Which method of payment?
Retailers and credit card issuers settled last week on terms that will allow vendors to apply surcharges to customers who choose to pay by credit. The additional charge, if implemented, will be used to compensate for small fees the vendor assumes for processing the transaction. This charge can typically range from 1.5 to 3 percent of a purchase when using plastic. And while most merchants are not expected to take advantage of the ruling, don’t expect the ones who do to exercise the same power that several Long Island gas stations have demonstrated.
Previously, if a merchant wanted to charge a credit card, it was forced to pay the credit card company a proportion of the charge. Since customers didn’t used to use credit cards very often, merchants considered it a premium service and did not mind the fact that they couldn’t pass this fee along to the customers. Nowadays, though, credit cards are much more common than cash to pay for everyday things like groceries, and merchants were spending a lot of money just to sell their products. Eventually, retailers felt they’d had enough of this forced fee, and sued the credit card companies for the right to charge their customers extra, claiming the rules discouraged competition. This antitrust settlement means that a grocery store can apply a fee to a purchase that essentially passes the burden along to the customer.
Of course, people are bound to be upset if suddenly their 100-dollar groceries start costing 103 dollars. Merchants don’t want to start angering and thereby losing their customers, so it isn’t expected that a kind of sea change will happen overnight. But there are some benefits to this new system. If a grocery store doesn’t have to worry about giving up 3% of its revenue to credit card companies, it can reduce the price of many of its items. That benefits all consumers, especially the ones who already don’t use credit cards, and allows merchants further flexibility to compete. Eventually, it may become the norm again to pay via cash in order to avoid credit card fees at the grocery. And credit card companies won’t like it at all. If they can’t convince anyone to use their product, what measly profits from credit charge fees they do make will be a far cry from their current situation.
The antitrust settlement also requires several major banks, Visa, and MasterCard to issue upwards of $7 billion to more than 7 million retailers that accept credit cards. The processing fees will also be reduced for the first eight months after the agreement. Ten states already had restrictions on retailer surcharges and will not be affected by this settlement: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.
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