say " far more than 3%" but the cost can be significant.
Right. Nowadays, thee and me are the wealthy. We’re not paying what we can and living paycheck to paycheck.
You listed a few costs to cash without cites or detail. I find it hard to believe the overhead to cash is 2-3% of gross revenue.
In any case, the costs to cash is a competitive market whereas the costs to credit cards is a duopoly.
The points of the article, as I read it, was:
- Cash customers are over-charged, which disproportionately affects low income customers.
- The credit card clearing business is non-competitive and thus businesses are over-charged.
I concede that the title and story filler of the article distracts from these points.
I did not claim that. What I said is-
But of course, it can be more. 1% from a bank, plus the armored car fees, plus insurance, plus labor can add up.
A challenge I can see with cash is that for a single retail location, most of the costs of cash do not scale with sales. If you’re taking nay cash at all, you have all of the overhead of securing it, double-counting it, dealing with depositing and withdrawing it, etc. For sure a single big-box retailer will spend more on daily cash management than will a single Mom’n’Pop. But in either case their costs don’t scale (much) between a big or a small sales day.
Whereas most of the costs of credit card transactions are exactly connected to volume.
The punchline being that a business taking cards and cash will have all the cash costs amortized over only some sales, plus the CC costs directly applicable to those sales. In order to remove the cost of cash handling, they need to completely stop handling cash. Which is difficult from a competitive POV. Although I recall some brouhaha a few years before COVID about enough businesses stopping taking cash to the point of some large cities prohibiting retailers from not accepting cash.
I don’t have a citation, but I think it stands to reason that the additional counting, security, night drops and so on associated with cash transactions require far more staff than a credit card reader does.
So what about debit cards, essentially electronic cash with none of the cash handling infrastructure required. What are the facts here, fight my ignorance:
My debit cards all have the Visa or Mastercard logo, do they handle all or most debit card processing too?
Are debit card fees lower? Why is that, if they are part of the same uncompetitive cartel?
Do Visa and Mastercard contractually control whether vendors can offer discounts for using a debit card?
…
It would seem to me that if debit cards could be taken out of the hands of Visa and Mastercard, and could charge much lower fees because there’s no credit management, and vendors could offer a discount for use of debit cards… that could work to expose high CC fees to competition and disrupt the industry? And although there are still people without bank accounts, that’s surely a tiny number compared to those who just have poor credit and don’t quality for the best CC rebates.
I don’t have a definitive answer to those questions, but most of the sites I’ve found indicate that a lot depends on whether you select Debit or Credit when using the debit card.
To the customer it looks identical except for the security method (PIN vs. signature). However the selection determines the transaction processing network as well as how fast the funds are transferred.
Selecting debit chooses the debit card network and clears the transaction immediately (like an ATM would). Selecting credit used the Visa/MC network and clears in 2-3 days which I believe is still faster than with a credit card. (Assuming it’s a Visa/MC debit card)
From reading the FAQs on a couple of payment services, debit card transactions tend to be much cheaper and are often a flat-rate per transaction. One site claimed it was due to the reduced risk to the processor when performing a transaction with a debit card. I think the savings varies a lot depending on the size of the merchant – a huge merchant will have negotiated better CC rates.
Beyond debit and credit transactions there is also mobile payment. My knowledge stopped back when the banks were calling it ISIS and I haven’t kept up. I’m sure it’s a whole other set of criteria depending on who the mobile pay vendor partnered with.
Another point I saw on one credit union page explained that part of transaction fee goes to them to cover their costs.
Here are a couple links I used:
I think the cost of cash and credit cards depends a lot on the business- plenty of small businesses don’t use armored cars or have hold up insurance. Not all businesses use two employees to count the cash at the end of the night - some businesses don’t even have employees handling the cash. My husband works for a hardware distributor and most of the stores he sells to use the cash they collect from customers to pay my husband’s company and other distributors so that’s cash they won’t deposit in a bank . And when banks charge for cash deposits, they charge based on the total amount - for example they might charge $0.50 per $1000 of cash deposited over $5000 in a month. But it doesn’t matter whether you deposit $10,000 cash from a single transaction or from 2000 $5 transactions - the bank charges you the same fee. Not the same with credit cards - there’s often a minimum transaction fee so that 2000 $5 transactions results in higher fees than $200 50 transactions. And if you are an ice cream shop with an average bill around $5, taking credit cards might not increase business enough to be worth taking them even if it does increase business at a dollar store enough to be worth it for the store to accept CC.
Thats true. There are lots of “it depends”. But most retail business have insurance.
Ok, I think I have a definitive answer to my question about the business cost of handling cash: nobody knows, at least yet (except Cecil of course). The Congressional Research Service issued a report on the potential decline of cash usage in 2019. It stated:
Businesses must pay for cash management services, such as cash delivery with armored trucks (an industry with estimated annual U.S. revenues of $2.8 billion) and security systems to dissuade thieves or robbers from attempting to steal cash kept on the retailer’s premises.24 Despite these efforts, U.S. businesses lose about $40 billion in employee cash thefts per year.25 Similar to consumer’s costs, quantifying all the costs of cash to businesses presents challenges, as certain costs are not straightforward and easily measurable.26 For example, some portion of retail staff and managers’ paid time is spent counting cash and reconciling tills.
https://nsarchive.gwu.edu/sites/default/files/documents/r1xat9-zcwk8/20190510%20R45716.pdf
We can say though that some retailers have a strong preference for cash, while others have a strong preference for credit cards. Mom and pop establishments and big box retailers pay different costs for handling cash. Scott Stolz is a self-described “Former Banking & Payment Processing Professional” at Quora. He says of small retail, “…since they don’t have large cash deposits, there are little or no fees for depositing their cash. For them cash is a cheaper form of payment to accept, and the credit card fees are seen as eating into their profits.”
Larger retailers face a different situation:
You have potential for fraud, theft and mistakes, as well as costs associated with paying workers to count the money, and take it to the bank, plus the bank fees associated with cash deposits (some banks charge transaction fees for deposits, for example).
For larger retailers, customer service is improved by making purchases faster at the checkout line, and it takes less employees to handle the same number of customers. Money is automatically deposited into the bank for them, and the money is less likely to be stolen since it is electronic.
Finally, big retailers find it easier to track their customer’s spending habits when they pay by credit card.
True. Mostly it is the cost of counting and recounting the cash for them, plus employee pilfering.
Right.
The net revenue to the credit association is 1% but the true charge to the merchant is 3%.
Is a 7% sales tax a “true charge” to the merchant, when they just add it to the cost of goods?
This is analogous the fantasy that property sellers pay agent commissions, so it shouldn’t matter to buyers. There’s a difference between bookkeeping and true economics.
Merchants are going to build in the cost of payment processing, just like any other cost of doing business. If consumers pay merchants 2% more for goods, the merchants pay 3% to the credit card company, and the credit card company kicks back 2% to the consumer, then the true economics is precisely identical to a 1% charge.
(When this does happen, that is. Subject to the huge caveat discussed above that not all consumers qualify for cards that give them the 2% back, or any card at all, and merchants spread their costs over all consumers.)
In the context of discussing to what extent this is a cartel, and whether competition is operating, the 1% figure is relevant to consider, because it reflects the totality of the economics including a point where competition is fierce, in selling the best rebate deals to consumers with strong credit.
We are all familiar with the “heist” movies where a criminal gang holds up an armoured car and steals a load of cash. One gets the impression that these trucks are a common sight, especially in cities.
To what extent is it true that these trucks are regularly held up?
To a great extent. Like, more than one a month. Armored Car Crime Report - Lowers & Associates
Not at all, because it is calculate separately, shown separately, and the advertised cost of goods is usually shown without tax included.
Disagree. First (dealing with the sidetrack), real estate agents get paid by the seller. Whether or not the seller INTENTIONALLY adds x% for the commission is immaterial - houses are sold based on the implied value to the purchaser based on overall local economic climate. Two houses in an instant subdivision with the same layout, etc. are going to go for the same amount whether the listing agent gets 2% or 10%. I, as the seller, am going to go with a real estate agent because just listing the house gets a higher chance of selling the house; if a selling agent has a reputation for selling faster and/or at a higher price, I may be willing to pay a higher commission for them (doubtful in this day and age).
Back to the credit cards. Jewel Foods gets charged 3% for Visa, Mastercard, and Discover. They build in the cost of that 3% into their cost. You, as a consumer, get 2% back from Discover - that’s an incentive for YOU to choose Discover. Your cost of groceries goes down 2%. If I use Visa, my cost of groceries is still up 3%. In both cases the cost to the seller is up 3% for the credit card transaction, and that’s what is being discussed here. My local mechanic adds 4% on for credit card purchases; several local restaurants add in 3% for credit card purchases. They don’t give a damn which card.