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Point of Purchase Bank Card Surcharges: Will They Help or Hurt Consumers?

posted by Nathalie Martin

Did you know that merchants are considering tacking on a point-of sale fee for purchases made with a debit or credit card?  In other words, at 2%, a $100 purchase would cost $100 in cash, but $102 when charged. I have seen this sort of thing in Europe, so will it happen here?  If so, who will it hurt and help?  The argument for imposing such a fee is that cash customers are now bearing part of the cost of processing all those bank card payments. In other words, the cost of goods is going up because without bank card purchase costs to absorb, merchants could charge all of us less for their products. As a credit card doubter and a vehement proponent of a cash economy, I was on board with this thinking. Why should I support all those card carrying members of the debt society?

Um…except that, my assumptions were all wrong. Cash users are not carrying the water of card users; rather, it is the other way around. Shockingly, cash is more expensive to process than card payments. Not so shockingly, accepting plastic increases a retailer’s market share.  And as we know, people buy more with plastic than with cash.  Given all this, and the fact that 56% of all retail sales are made with plastic, accepting plastic is already a win win for retailers. All this caused author Allen Rosenfeld, writing for the New American Foundation, to conclude that at the end of the day, point-of sale surcharges will transfer wealth from consumers to retailers, and will not, surprise surprise, lower the cost of goods.


I think that merchants run the risk of losing their credit card payment option if they offer cash discounts or impose surcharges for credit. It's likely a part of the merchant account agreement.

I was reading your article wondering if you would mention the inefficiency of cash versus card, and you did! I can see it first hand when I hunt around inside of a change purse for every last penny to make my transaction for the exact amount, and to get rid of pennies.

Time goes by, and that is a waste of the cashier's time and that cost can only be extrapolated all day long and even afterwards when the Brinks truck shows up.

However, cash is still necessary.

"Shockingly, cash is more expensive to process than card payments."

I don't know why that is a shock, from a small retailer's (convenience store, gas station) point of view to the Walmarts the cost of handling cash is always significant and has always been there. Security & insurance is a non-trivial problem, especially when compared to the ease & relative security of electronic (debit) processing. A retailer accepting both cash and cards finds the margin traditionally used to cover his cash costs squeezed by the card companies fees. Tougher business than ever.

Uhh, I think everybody is forgetting the chief advantage of cash from a small retailer's perspective. It has something to do with amnesia and the IRS.

Where’s the evidence that cash costs the merchant more? Wouldn’t it depend on the nature of the business?

And is it properly a side-by-side comparison, or, since businesses are legally bound to accept Federal Reserve notes, is cash handling part of the baseline cost of doing business?

Just another reason not to use credit/debit cards.
I already don't use them. I pay cash for everything. Why make the banks rich at the merchant's expense? All of those credit card rewards that you get...where do you think they come from? Merchant discount fees!!!
Plus, I get some kind of sadistic satisfaction from watching cashiers who can't count change for a dollar. I will go out of my way not to give the banks a penny.

I observed the same change in the United Kingdom in the early 1990s, where we have a credit card industry very similar to that in the United States. The UK's Credit Cards (Price Discrimination) Order 1990 prevented the card companies from forcing merchants to charge the same for credit card (and debit card) transactions as for non-card transactions. In almost 20 years since this legislation has been in force allowing merchants to charge more for card transactions, the only noticeable change has been the travel industry. In the UK, airlines and travel agents typically surcharge for payment by credit cards, but not usually for debit cards. This distinction has been reinforced by a difference in discount fees for merchants, in that whereas credit cards continue to attract the conventional percentage discount fee, debit cards have for many years attracted a fixed fee (considerably less than the equivalent of $1). This reflects the fact that card issuers do not have to fund any period of interest-free borrowing for debit cards. This has led to, not so much cash customers subsidising card customers, but debit card customers subsidising credit card customers. It will be interesting to see if the US follows the UK with the same long-term effects of such a similar piece of legislation.

@ foxmarks
Businesses are not obligated to accept cash. That's not what legal tender means. Nemser v. NYC Transit Authority, 530 N.Y.S.2d 493 (1988).

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