Banks vs Retailers: The Battle For Card Usage
Lately, I’ve noticed a card war brewing.
On one side, stand the Banks and Credit Card firms. They get paid a percentage of every sale when you swipe your Amex, Master Card or Visa in a credit card machine.
On the other side, are the Retailers.
In the middle, the Consumer. The battle between the two giant sectors means that choices (and potential costs) are multiplying — if consumers become aware of them.
The battle is over that 3% or so processing fee (it varies) when you swipe your card at a store. It is a big chunk out of Retailer profits, especially during an economic downturn. One recent retailer study found some stores paid as much as 63% more in transaction fees than they earned in profits.
“Choice Architects” — as Richard Thaler calls them in Nudge — working for retailers have been trying to cut down on these fees: An increasing number of stores have changed their default card settings to “Debit” from “Credit.”
I first noticed this during a visit to Target. I swiped my bank debit card — also a Visa — thru the machine. Sometime ago, the default setting was Credit, but now it seems the default setting was Debit.
So too is the default setting at the Supermarket. If you wanted cash back, you previously had to select Debit, than punch in a dollar amount. Now, the default is debit, and you are automatically asked if you want cash back (some consumer groups advocate sticking with credit over debit).
Interesting . . .
The banks aren’t sitting by idly while a big chunk of their profits disappear. Several majors have begun to emphasize cash back for credit card purchases, and have issued specific credit cards that pay a % back.
Next volley in the war: Look for the retailers to fire back: I am waiting for a major chain to offer a 1% discount for using debit versus credit card.
>
See also:
Retailers Look to Save by Cutting Credit Card Fees
Andrew Asch
Apparelt News, September 25, 2009
http://www.apparelnews.net/news/retailing/092509-Retailers-Look-to-Save-by-Cutting-Credit-Card-Fees
Retailers Ready for Fight on Credit-Card Fees
JANET MORRISSEY
Time, Sep. 17, 2009
http://www.time.com/time/business/article/0,8599,1924409,00.html
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September 29th, 2009 at 8:00 am
I had noticed this previously, but once I saw an ad (on this site and others) for credit cards from major banks paying cash back, I began to suspect this was going to be a big deal.
Me? It depends upon the retailer. If I like, them I’ll do Debit — otherwise, they get the credit card.
(Does anyone pay in cash anymore?)
September 29th, 2009 at 8:02 am
Americans currently pay about $2 in “interchange” fees for every $100 they spend using credit cards. The fee is actually paid by retailers, though consumers feel it in a higher retail price. This rate is twice that charged in the U.K. and New Zealand, four times the rate levied in Australia and more than six times the cross-border rate charged in the European Union, the study says.
That’s a lot of fees
September 29th, 2009 at 8:20 am
well- using a cc is a convenience- and therefore should cost more than cash-
i typically use cash for anything under $20 or $30-
by using debit- you incur a POS fee- best to avoid and use credit
September 29th, 2009 at 8:23 am
Whats the cost of more armored car visits? Debit handles that angle I know. On the story of why credit is safer over debit .. good one .. guess its the “hanging on to a good thing*” marketing and maybe maneuvers
*for the interested big banks
September 29th, 2009 at 8:30 am
I was informed of this by a cashier at Shop Rite over a year ago. I went 100% debit for a while until Chase cut back on the cash back program, which can barely by a piece of Bazooka now. Fortunately, there’s a Chase ATM next door, so just out of spite, I take out cash before I enter the store to avoid any party paying extra nonsense fees.
September 29th, 2009 at 8:30 am
Big Banks’ Sneaky New Tricks
http://www.cbsnews.com/blogs/2009/09/25/business/econwatch/entry5339908.shtml
September 29th, 2009 at 8:43 am
Though, Cash Payors get the real short end of the stick..those Fees are embedded into the Price of the Goods purchased (at least, to some extent).
While there are Costs of handling Cash, unless your reading a Visa ‘White Paper’, they’re lower than the Exchange Fees.
If this was a major problem, and Merchants were going to get serious about it, they’d offer discounts for Cash (void were prohibited by Law..)
September 29th, 2009 at 8:44 am
I’ve noticed this war too.
One particular credit card I use at one particular store does not require a signature for less than $40. It is not a debit card, and the statement shows as a regular charge.
Supermarkets are using “shoppers cards” to verify the identity of the credit card holder, especially self check outs. The receipts used to say to stop at customer service and sign in front of the attendant. Nothing now.
I’ve gone through without the shoppers card and had to sign the receipt.
I find this very funny because I never use my real name when I sign up for one of those store cards. Not even close.
September 29th, 2009 at 8:52 am
CC fees are just another hidden tax. Go ahead and pay it, if that’s what you like.
September 29th, 2009 at 9:03 am
Ironic that you were shopping at Target, since they are the last major retailer to issue their on plastic (Target National Bank). One of the reasons they want to keep their plastic is to keep the processing fee, rather than hand it over to a bank.
September 29th, 2009 at 9:05 am
Another place where (about) 3% is being taken off the top is Paypal, even on “cash” (money from your bank account) transactions. A “not-for-profit” kid’s group wanted to setup Paypal and use it online to make it easier for parents to pay and outing coordinators to not have to collect, keep track of, and cash a bunch of paper checks. We found 3% “missing” (and other unexpected and best I can tell undocumented restrictions too).
Ripped off at every turn.
September 29th, 2009 at 9:10 am
I prefer to use a credit card for all my purchase activity. A while back there was a few headlines about card numbers getting stolen from retailers’ computer systems and it got me to thinking about security. At the time I was using my bank debit card for purchases (because I liked the idea of just using cash without actually having to carry cash) and I realized that the information to access MY money at My bank was in just about everyone’s computer. So I called the bank and got a new debit/ATM card with a new number. I also opened up a new credit card with one of the big banks (offering zero liability for unauthorized activity and a cash back rewards program). So now I use that credit card for all my daily activity and only use my ATM card at my bank’s ATM locations. Even though any unauthorized activity with the ATM card would be protected, I figured that worst case would be that someone could clean out my checking account and I’d be in a bind until the matter was resolved. This way if account information is compromised at some retailer, my credit account may get frozen until the matter is resolved, but my checking account is still secure. Now I just pay my credit card bill in full every month and take a few percent in cash back rewards on most purchases.
Since we all know that retailers have baked their transaction fees for credit card use into prices, I might as well use a credit card and get a cut.
September 29th, 2009 at 9:15 am
I don’t know if it still the case, but Visa and MC used to incorporate in their contracts with retailers that discounts for cash purchases were prohibited.
September 29th, 2009 at 9:21 am
Something tells me that when these two titans go at it, we consumers are going to be stepped on.
Up here in Canader I have a cash back credit card that I use to buy just about everything. I always pay the balance off at the end up the month to avoid % charges. It does rack up a nice chunk of change for me at the end of the year after fees so I don’t mind dinging the merchant by using it. I know the cost is already priced into my goods. I also don’t mind dinging the bank by not owing anything. It is the most efficient way to get them both back is by letting them fight over the remaining few percentage points
September 29th, 2009 at 9:27 am
I prefer PayPal*.. no monthly fee for my small business .. but it needs the www and email (slow process) …
and I don’t have an immediate bank check investigation processor either
* a cost of being in business
September 29th, 2009 at 9:30 am
Barry:
“…… I am waiting for a major chain to offer a 1% discount for using debit versus credit card…..”
No can do bro……. There are statutes that prohibit this. Do you remember when gas stations were offering a 3% discount for cash, back in the early eighties…..?
Best regards,
Econolicious
September 29th, 2009 at 9:31 am
“Though, Cash Payors get the real short end of the stick..those Fees are embedded into the Price of the Goods purchased (at least, to some extent).”
I agree with that statement, I have seen gas stations offering a lower price if you pay cash, maybe that would be a good system to avoid the cc charges.
September 29th, 2009 at 9:33 am
contrabandista13
I’ll have to take a picture next time, still exists.
September 29th, 2009 at 9:37 am
Right on with the cold war metaphor.
If your bank pays your POS fees (mine does), the same thing will happen as is happening with the ATM Fee reimbursements. By raising fees, banks will only be scalping each other and will only wind up shuffling money back and forth amongst each other. The only thing that will increase is their Ops expense.
I always flip to credit. It doesn’t necessarily provide a big enough sample size for it to matter but, from my perspective (banking unit that pays my fees), it seems people are skewing towards straight cash…not even debit cards.
September 29th, 2009 at 9:40 am
Many of the gas stations in my area offer cheaper prices if you pay cash. Some don’t take any cards at all.
September 29th, 2009 at 9:48 am
http://www.paymentsnews.com
http://www.paymentssource.com/
and, no longer in print, but, still, helpful http://www.cardtechnology.com/
September 29th, 2009 at 9:51 am
“back in the day” (early 80′s), if state laws prohibited a “discount for cash”, petro retailers created the workaround of “cash discount waiver”, if you paid with credit. Thus, the price at the pump was the default cash/debit price.
Overall, with taxes sure to go up, consumer deleveraging will continue and more cash will be used and hopefully, saved.
Look for a continuing contraction/consolidation of credit suppliers as demand shrinks. Nearly all of my baby-boomer friends are deleveraging at an aggressive pace. We’re enjoying the deflation too. The best cure for high prices, is high prices.
September 29th, 2009 at 9:53 am
Dear Barry,
Ikea offers a 1% discount on future purchases for using a debit card, at least at their Stoughton, MA store.
September 29th, 2009 at 10:07 am
@thecommonman – it’ll be consumers AND small business squeezed.
Using debit or credit for small transactions hurts small businesses. Period.
I use cash for everything except big-ticket transactions and like one poster above, my credit card and debit card are separate pieces of plastic. A little paranoid, maybe, but I know enough people whose cards have been double-swiped and their accounts cleaned out so I just avoid debit altogether.
I can’t remember what cut Visa/MC take but it’s much less than AMEX, which I believe is around 7% in Canada. There’s also the equipment & line rental fees on top of that from Moneris, etc.
As for debit, I don’t know if it’s the same now but back in the 90s someone at HBC (a large semi-upscale department store chain) told me the banks take was a dollar per transaction for the retailer. Fine for large amounts, but not worth it for the retailer if someone’s only buying $5 worth of stuff.
September 29th, 2009 at 10:09 am
My car repair guy has switched from CC to cash in the past few months.
September 29th, 2009 at 10:16 am
@Common Man
Agreed. If the banks win, nothing changes. They still charge the 3% and the retailer passes that on to us.
If the retailers win, nothing changes. They still charge the same prices and pocket an extra 3% profit.
I don’t see retailers winning this one, because IMO retailers are still winning under the current formula. People spend more when they put it on the credit card than they do with cash.
September 29th, 2009 at 10:23 am
Time to switch to a barter-based economy. Cut all the parasites out. ;-)
September 29th, 2009 at 10:27 am
It’s already happening. I have noticed on the last couple of trips to Europe (particularly in Germany) that a number of small retailers and restaurants no longer take credit cards, and was told that it was because they could no longer support the fees. Increased fees are being driven by the cash back and other special bonus cards.
Also, a number of universities (in Canada, at least) that used to take cards for tuition have now stopped doing so. Who complains when they stop? The parents, paying their kids’ tuition on the card so they can get the points.
September 29th, 2009 at 10:28 am
And not to mention that stores (and small restaurants) going to cash-based transactions makes it easier to cheat on one’s taxes. A quiet revolt is happening.
September 29th, 2009 at 10:42 am
I always tip resturant servers in cash. They love it. Even if I pay for the dinner with a credit card.
September 29th, 2009 at 10:43 am
Retailers typically operates with very thin NP margin(2-3%). They can save a lot by saving on transaction cost. That might be the reason lot of stores have cobranded cards.
In my native country, retailers used to reduce 1-2% of the bill if pay by debit card/cash. I thought we were not a developed country.
September 29th, 2009 at 10:44 am
Around here, there are gas stations which have a cash price, and a higher price for credit.
September 29th, 2009 at 10:46 am
Yes, IKEA does offer a coupon for 1% back of your total purchase if you use debit over credit (it used to be 3% earlier this year).
And it is not illegal or a violation of their contract for retailers to offer a discount for cash–what they are prohibited from doing (under US contracts, at least) is adding a surcharge for credit card purchases.
Remember, the debit/ATM transaction fee at Point Of Sale is (IIRC–it’s been a few years since I’ve been in the card processing space) no more than $0.65, regardless of the size of the transaction. The credit card fee for in store retail (card swipe) is no lower than about 1.8% (again, IIRC), with an additional $.05 tacked on (for big retailers). Mom and pop stores are probably paying about 3% + $0.50 per transaction.
And a credit transaction on your debit card is a big win for the banks–they collect nearly the same rate (thank you Wal-Mart settlement) as on a straight credit card, but with a much lower risk to them as the funds are drawn from your account as opposed to a line of credit.
September 29th, 2009 at 10:51 am
fraud guy
“a credit transaction on your debit card is a big win for the banks”
Thanks for the explanation. Now I can tell my aunt why her bank is trying so hard to convince her to use a “global payments” card when – from her point of view – it does the same thing as debit.
September 29th, 2009 at 11:29 am
Nearly all of my baby-boomer friends are deleveraging at an aggressive pace. We’re enjoying the deflation too.
Well, it is good to see that at least some of the boomers have awoken from their slumber to take on one last just war. This is one we all can fight and win.
@Jessica6
When they charge me less for cash, I’ll pay cash. I have nothing against the retailers except that some of them are buying Chinese goods for a buck and then turning around and selling it to me for $10. I read a piece of news a while back stating that CEO’s were taking something like 30% of all company profits so I have a hard time generating any sympathy for them.
If the company is brave enough to post its profit/loss statement on the window of their store then maybe I’ll show some pity. Otherwise, I have to put food on the table too and I can’t afford the bank loan and franchise fee that he can
September 29th, 2009 at 11:31 am
Some of us foil them all and use these archaic things called “checks”.
September 29th, 2009 at 11:32 am
Or, at times, something called “cash”.
September 29th, 2009 at 11:50 am
I always pay in cash…
Why?
Because it amuses me to no end to see the confused look on the cashiers face (the one who undoubtedly “twittered” their way through math class) when they have to figure out how much change to give me…
You see, it’s not as simple as looking at the register to see how much change to give. I always FOIL them by handing them EXTRA change to get a rounded out return in larger bills, or coins…
(i.e. if the purchase comes to $11. 16, I’ll hand them $22.26, and watch their faces as they figure it out)…
cvienne has to get his gags somewhere… And it’s not just correcting spelling errors!
September 29th, 2009 at 12:23 pm
Mannwich Says* “And not to mention that stores (and small restaurants) going to cash-based transactions makes it easier to cheat on one’s taxes. A quiet revolt is happening.”
and Joe Retail Says “last couple of trips to Europe (particularly in Germany) that a number of small retailers and restaurants no longer take credit cards”
Way and Way Not to help pay for the worlds military police force (maybe / not sure / that Geitner’s job)
* and I’ve thought of that angle too .. I play by the rules (and don’t have an Elite pile to show for it)
September 29th, 2009 at 12:33 pm
There was a time when gas stations routinely charged less for those paying cash than those paying credit cards. Whatever happened to that?
September 29th, 2009 at 12:39 pm
ps cvienne … I throw the register clerks curve balls too .. my regular stops wait for my change to come out before entering the bills only … but I try to show them the subtraction method … $12.82 bought with $15 cash and a late 7 cents (nickel and 2 coppers) .. register says I get back $2.18* .. I use the subtract method on them 2 penny = 80 cents & nickel = a quarter .. pool players like quarters
* or the add back method (nickel and 2 coppers) ups 18 cents to a quarter
September 29th, 2009 at 1:18 pm
@ blueoysterjoe, you ask “There was a time when gas stations routinely charged less for those paying cash than those paying credit cards. Whatever happened to that?”
Three things I’ve observed.
First, gas stations in many areas discovered that they are happier having less cash on the premises. One fueling station (biodiesal, not gas) near where I live actually won’t accept cash. If you want to pre-pay multiple purchases with a check they’ll charge a payment card for you.
Second, gas stations stopped trusting in “fill first, pay second”. Now it’s “overpay or exact pay, then fill, then get change (if any)”. So they have extra costs there for handling cash, too.
Third, the habit of charging for cards is alive and well in urban “corner liquor stores” which are primarily cash businesses. They often make extra profit on card fees.
-t
September 29th, 2009 at 1:18 pm
I stopped using credit card 2 years ago. Only time I use is when I make car reservations where I am forced to use my credit card. My debit card gives 2 points for every dollar spent.
September 29th, 2009 at 8:44 pm
Never own a debit card, if info. is compromised by a retailer your bank balance can be cleaned out in a flash.
Carry an ATM card and credit cards only.
September 29th, 2009 at 10:03 pm
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