Comment by boplicity
4 hours ago
Basic reforms that could solve this problem:
1. Merchants need to be allowed to add card processing fees on top of any transaction, and it should be possible to do this very easily. If not this, then any receipt should be required to include card processing fees.
2. Merchants should be allowed to pick and choose which cards they accept without penalty.
Those two simple changes would add competitive pressure back into the payment processing market, and quickly cause fees to lower.
This argument never really holds water with me, why stop at card costs? Why not add on an additional fee for every other thing like, fuel surcharge on delivery costs, employee surcharges (I don't live in a place where tipping is expected), or even energy surcharges?
The cost of the product should be what's on the label. If that's not enough, raise the price.
The credit card fee is the only thing that changes based on the payment method. The fuel cost, employee cost, etc. is the same for the same product, but if you pay with a credit card, it costs the seller more money.
It's common for the price you pay to change when the method of purchase changes. For example, having a product delivered costs the seller more than if you picked it up from the store, so you have to pay a delivery fee.
Because, between all of these expenses, it is the one the customer controls. The customer chooses what card to use, but the merchant pays the associated cost.
I really do not want even more divergence between the price listed and what I actually pay.
The divergence is just the fee being placed into the margin you're paying regardless.
If you pay via a medium that does not return some of the margin to you in the form of rewards or a 'cash/debit' rebate, then functionally you're paying an invisible tax.
This means everyone should be using credit, ideally the highest reward options, which themselves have the highest processing fees, which result in higher prices all around. The creation of higher tiers of rewards and super-premium cards just repeats this cycle, whereby normal cardholders and cash/debit users are now subsidizing high-spend premium card users.
Further, large retailers negotiate significantly preferential rates and lower processing fees for their book of business. This means small and medium sized businesses pay significantly more per transaction for processing, meaning they're less competitive and less pricing pressure is placed on large retailers, which again raises prices for you.
There's also the card issuer side of things, but in short if you're not changing your credit cards regularly, companies will depreciate rewards and benefits over time in previous lines to move you into a higher margin segment of their portfolio.
In short, there's already a divergence, and you're already paying for it in multiple ways.
> In short, there's already a divergence, and you're already paying for it.
even with your optimal strategy, you're still paying for it: those points might as well be already spent at the network of vendors you've agreed to sell your purchase history to
it says so in their balance sheets :)
There's some precedent on how do deal with this on this side of the pond. Require the list price to be achievable with some card at no extra fee (so no cheating with a high annual fee card or some exclusive condition for example) and have the merchant disclose which. Then the extra fee only appears with cards that charge more.
Or put another way: the list price must be reasonably achievable, but charging more for "extras" (eg. a more expensive card with benefits) is always permitted.
Once you've diverged from the listed price actually being the price you pay, I don't see much value in just keeping is vaguely close but still incorrect. I'd prefer either a completely itemized price or an all-inclusive price to a sort-of-inclusive price.
The best answer is probably a combination of the two: break out the bullshit costs the customer has to pay so that the consumer can see them, but still give them the upfront cost as early in the transaction as possible.
True, and I empathize, but... that difference is basically a spending tax that your card provider has chosen to impose on you. If it helps, instead of a per-transaction cost, consider it packaged together with your cashback, credit points, and the like.
Meanwhile in Australia, it’s illegal (misleading trading) to display a price lower than the customer pays, and has been for a long time. It’s fine; fees etc are disclosed up front.
So you prefer always paying the higher 'card price'?
That's exactly the problem: people don't want to know how much they're actually paying for banking services. They just want their credit card "rewards."
So don't use a card that has the payment processing fees.
Then pay with cash.
More and more places don't accept it.
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Here in New Zealand retailers can (and do) add transaction fees for cards at the terminal. It's a smart thing, because it causes the processing costs of expensive payment types to be borne by the customer who is using the expensive payment method. It sends strong signals and allows the customer to decide whether to use the convenient-but-expensive method.
Unfortunately it has become a popular idea to ban the surcharging of these costs by retailers, so it's likely to be outlawed by next year, which is completely asinine. Now we'll be back to a situation where customers who use a cheap payment method will be subsidizing customers who use an expensive payment method.
> Now we'll be back to a situation where customers who use a cheap payment method will be subsidizing customers who use an expensive payment method.
And guess who wins there...
Just curious, how is this not painfully obvious and so there's opposition to it? Nobody is expecting this to lower prices, right...
> It's a smart thing, because it causes the processing costs of expensive payment types to be borne by the customer who is using the expensive payment method
Why the same logic does not apply to cash payments? They have costs too.
> Unfortunately it has become a popular idea to ban the surcharging of these costs by retailers, so it's likely to be outlawed by next year, which is completely asinine.
It's completely sane. Surcharges are now outlawed in Australia (from 1 Oct) and I finally paid for my coffee exactly the same amount that was written in the blackboard. Businesses that do not want to absorb the 0.5% fees are free to stop accepting credit cards or can raise prices (none near me did that so far). That's fine, the most important thing is if coffee is 5.50, you pay 5.50, not some random amount.
I agree with your assessment. If I want to use cash then I should be able to and at a cash price. If I want to pay with a card and that card come with transaction fees, convenience fees, and insurance fees (e.g. the card issuer east fraud) then I should pay for it, not the guy using cash.
For some years, it has been the practice of non-profits to present an opt-in fee payment to donors, such as for an online card donation. They will expose the fees that they will pay for the transaction, and ask you to cover them so that they enjoy the maximal donation. This has always been opt-in until last week.
Last week, I visited two unrelated non-profit museums, and when there is free admission I strive to make a freewill donation to show my appreciation and lend support to the mission. I offered the same amount to each location, and the second one, according to my bank statement, has involuntarily charged me for the fees as well. No wonder they greatly prefer tossing cash into the Plexiglas box.
For 1 Australia just spent ten years in that world before it was reverted because of the prevalence of card surcharges everywhere.
Regarding (1), are they not already able to offer discounts for cash or debit purchases?
It is my understanding that companies are forbidden from offering differential pricing for cards and cash. At the very least, prices on the shelf must include credit card processing fees in the base price. Sometimes small-time businesses will offer cash discounts, but most retail and grocery places won't.
VISA and MasterCard rules prohibit this, unless specifically allowed by local law.
*required, not allowed
> Merchants need to be allowed to add card processing fees on top of any transaction
They can* and they do.
*It is capped to the actual processing fee, the card network must be notified, and the fee must be disclosed upfront to the consumer. A couple of states like CT and MA disallow consumer fees.
On most planned larger purchases (like more than $1000), I've seen CC fees recently.
> Merchants should be allowed to pick and choose which cards they accept without penalty.
To be clear for readers, merchants can choose their accepted card networks -- Visa, Mastercard, Amex (or alternatives like PayPal).
Networks requires merchants to accept all of the card within that network (hence the name "network"). Visa has three tiers; Mastercard has four. Something like ~90% of CCs fall in the traditional rewards tier, so there's less card variation than you might think. Though higher tiers tend to spend disproportionately more.
Traditional merchant accounts don’t expose the cost to the merchant until it settles. If you review the bill, it will list a few rates/amounts for different things that vary by card type. It can vary based on so many factors it’s practically impossible to estimate. The tiers don’t have tier level settings, each card product in that tier can have different amounts.
Stripe and the flat x% + $y are of course popular because of the simplicity and predictability of it.
This idea that we are going to work our way backwards into a competitive landscape is not going to work.
“Pick and choose which cards they accept without penalty” won’t do anything in a market where 3-4 card processors and 3-5 banks have a near-monopoly on transactions.
If I sell ice cream and decide I won’t accept Chase credit cards because the fees are too high I’ve just lost 1/4 of my customers or something crazy high like that.
Let’s quit trying to find weird workarounds to keep capitalist failures propped up and use regulatory teeth.
Cap transaction fees at something reasonable like 0.5% and the problem disappears overnight.
Yes, you’ll lose your rewards, and that’s a good thing. Rewards cards are a massive wealth transfer mechanism that shouldn’t be legal.
There are businesses that specifically don't allow credit cards and only allow Debit and Cash to reduce these fees already and they are still in business. WinCo Foods is the biggest example I know of, so insinuating that it's impossible to operate if you exclude payment method types/cards isn't really true.
Size matters. WinCo is big enough to do that, because it's a chain and a brand, and people make a choice to go there despite knowing ahead of time that's how it works. (That said, the first time I went into a WinCo I abandoned a cart-load of groceries because I had neither a debit card nor enough cash with me.) That doesn't work for a small business, like the ice cream shop in the example GP offered. They will be giving up a significant fraction of their custom.
Of course what parent comment said doesn't apply to 100% of businesses, bud I'd say it does apply to at least 80-90%. So I agree with them that it wouldn't work very effectively.
According to economic theory, price controls produce shortages. It's likely that capping transaction fees would have unintended consequences, for instance excluding customers from being able to get a credit card in the first place. I'm not against all regulation, but I think we should prefer market-based solutions that remove barriers to entry and that allow more companies to compete in the space.
Europe offers a useful counter-example. They (EU? Most countries? I don't know exactly, but it's immaterial) cap transaction fees, and there's absolutely no shortage of "ways to pay by card". In my experience there are, in fact, more - and, their middle-men have been earlier adopters of both security and convenience features (PIN codes, tap-to-pay, and rapid settlement among them) in which the US sometimes still lags.
What there aren't are rampant cash-back rewards for using a particular card. Or easy access to credit cards with usurorious rates. I think missing out on those is a societally good outcome.
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The credit card companies make the vast majority of their revenue on interest charges. The transaction fees are at least in part returned to the cardholder via rewards programs. That said, I agree that competitive market solutions are better than regulation, where they work.
Gas stations near me already have a cash price and a card price per gallon