The European Union has banned credit card surcharges and I think this is a good idea. In developed countries, paying by card is common. Set your prices as you need to to cover the merchant fees assessed by credit card companies, but adding a surcharge is just ridiculous when that is a common method of payment.
Can anyone really justify credit card surcharges in 2018? The ‘discount for cash’ is the exact same thing as a credit card surcharge in my opinion, and I haven’t seen that lately. I also think a card minimum is stupid.
Are debit cards contactless? I honestly haven’t asked my friends there when they’re using contactless. My contactless card is a credit card, but my Apple Pay is linked to my debit card, I use both when I travel in Europe.
If you rule out credit card surcharges, cash discounts, and card minimums, does that mean sellers are required to engage in transactions on which they lose money? Or is there another way around this?
The only place I can recall seeing surcharges used recently in the US is utility companies. Those industries are prime examples in economics of cases where markets fail. There is significant natural monopoly power. Because of that, there’s typically a lot of government intervention, including in price setting. Adjusting to cost changes in customer credit card usage becomes difficult when you don’t have full control of your own pricing.
I had just seen Ispolkom’s links and was going to edit my post when my Internet connection went out. If there’s a limit to what the credit card companies can charge for small purchases, that works.
Why would it need to be justified? Don’t want to pay it, don’t use a credit card.
In the US, the most common place I see this done is local governments which often charge a 2-3% fee to use a credit card to pay fees such as building permits.
So merchants just roll the fee into the stated purchase price and people who pay cash subsidize the higher price for those who use cards. That may be good or bad, but still, nothing is free.
Card policy and usage habits in EU slightly differ from that in US. Basic contactless debit card is standard here, it comes free with basic bank account (which costs around 2- 5 eur/month with basic net banking, free for minors sand students) and is practically mandatory for anyone with any kind of income. Transactions are free, contactless work up to 15 eur per transaction, for more PIN is needed. That will be lifted to 50 eur with this new law, I believe. I use that card (classic Visa Debit) also for worldwide web shopping and as I recall never been directly charged for anything like that in EU or in USA (books from US Amazon mostly). I do remember one shop that did this, but also offered direct bank transfer payment which came a lot cheaper.
Also a lot of businesses around here will be more than happy to charge your debit card on monthly basis if you can not afford something right away. For no charges and with no insurance (beyond your signature).
True credit cards are common too of course, but not as popular as in US and mostly limited to businesses and upper classes, sometimes even despised as poshy fashion accessories. They tend to be more expensive, but still cheap, so not free and their charges vary wildly, at least about couple eur for transaction is minimum. And that will change. My guess is that losses will be compensated with higher fixed ownership costs. And higher prices with possible cash only discounts, but I am not sure that will be tolerated. / Slovenia@Societe Generale (SKB) bank, FYI.
Me too. So let’s storm the local, state, and federal offices with pitchforks and demand change. When the government raises these fees by 10% for all, no matter the method of payment and no more card surcharges, did we win?
Nothing is free, but that includes cash. The way it works with these charges is that card-users pay for the card fee and they “subsidize” all of the nickel-and-dime costs of accepting cash.
I’m not sure what you mean. If you mean that your bank charges you for using a card as well, that’s between you and your bank.
Regardless of your relationship with your bank, if I as a merchant get charged 2%, then my item that would otherwise be $100 is $102 if you are using a card. If you want to preach (and mandate) that this is 2018 and that cards are a part of every transaction that I should price into my business model, then fine, it is $102 for everyone.
But the guy who had $100 cash in hand is paying a portion of your card charge, not me, and not your bank.
The point is that the merchant incurs costs in handling cash, since cash-handling on any scale is time-consuming and expensive. But because cash was originally the only, and long the dominant, way of settling retail transactions, the costs of handling the cash are built into the basic price and and spread across all customers, including those who don’t pay by cash.
But this “no surcharge” policy does not outlaw cash. Cash transactions will still be handled.
Or are you saying that if I go into a gas station and pay with a card, I am personally not making the owner drive to the bank with his deposits that night, therefore I am having to pay for a cost of business that I did not contribute to?
If that is your argument, then I disagree. The handling price of cash has been a part of the sticker price since antiquity and until every single customer pays by card, I still have to go to the bank. One trip with $2000 is the same as one trip with $20000.
Of course it’s not. Perhaps it doesn’t scale linearly but the latter means more opportunities for theft or error, a greater risk of robbery, more time spent counting, higher fees if your bank charges a percentage for processing commercial cash deposits, more fees for withdrawing change, etc.
It should be noted that cash costs the business money. Businesses are charged for how much cash they deposit. If they use an armored truck, they’re charged for that, if they have an employee drive the money there, that costs money. Also, if you’re regularly driving $2000 or $20000, you’ll have different amounts of insurance to cover cash in vehicles (that’s one of the things that comes up each year when we reevaluate ours). They’re also charged for all those rolls of change they have to keep on hand. However, at this point, that cost is ‘baked in’ to the price of the goods. The credit card surcharge is just another charge above and beyond, it’s another charge that has to be added in. The question is, should you pay and extra few bucks to use you’re credit card or should everyone pay an extra few bucks so that other guy can use his credit card. If credit card surcharges aren’t allowed merchants have little choice other than to raise prices which means everyone pays.
Something I’ve always thought would be interesting is if when you swipe your card, the machine would tell you exactly how much the merchant is going to pay for your transaction. You’d then have to decline and choose another form of payment or accept and have that amount added to your total. I’m curious how spending habits would change if instead of just hearing about these fees, they were forced to pay them on the spot.
First, the guy paying by credit card is reducing the merchant’s costs that arise out of handling cash. It’s obviously unfair to him if the cash-handling costs are, as you put it, “baked in” to the sticker price, so he has to pay them and also pay the costs of the electronic transaction.
Secondly, it’s a historical accident that the cash-handling costs are baked in, but the electronic-payment costs are not. There’s no reason why this state of affairs has to continue. A legislated “no-surcharge” rule has the effect that payment handling costs are averaged across all customers, regardless of which customer uses which payment method. In effect, average payment handling costs, rather than cash-handling costs, get baked into the ticket price.
Thirdly, merchants who are required to build electronic payment costs into the ticket price are incentivised to press the banks/payment handlers to reduce those costs, and they are better positioned to do so than individual customers are. Thus you’d expect this to tend to lead to a reduction in overall payment handling costs, which benefits both merchants and consumers.
See Lord Feldon at post #16. There are fixed costs to handling cash, but there are also costs which vary with the value or volume of cash handled. The more cash you handle, the more it will cost you to handle cash.
Completely missing from this discussion is any attempt to measure whether it costs merchants more to handle cash or electronic payments. This is going to depend in part on the relative volumes of cash and electronic payments that a merchant handles, but it’s entirely possible that there comes a point where, if enough transactions switch to electronic settlement, the merchant starts to save money on transaction-handling costs. (Or, that what prevents this is profit-taking by banks and settlement agents.)