So you read the disclosure on a credit card. Prominently on the disclosure form, there’s a number of days of “grace period on purchases”. It’ll typically be 21 or 25 days or so.
So I look at my credit card statement. I just got one, and the statement date is January 25th. The oldest purchase on it was made on December 25th. And the due date is February 18.
I have the card set to autopay the statement balance on the due date. I don’t see any interest charges on this statement or previous statements, so I am not paying interest it seems.
But this means that I borrowed some money from this bank on December 25th, and I won’t pay it back until February 18 - a lot more than 25 days. Why am I not getting charged interest, this is way over the grace period?
The grace period is from the billing date, so you could have items that are interest free for 51+ days with your parameters. If you don’t pay the bill on time, you are typically charged interest back to the day the item appeared on your account rather than from the billing date or due date to payment date.
The wonders of free credit. I paid for a cruise last year, the day after the statement date. This was several thousand Pounds and I didn’t have to pay for 55 days. Like you, I autopay the whole balance each month.
If they had too many customers like me, they would go bust.
Nope. The cost to you is hidden in merchant fees. They make a huge amount of money on merchant fees on the transactions, and of course the merchant’s prices are set to recoup that expense.
Merchant prices are not set to recoup expenses. Merchant prices are set to whatever the market will bear. They could pay zero transaction fees and it wouldn’t lower the prices they charge by a single penny as long as people were still buying the product.
Some locations allow businesses to charge less to cash customers. Whether businesses do so is up to them. If they don’t, then yes, they’re making more money off of you when you pay cash.
But presumably there is a merchant card premium across the board, since card interchange fees are fixed and not negotiable. If you want to accept payment by card, you have to pay the ferryman. And that charge most certainly makes its way to the consumer.
But if merchant prices do not recoup expenses and leave a desirable profit for the merchant, the merchant will probably go out of business and new merchants will not be eager to replace them. Thus there will be less supply for the product, allowing market prices to rise.
It used to be that credit card rules prohibited the merchant giving a discount for cash over credit. IIRC this was made illegal a while ago, so now merchants have the option. (In the good old days, there were gas stations that got around this by having a separate set of cash-only pumps with of course lower prices) But yes, the cost of people using credit cards or debit is figured into the price.
The card company makes between 1% and up to 4% on every transaction depending on merchant leverage. That’s pretty good on a 2 month “loan”.
Also consider that everyone who does not make their payment on time subsidizes your purchase with their 18%-plus interest.
The phrase “license to print money “ comes to mind. It also explains why fighting card fraud often seemed to be a lesser priority than pushing more cards into the population.
My little store pays about $40,000 a year in fees to take credit cards. All those fees are broken down into a ton of categories. One of the categories is specifically for cards that give rewards.
There’s the segment of the market that says “Ewww. Carrying cash around is icky. My time is much too valuable to go to the ATM.” They are willing to pay extra if you provide them the service of accepting credit cards. Don’t leave their money laying on the table, so to speak.
Then there’s the other segment that says “I’ll drive 10 miles out of my way to save a few cents. If I have to stop at the ATM on the way, no problem.” You don’t charge them for the expensive service they don’t want and they’ll shop at your store instead of the one that doesn’t accept credit cards and can afford to undercut your credit prices.
Have discount cash-only pumps and you extract the maximum from both market segments.
Merchant charges vary according to who’s providing the service, though it’s usually between 2.5-3.5% and somewhat negotiable (just fractions of a percent) or just shop around. Discover, AMEX and JCB fees are higher, which is why a lot of places don’t allow them for charges.
In general, the higher the amount of monthly transactions, the lower the fee. But since the merchant is fully responsible for the charge once authorized by them, the fees tend to go up when you get into the hundreds or millions of dollar range.
I worked for a couple of PV companies and would routinely run multiple charges of 10’s of thousands of dollars daily. The salespeople were allowed to give a 2-3% discount if the customer agreed to pay by cash (check) upfront or agree to pay by check only for progress payments. As I worked in accounting, I’d get upset when the contract states a cash price, but the customer would pay by CC (adding 2.5-3% more to the cost). We never refused the payment, but my understanding is we could have.
Debit cards are usually charged a different lower rate than CC, but sometimes those backed by Visa or MC (not sure if MC does debit cards), we’d be charged to the higher Visa merchant fee. At one of companies I worked for, I checked the daily register sales reports against the CC merchant report and would dispute miscatogorized charges (Visa instead of debit, Amex instead of Visa, etc).
Bottom line, is the “free” grace period most of us enjoy on our credit cards is paid by everyone in higher fees on sales of all kinds.
Edit: CC merchants usually have a minimum monthly fee and may also charge more for small charges less than (e.g. <$20), which is why a lot of small businesses have a minimum CC charge limit. Makes sense since it takes the same amount of processing time to do a $10 charge as it does a $100,000 one.
In the UK, it’s illegal, since January 2018, to charge CC customers more than cash customers. I assume that this means that the dwindling number of cash customers is subsidising my ‘free’ credit. Card transactions overtook cash in the middle of last year according to the FT:
Not everyone accepts CCs; some small businesses have balanced the costs of CCs and cheques against the potential loss of business and opted for cash only, but they are in a small minority. Some traders will not accept the more expensive cards like American Express. Many places, like cafés, have minimums for CC payments; £5 or £10 is usual.
Maybe. I’ve never been able to find a straight answer about how much it costs to handle cash. The studies all seem to be bankrolled by entities with vested interests in the results.
Which is one of several factors to look at, some of which aren’t nearly as easy to quantify, and will vary based on how well-run the business is (e.g. some business owners will take way too long to notice that a substantial portion of the cash is walking away in someone’s pocket, some won’t train employees on counterfeits, etc.).
My Brit to US math says that .009%, but that’s not what the credit card processor charges…it’s what your bank charges you and is totally separate from the credit card discount. IOW, if the processor charges 3.5%, you’d actually be paying 4.4% by the time the money is in your account.
And now that I actually look at the link I see the .9p/100 is for depositing cash. It says .35p/100 for ‘electronic payments’ which I’m guessing includes ACH and credit card deposits. But same idea.
On a side note, it shows something else a lot of people don’t know. We [businesses] pay to deposit cash as well. And, we have to buy rolls of coins. A 50 cent roll of pennies costs us more than 50 cents. It makes sense when you think about it, but most people don’t think about it.
“Whatever the market will bear” is a popular notion of economic theory (I mean that literally, i.e., it’s what a lot of laypeople think) but even in the simplest model there are two factors that determine price: supply and demand. Cost to merchant affects the supply side of the equation.