There have been tons of stories the past couple of days, across television and all sorts of media, about credit card processing fees starting tomorrow.
Except, the scary headlines don’t match the reality. We’ll see very few changes tomorrow.
This all stems from a settlement reached between retailers and Visa and Mastercard this past summer which will allow retailers to add a surcharge to Visa and Mastercard transactions.
But most won’t because in many cases the surcharges are worth it to the retailer: companies get money right away, deposited straight into their account when processing credit cards, and without the risk that a check bounces; consumers paying by credit card tend to spend more money per transaction; credit card transactions also reduce the likelihood of employee theft significantly compared to cash transactions.
And the charges remain illegal in 10 states (California, Colorado, Texas, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, and Oklahoma). Furthermore, any retailer doing business in those states cannot add surcharges in the states where it’s legal.
And the change applies to Visa and Mastercard but not to American Express or to debit transactions. And any store that takes Amex has to accept cards on an equal basis. It’s expected that stores accepting American Express will not be able to add surcharges to Visa and Mastercard transactions.
So smaller retailers in states that permit the charges who do not accept American Express might do this. My dry cleaners might do it. And for them I guess I’ll pay with my Suntrust debit card that earns 1 Delta mile per dollar. Or I’ll go to the dry cleaner across the street.
Still, the change in ability of some stores to add surcharges is good for retailers, or at least the bargaining position of retailers vis-à-vis merchant processors, though it is not good for consumers.
Academic work on Australia, the best experiment at this with the most data, suggests that consumers pay more for their cards and receive less in return, that retail prices haven’t fallen as a result, and that credit is harder to get for consumers because the transactions are less profitable for banks. The changes have been pushed in courts and legislatures by retailers who don’t want to charge for credit card processing per se, but want to be able to push down the costs of their processing (by agreeing not to surcharge in exchange for lower prices, for instance).
Nonetheless, I don’t expect to see major change in the US and how payments are processed as a result of the settlement, or the changes in rules that go into effect tomorrow. But as a backup plan, it’s great all of the changes that have taken place in the market over the past year or two that allow the purchase of prepaid debit cards from national retail chains with credit cards so that we can all still earn our miles while avoiding surcharges at small retailers!