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POSTED ON BY Ken Tumin
This NYT article, The Damage of Card Rewards has an interesting discussion of the hidden costs of using reward credit cards. It's not the direct cost that consumers pay, but the cost paid by the merchants. Here's how the article describes the issue:
Another issue discussed was how some retailers give discounts to those who buy with cash. According to the article, credit card companies "allow cash discounts but prohibit surcharges for card use." This is how stores like Spec's get away with giving a 5% discount for cash or PIN-based debit cards. The article gives the reasons why most stores don't offer this.
The article pointed to the site The True Cost of Credit which allows you to find out how much it costs merchants when you use your credit card. I gave it a try with some of my cards. I would suspect the results aren't 100% accurate, but they seem to give you an idea of the costs. The interesting thing to note is the higher percentage costs for small purchases. For example, it showed a cost of $0.42 to a convenience store for me buying a $1.50 pack of gum with my Visa credit card. That's 27.8% of the purchase. $0.40 of the cost is the per-item fee. The other $0.02 comes from a fee of 1.556% of the purchase price.
This issue of the high costs for small purchases is more important for reward checking account customers who have a reason to make multiple small purchases. The article focuses on credit cards, but debit cards when used without a PIN (credit or signature option) have similar interchange fees as pure credit cards. I could see gas station owners getting mad at someone who's constantly making many small purchases at the gas pump. It's something to keep in mind when you're trying to meet your monthly reward checking requirements. If PIN-based debit card purchases can be used to meet your monthly reward checking requirements, this may be better to use especially for small purchases. Last week I reviewed an article that discussed how the credit card companies have profited from signature-based debit card purchases.
For several years, I’ve wondered whether my aggressive pursuit of credit card rewards made me a selfish consumer.
After all, the 1 to 3 percent or more of every transaction that merchants pay to accept the cards is a significant cost, and the small local retailers that make neighborhoods vibrant often pay a higher percentage.
Another issue discussed was how some retailers give discounts to those who buy with cash. According to the article, credit card companies "allow cash discounts but prohibit surcharges for card use." This is how stores like Spec's get away with giving a 5% discount for cash or PIN-based debit cards. The article gives the reasons why most stores don't offer this.
The article pointed to the site The True Cost of Credit which allows you to find out how much it costs merchants when you use your credit card. I gave it a try with some of my cards. I would suspect the results aren't 100% accurate, but they seem to give you an idea of the costs. The interesting thing to note is the higher percentage costs for small purchases. For example, it showed a cost of $0.42 to a convenience store for me buying a $1.50 pack of gum with my Visa credit card. That's 27.8% of the purchase. $0.40 of the cost is the per-item fee. The other $0.02 comes from a fee of 1.556% of the purchase price.
This issue of the high costs for small purchases is more important for reward checking account customers who have a reason to make multiple small purchases. The article focuses on credit cards, but debit cards when used without a PIN (credit or signature option) have similar interchange fees as pure credit cards. I could see gas station owners getting mad at someone who's constantly making many small purchases at the gas pump. It's something to keep in mind when you're trying to meet your monthly reward checking requirements. If PIN-based debit card purchases can be used to meet your monthly reward checking requirements, this may be better to use especially for small purchases. Last week I reviewed an article that discussed how the credit card companies have profited from signature-based debit card purchases.
Actually, it is federal law that bars surcharges for using a credit card. Some years back, gas stations decided that a cash discount did not quality as a surcharge for use of a credit card, and thus was started cash discounts.
For those of you who belly-ache at the fees charged.... This is the cost of doing business. Credit card users generally buy more than those who pay with cash; that's an advantage. If there's something really great about your business, people will pay cash.
Each business owner needs to weigh the costs and benefits of accepting credit cards -- rather than complaining to Congress.
Many people can't be bothered with rewards checking so I benefit because I take the time and trouble. Sometimes I have a $1.05 purchase and this week a $529 purchase on my RCA. Then I had to field a call checking up on my "large" purchase.
Charge over a dollar and the bank gets nervous. That can't be Rick, he always charges a dollar!
If a merchant won't take my card I will go elsewhere. Simple.
So, I plan to continue using my rewards checking account card there to make small purchases and get both, the transaction count and convenience of using a card.
According to the article they are breaking the rules. Arco is a pretty big company, so I'm sure Visa is aware of their practice.
those gas stations that charge less for gas if you use cash will give you that same price if you use your debit card.
i fulfill my monthly purchase requirements with my reward checking debit card (processed as debit) at the gas pump all in one swoop. haven't heard a peep from my bank and that may be cuz i use some of their other services so they give me a pass.
everyone blames credit card companies for problems but the real prob is 1: people have no clue how to handle their money. 2: merchants need to take responsibility for a lot of the fraud going on.
it's a no brainer. know the terms and conditions of your card. you use the card, you agree to them. point blank. you don't like the terms, get a new card. you use your card, you owe money, pay it back! you don't, suffer the consequences. pretty simple.
and merchants need to start checking id's on ALL in person credit transactions, i don't care how big or small the purchase is. that'd cut down on half of all the fraud going on out there which i bet would save us all money.