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 ^[1] 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 ^[2] — 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 ^[3]).

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.

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See also:
Retailers Look to Save by Cutting Credit Card Fees ^[4]
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 ^[5]
JANET MORRISSEY
Time, Sep. 17, 2009

http://www.time.com/time/business/article/0,8599,1924409,00.html