Saturday, October 9, 2010

Paying With Plastic Will Cost You More

From WalletPop. Currently, the merchant eats a 4% fee for the privilege of taking plastic, but now it seems WE'RE going to start paying it in the form of higher prices.

"Many consumers think all methods of payment are created equal, but from the merchant's point of view, they're not. Stores have to pay what's called an "interchange fee" -- generally one to three cents per dollar spent -- every time you pay with a credit card. Reward credit cards command higher fees, which is why card companies can afford to dole out those points or miles you accrue when you spend.

"The retailers do have a lot more flexibility now," says Beverly Harzog, spokeswoman for "This certainly has the potential to really benefit consumers."

Merchants absolutely hate the fees they have to pay to process credit cards, claiming that they drive up prices for everybody. Whether or not they'll actually drop prices for cash-payers remains to be seen; merchants could just keep their base prices and pile on surcharges for card users.

There are also serious logistical difficulties to creating tiered pricing, as this article points out. Some states would require stores to list each pricing tier, so if a merchant wanted to charge one price for cash, one for no-frills cards and one for rewards cards, they'd have to have three prices on every piece of merchandise in the store, plus spell out somewhere what cards are good for what price. For big national retailers, this might be too much of a headache to be worthwhile, especially because the learning curve for customers and cashiers alike would be steep. This article points out that tiered pricing might turn up more at online merchants, since they don't have to put physical price tags on items and don't have checkout staffers to train."


"Harzog adds that it's not out of the question that card companies will add or increase cardholder fees to make up for lost revenue if people do shy away from using their cards. Keep an eye on your mail so any fee increases don't catch you by surprise."

Surprise! Another unintended consequence of the Credit Card Act--now that credit card companies lost their ability to make money in certain ways, this is one way they intend to make up for losses. The "higher" your credit card type (level of card and rewards programs), the higher you'll pay for the privilege of using it.

Now's the time to either downgrade to a lowly plain card with no programs attached to it, or just ditch the card entirely.

Want to see those prices drop for offering cash? Negotiate! You can do that right now--ask for a cash discount. That should net you at least a 4% discount immediately. Want a bigger discount? Learn to haggle, buy used, or find some other way to pay for what you want.


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