Will stores start charging more to pay with credit cards than cash?
We may see some intriguing changes in the checkout line this summer.
Visa, MasterCard and the big banks that issue their credit cards have unexpectedly settled a seven-year-long lawsuit filed by the retail industry over “swipe fees” -- the charges stores must pay to have a transaction processed each time we buy something with a credit card.
And the credit cards lost.
While you’ll probably hear a lot about the eye-popping $7.3 billion the credit cards and banks will pay merchants for violating antitrust laws and engaging in illegal price-fixing, that’s not the big news for consumers.
It’s the fact that the settlement puts an end to credit-card mandated rules that forbid stores from doing things that might encourage shoppers to use other forms of payment, such as old-fashioned cash, that will matter to us.
Under the agreements every merchant signed with VISA and MasterCard, they agreed that they could not charge customers who paid with credit cards more than customers who paid with cash or checks.
Stores could offer a discount to customers who paid with cash. But stores never found that to be very helpful.
About the only places that consistently gave us breaks for paying with cash were gas stations.
What stores wanted to do, but couldn’t, was pass the cost of processing credit card purchases directly and clearly to consumers in the form of a surcharge.
You never went to a restaurant, whipped out a credit card to pay the bill and discovered that an extra 3% was being added to the cost of your meal to cover the cost of processing the transaction.
Any stores or eateries who tried such a thing would have been in violation of their VISA and MasterCard contract and cut-off from accepting credit cards for any purchases -- something few merchants could afford to have happen.
Interchange fees, which is the formal name for swipe fees, are set by Visa and MasterCard and vary a lot between the type of business and the type of card used.
Low-margin businesses such as fast-food restaurants and grocery stores, for example, pay much lower swipe fees than high-end restaurants and department stores. That’s how Visa and MasterCard persuaded places like McDonald's and Safeway to begin accepting credit cards.
But 2% to 3% of the total charge is a pretty typical interchange fee for most credit card purchases.
That adds up to something like $23 billion a year that stores and restaurants pay to have their credit card purchases processed. And it's what they have had to build into the prices that all of us pay, even when we pay with cash.
But no more.
Stores and restaurants are now free to post their prices based on the expectation that customers will pay with cash or check or maybe debit cards. (More on that later.)
For the first time in our lives, we may find them charging us extra for paying with a credit card.
Mike Schumann, for example, owns Traditions Classic Home Furnishings in Minneapolis and was one of the plaintiffs in the lawsuit the credit cards settled on Friday.
He told the Wall Street Journal on Saturday that he would consider adding a surcharge of 2.5% to 3% for credit card purchases if competitors do.
We’ll be waiting to see who might be first, and how they will explain the new charge.
Will they make a big deal of lowering prices first?
I would think this presents a major marketing opportunity for someone out there.
One thing merchants won’t be able to do is charge a surcharge for one type of credit card and not another. If they impose a surcharge at all, then they’ll have to impose the same surcharge on all cards.
And what about debit cards?
The settlement doesn’t deal with them.
But retailers won their first big victory in their fight with the credit card industry when Congress ordered interchange fees on debit card purchases lowered as part of the Dodd-Frank financial overhaul act of 2010.
It’s not immediately clear whether stores and restaurants will have the right to impose a surcharge on debit card transaction or whether they would even want to.
So there’s lots left to be decided out there.
Assuming a judge approves this settlement, it will be a brave new world at America’s cash registers.