Credit-cards

Stores Can Now Pass On Credit Card Fees to Customers

One common pet peeve of mine has always been merchants that either didn’t understand or simply refused to play by the acceptance rules for the credit cards they accepted. Back when I still used PayPal, I had retailers refuse my perfectly-valid MasterCard-logo-bearing debit card because it also had a PayPal logo – something they’re not allowed to do. Technically, they also aren’t supposed to charge extra for credit or debit transaction, even though those transactions cost them money. Well, they weren’t supposed to, but that just changed.

Yesterday as part of the final settlement of a 2005 court case, merchants got the ability to charge you extra to use plastic. The court case centered around anti-trust allegations, claiming that Mastercard, Visa and nine other companies conspired to fix the fees merchants pay to process credit card transactions. This sort of collusion is, of course, unlawful and no one can deny that it was hurting merchants everywhere to pay artificially high transaction fees – but now the burden is being shifted to the rest of us.

As part of the settlement, the wording in most credit card acceptance policies barring customer-facing surcharges has been removed and merchants are now explicitly allowed to charge their customers any amount up to the actual fee they’re paying to swipe their card. Despite bearing similar (although admittedly lower) fees, debit transactions aren’t covered by Monday’s ruling, so merchants still aren’t allowed to charge you any fees there. Also, since they weren’t named in the case, you still can’t be charged extra for using online payment processors like PayPal and Dwolla.

As a proponent of the online currency Bitcoin and a former Verifone employee, I’ve said for ages that cheap/free payment processing should be Bitcoin’s “killer app” but sadly it wasn’t likely since only the merchants really knew or cared much about these fees. With the burden of payment processing fees now potentially shifting to the customer, we may be looking at a completely different paradigm now. What do you think?

Will customers bearing the cost of payment processing drive Bitcoin adoption?

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  • http://twitter.com/jonmatonis @jonmatonis

    This is an inverted way of looking at the issue. Mandating no surcharges for the merchant participants of their networks allowed them to make an all or nothing offer to merchants. Once the "nothing" choice starts to look attractive, the payment networks would be forced to open up. That's what Bitcoin starts to permit.

    This economic intervention into the practices of a private payment company is an unwarranted encroachment. Furthermore, it will remove the competitive advantage that sites like Bitcoin Store have now by forcibly allowing others to accept both payment types (without surcharging BTC as a cross-subsidy) and probably forcing Bitcoin Store to also accept both payment types to survive. Payment networks should compete under “their own” rules, not the government's rules. The collusion you refer to is a result of their greater monopoly privileges within the Fed-managed banking network.

  • http://twitter.com/jonmatonis @jonmatonis

    This is an inverted way of looking at the issue. Mandating no surcharges for the merchant participants of their networks allowed them to make an all or nothing offer to merchants. Once the "nothing" choice starts to look attractive, the payment networks would be forced to open up. That's what Bitcoin starts to permit.

    This economic intervention into the practices of a private payment company is an unwarranted encroachment. Furthermore, it will remove the competitive advantage that sites like Bitcoin Store have now by forcibly allowing others to accept both payment types (without surcharging BTC as a cross-subsidy) and probably forcing Bitcoin Store to also accept both payment types to survive. Payment networks should compete under “their own” rules, not the government's rules. The collusion you refer to is a result of their greater monopoly privileges within the Fed-managed banking network.

  • http://twitter.com/rogerkver @rogerkver

    The customer always pays the credit card fees. It doesn't make any difference if they pay it through a surcharge, or if it is hidden in the price of the good, the merchant fees are always paid by the customer.

    • http://codinginmysleep.com David Perry

      Yes, this is the way it's always been, what this ruling means is that either the price of debit/cash transactions will go down (unlikely) or that CC purchases are about to cost you 4% more simply because the merchants are allowed to. They already work that cost into their pricing, but they've just been given an excuse to increase their profit margin 4% and I assure you they will take that option.

  • http://twitter.com/rogerkver @rogerkver

    The customer always pays the credit card fees. It doesn't make any difference if they pay it through a surcharge, or if it is hidden in the price of the good, the merchant fees are always paid by the customer.

    • http://codinginmysleep.com David Perry

      Yes, this is the way it's always been, what this ruling means is that either the price of debit/cash transactions will go down (unlikely) or that CC purchases are about to cost you 4% more simply because the merchants are allowed to. They already work that cost into their pricing, but they've just been given an excuse to increase their profit margin 4% and I assure you they will take that option.

  • bob

    Maybe this will help get people to stop running up their CCs

  • bob

    Maybe this will help get people to stop running up their CCs

  • http://martyhalpern.blogspot.com martyh

    I believe there are 10 states — I know California is one of them, where I reside — where it is a state law making such credit card surcharges (i.e. passing on the credit card fee to the consumer) illegal. So, nothing in California, at least, is going to change. But, as is noted by others, merchants have undoubtedly been passing this charge on to consumers since the beginning of credit cards by increasing their retail pricing.

  • http://martyhalpern.blogspot.com martyh

    I believe there are 10 states — I know California is one of them, where I reside — where it is a state law making such credit card surcharges (i.e. passing on the credit card fee to the consumer) illegal. So, nothing in California, at least, is going to change. But, as is noted by others, merchants have undoubtedly been passing this charge on to consumers since the beginning of credit cards by increasing their retail pricing.

  • hrm

    The irony is that hard cash purchasers have been in effect subsidizing CC purchases if the merchant has theoretically accounted for CC surcharges. Certain gas stations in my area give a discount for cash, so there is only minimal consumer awareness. (I wonder if this model would get around state laws against passing the CC surcharge?)

    I voted yes for a wake up to consumers, and BTC may be a beneficiary, but is not quite mature enough to get a immediate boost.

  • hrm

    The irony is that hard cash purchasers have been in effect subsidizing CC purchases if the merchant has theoretically accounted for CC surcharges. Certain gas stations in my area give a discount for cash, so there is only minimal consumer awareness. (I wonder if this model would get around state laws against passing the CC surcharge?)

    I voted yes for a wake up to consumers, and BTC may be a beneficiary, but is not quite mature enough to get a immediate boost.

  • http://www.getbestcreditcards.com/ Adeen Aerden

    A credit card is a payment card issued to users as a system of payment. It allows the cardholder to pay for goods and services based on the holder's promise to get money at any time. From here I have got some valuable information which is so supportive to the users. Love it and inform like this…

  • http://www.getbestcreditcards.com/ Adeen Aerden

    A credit card is a payment card issued to users as a system of payment. It allows the cardholder to pay for goods and services based on the holder's promise to get money at any time. From here I have got some valuable information which is so supportive to the users. Love it and inform like this…

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