Card fee games interactive
The battle over credit and debit card “swipe fees” that has been raging on Capitol Hill for the past 5 years will be heating up again soon. The credit card industry makes $125 million a day in swipe fees, so it is obvious why they are fighting to protect this “secret tax” on consumers and merchants. Check on this short interactive widget, produced by the National Association of Convenience Stores, to see why reform is so essential to Main Street retailers and consumers.
Check it out here: Card fee games
The BOOM woke me up. Sometimes I have to be silly. The fees and pricing are not so silly… This is a topical thread.
So the credit card company is supposed to provide the service at no cost? Huh?
Should I be charged in the price even if I do not use the card? Should the card company dictate price as well??
Interesting. I do business at several places (pharmacy, for instance) where they do not accept credit cards for transactions below a set minimum. I’m also aware of places (including gas stations) where they charge a flat fee (around 75 cents) if you want to use a credit or debit card. And I’ve read articles about negotiating a lower fee if you’re willing to pay cash. All of that seems to be contradicted by this video.
I think it’s not so much that credit card companies want to charge merchants for the convenience of accepting credit cards as it is the ways in which the ccard companies manipulate and skew the market for everyone – even those who do not use a card. What business is it of the ccard cos. whether the merchant sets a minimum charge amount or has a flat fee for credit card use? Most businesses see a competitive reason to accept credit cards and as a result they can be at the mercy of the card cos. Meanwhile, the card companies and issuing banks are engaging in all sorts of campaigns to convince people that using a card to buy a newspaper or a fast food bargain lunch is the way to go.
It would seem what we have here, as in almost ALL of our economy, is a balance of power issue.
1) every merchant who takes credit cards has to somehow recover the card fees and does it from all customers, as opposed to differential pricing
2) no – but so when is anything fair?
(we use our credit card premium points to “buy” gas cards so we get some payback that way)
Rusty, the issue is that the card companies are taking it from both ends. They are just another example of how the making of money has changed to the utopian market of the perfect middleman. The ability to dictate the money payed to them and the money paid out.
So, no one is suggesting the card companies should give the service away. People are just trying to wake the public up to what is happening: Card companies, Health Insurers, Walmart size retailers, etc all are in positions to dictate the costs of the money flow in both directions. The only one better is banks having zero and in some mathimatical situations below zero cost of direct borrowing from the Fed.
My shop card processing costs to the merchants: Chase, AmEx and Discover was 2.98% of the money processed on a card. For everyone of those cards processed they also charged the holder fees.
Almost 3% is one heck of a slice of the consumer part of the GDP. A simple look of 70% of 14 trillion GDP and say 50% of that was on cards, you get about $146 billion just for the sake of running 4.9 trillion through a bunch of computers.
How do you all think all that “free milage” stuff is getting paid for? Nothing is free, thus one would think by now people would understand that what ever “free” gimick company A is giving, they are doing it because in the end they are making more from you and me and thee. Thus, as a collective we all have less. And, as long as they can keep people focused on the “high interest rates” and the “fees charged”, they hid from us another stream of trickle up economic money flow.
We really have become ignorant consumers.
Linda R. any place that has set a minimum for card use is in violation of their contract to accept that card. No exceptions.
If you look at it travelers checks were the first sort of credit card, which typically charged a 1% fee, not waved in the old days, but is often today. Yes you might have had to go to a bank, but..
The 3% fee is really for not carring cash and for the convience store operator a charge that makes robbery less cost effective. (I suspect that many would like to go cashless to make robbers go elsewhere) So there are benefits to the store in lower chances for being robbed, that is worth something.
As DOLB points out this amounts to about $1600/yearly per US household. (I used the figures from their sign the petition page). Are the card processors really providing a service that’s worth $125 a month in higher prices for every credit card accepting business? Really?
Also was surprised to learn that UK pays 1/3 and Australia 1/4th as much. And that they charge 43 times more on average to process CC transactions as they do checks (!) and debit cards…
I’d love to imagine a way out of it but don’t see one – even if I managed to restrict myself to only businesses that accept cash or checks and never used a CC again I’d still end up getting whacked by the ripoff ATM fees to get the cash to pay my bill… They have us. We owe it to ourselves and our children to regulate this practice (especially now that the US taxpayer essentially owns so many banks).
Meant to say “only business that ONLY accept cash or cheks above…”
Additionally, I naively thought I avoided paying most of these fees since I pay off all cards every month. But no. In fact since I probably spend more than average household per month with my cards I may be paying $150-$200 a month or more in higher prices. This is about what I spend on energy/water/utilities or 2x my monthly cell/cable/internet bill.
One can see it with the fees charged to use credit cards to pay taxes or buy license plates in the 3-4% range, since the government is not bound by the credit card agreement.
Visa, Mastercard, American Express, and Discover are all stand-alone publicly-traded companies. Of the four, only Amex received TARP funds. What exactly needs to be regulated? UDAP has limited what the banks can charge and charge for, i.e., strengthened “consumer protection”.
Except, it wasn’t long ago that there was no such thing as debit cards, nor free checking, nor ATMs, nor direct deposit, nor online billpay, etc. Those things are certainly valuable to me, and based on the advertising that banks do, seemingly valuable to a lot of other people as well.
And it’s not hard to find a bank that doesn’t charge ATM fees (Schwab and National City/PNC come to mind – both will refund you for using other banks’ ATMs), or if you only use your bank’s ATMs there’s no charge – so you’re knowingly paying for the convenience of using a different ATM. You could of course what most people did 30 years ago, which was to carry cash around, but that’s neither convenient nor safe either.
CC transactions cost more to process because, I imagine, (1) the risk of loss to the bank is higher, (2) the risk of fraud is higher, and (3) the average ticket is higher.
I believe that’s $1600 over four years = $400 per year. It’s not clear in the video (and I doubt that is accidental) but $1600 a year sort of strains credibility.
Thanks for that info, DOLB. But I don’t think I’ll be the one to turn them in. In particular, the pharmacy in question is considerably less expensive than any of the others around here, which is more valuable to me than being able to charge a small bottle of aspirin or a tube of toothpaste.
As I said above, it doesn’t strike me as appropriate for a ccard company to prohibit setting that minimum ($15 last time I looked). But I do know they do it for the same reason so much is done these days… Because they can.
Yes I should have read more closely you’re right. So instead of $125 monthly this might be closer to $35 monthly. But the question still remains – am I getting $35 worth of convenience?
Well if you don’t agree these ripoffs need to be regulated how do you feel about disclosure? Let’s imagine a new rule requiring every credit card receipt to disclose exactly how much the merchant is paying the bank to process your transaction. Maybe something along the lines of: “This transaction cost PaynGo $.19 which was reflected in the cost of your $4.00 pint of ice cream” Or maybe “If you’d paid in cash, PayNGo would have made $.19 more profit today” if you prefer.
Please note that vendors are currently prohibited from disclosing these fees. Why do you think that is? I don’t have any problem learning how much sales tax I pay. Maybe if people learned how much this stuff actually costs them (pretty much unavoidably) there would be a higher focus on whether or not these charges are actually warranted by the issuers actual cost to provide the convenience.
In addition I doubt there is any real way to avoid these charges on a lot of routine spending. Are there any gas stations in your area that only accept cash/checks? Grocery stores? Coffee shops? Not mine.
Once you require disclosure it’s a lot easier to let that magic marketplace happen right? Showing potential competitors how much money could be made by undercutting Visa/MC should be a great way to get a whole lot of dynamic competition marrying the rapidly decreasing cost of server horsepower and network connections to reduce these charges right? Isn’t this the key to that creative destruction you free market types are so nuts about? /sarcasm off
And that convenience is baked into every price whether I benefit or not of course.
If I believe the video, you and I are paying $35 a month for services that Australians pay $8.75 a month for. And the credit card companies apparently make enough money in Australia to justify staying in business there. If your point is that we Americans are being milked, what can I say other than Moooooooo. (Ain’t capitalism wonderful?)
Sorry no this isn’t a generic complaint it’s a specific one. In particular what justifies CC processing fees that:
1> Are not only not negotiable they are prohibited from disclosure (secret and unavoidable)
2> Vary wildly by retailer (big chains pay far less)
3> Have no relationship to actual cost of providing the service (servers and network connections have dropped by a factor of 20-50x in the last decade but not fees)
4> Largely accrue to the owners of the card processors, namely the largest banks which are essentially owned by the government (SEC filings show the largest Class M shareholders of MasterCard are Citi, JPM, HSBC, BofA etc.)
5> Refuse to compete with each other in any meaningful way to reduce these costs.
From SEC filings – Largest class M shareholders of MC: Citi, JPM, HSBC, BofA.
Don’t have details handy for visa but it is similar.
Still want to pretend these are stand alone publicly traded companies?
When I click on the link I get something that has to be “associated” with some other application (opened with another program) and I cannot find any that will open it. Is there some trick? I think I had the same problem the other day — not sure if on this site.
Disclosure is a fair start…you know, asymmetric information. I can then accept the price or not, or look for ways to avoid the charge if I do not use the service. This way it is sort of a mandated cost to all customers, built in and apparently benign, but as a customer is impossible to avoid even if the merhant (a play by the rules sort of person) and I want to bypass the middleman.
Some of this is actually habit on a personal basis…I am willing to pay for the convenience, but I think the price is too high…where is the competitor for me to go to?
And of course one additional consideration (for some AB commenters anyway) is that this stuff is extremely insanely “regressive” at least inasmuch as low income people pay the same upcharge everybody else does even though most of them don’t have access to the “convenience” of using a credit card.
The single mother in line next to me at HEB pays the same 1-3% fee for her mac and cheese that I pay for my grass fed organic prime rib and tenderloin. Even if she pays in cash with her tips from the coffee shop. Even if she pays with her food stamps card (Never been clear why the major banks should get a cut of food aid to the poor but that’s probably a bit OT)
And for the AB commenters who are already spittle flecking their screens because I dared to invoke the “R-word” may I point out that the burden also falls heavily on small independent businesses? As a simple matter of economic policy I think we’d all like to give “Tim’s coffee corner” a chance to compete fairly against $tarbuck$….
$30 wouldn’t cover my weekly coffee budget these days. But for some folks I know $30 is their weekly allowance for food period.
And of course now that McDs and KFC take CCs that 1-3% upcharge hits the single mom even if she gives herself a break and buys the kid a happy meal.
Clarification: Visa/MC force merchants to charge the same price for credit vs cash. If you use credit, a slice of the purchase price goes to Visa/MC. if you pay cash, the merchant keeps that slice, and Visa/MC get nothing.
Result: in low-margin businesses, cash is vastly more profitable for the merchant than credit.
So, while writing your congressman is dandy, be sure to take direct action right now: use cash for any transaction under $20.
This greatly helps local merchants, especially low-margin stores like gas stations and coffeehouses. It denies revenue to your credit card company, and even permits lower store prices if enough people do it.
There’s four major credit card processors. Processing networks are notoriously expensive to build, plus the risk of gaining acceptance (or not) both by the merchants and the user base. The marginal cost of adding another store/user is quite small, but I’m not clear why the differential in marginal cost and marginal revenue shouldn’t accrue to the owners of the processors.
I’ve got no problem with disclosure. Who gets to front the costs of implementing/programming the systems to provide such disclosure?
I don’t own a car, so I can’t speak to gas stations, but there’s lots of restaurants and convenience stores that only accept cash – and you know what, I don’t think there products are any cheaper. So if you had the choice, you’d choose to provide the merchants with more profits – I’d choose the convenience of not having to carry cash.
Visa, MasterCard, American Express and Discover are all publicly traded companies. Potential competitors know exactly how much money can be made by undercutting them.
Jed:
So Citi, Chase, WashMu, BofA, WF, etc. didn’t receive any bailout while they sponsored either Visa or MC?
“lots of restaurants and convenience stores that *only* accept cash” Not here in Austin. I can think of a few places to eat that are cash only but it’s difficult. I don’t know of a single convenience store that does. You neighborhood is very different from mine it appears.
m.jed forgot to mention the largest contributor to the cost of CC transactions:
4> MC and Visa constitute a defacto monopoly on most transactions one that illegally colludes against users and customers to keep prices artificially high.
The interchange fees are one of the most agressive rent seeking behaviors allowed today. The processors are using programs and big iron computers that are 5, 10, 20, 50 years old. They rip 3% from merchants, not counting chargebacks and a whole bunch of other fees I can never figure out. I was a banker associated with this stuff for a long time and we used to just giggle over making up new fees and strange charges. Now that I left the bank and started my own business it is not so funny. There is no competition, the processing costs are de minimus, and on the face of it the situation screams monopoly rents with no recourse. These are the facts, don’t buy the noise.
Nice to have you providing that set of details. So how do we regulate this stuff ( and keep savvy banks from routing around/capturing the regulations? )
Inquiring shoppers want to know!
m.jed, your last paragraph is the exact same reasoning the banks use to charge outrageously high interest rates. There really is no reason for those expenses to be “covered” on both ends.