The war on credit cards is ramping up thanks to what several major retail chains just announced.
They want to be able to keep you from using certain credit cards. Specifically, the ones that offer the biggest rewards. According to the Wall Street Journal, companies like Amazon, Target, and Home Depot want to end a rule that requires merchants that accept a Mastercard- or Visa-branded card to accept all the cards branded that way.
“If merchants could pick and choose among Visa or Mastercard credit cards, those with the highest merchant fees—and most generous rewards—likely would be on the chopping block,” wrote the Wall Street Journal.
Why don’t retailers like these cards? Simply put, they think they eat into their bottom lines.
Why is that? Well, these rewards cards that I write about all the time are funded in three ways: through annual fees, merchant swipe fees, and interest on any balances that are not paid in full.
That swipe fee? That’s a fee companies pay to accept credit cards (all cards, not just rewards cards). In exchange, the company gets the money you just gave them deposited right into their bank account. This fee usually hovers around 1-3%. If the card is a rewards card, the swipe fee will be on the higher end.
In 2017, merchants paid banks a total of $43.4 billion in these swipe fees (up 68% from 2012!). That’s clearly not chump change. Banks are relying on those fees more and more. Some companies, however, want the government to force banks and credit card companies to do business on their terms. They want to have their cake and eat it to.
But wait. Is cash the answer? Is cash really the thing that can end up saving restaurants, grocery stores, and other retailers money??
In short, the answer is no.
Cash can cost merchants more
That sub-headline might seem a little ridiculous to you. After all, it doesn’t cost a business extra to deal with cash, right? Actually, it does. A recent study done by IHL Group found that from the cash register to the bank, cash costs a business, on average, nearly 10%. That’s because oftentimes, the cash handling process a company has is inefficient, therefore costing said company many more labor hours than it should.
“Much has been made about the cost of credit and debit transactions,”said Greg Buzek, president of IHL Group, in a release. “But the real cost of cash ranges from 4.7% to over 15% for some retail segments. These costs are often hidden as they are part of a manager or supervisor’s job rather than their complete focus. Yet optimizing these processes through targeted automation can provide hundreds of labor hours per month to stores to improve the overall customer experience.”
All of the sudden, these 1-3% credit card swipe fees don’t seem so bad, amiright??
Where should the focus be?
It seems to me, many of these big businesses are focusing their ire in the wrong direction. They should be focused on two things:
People spend more when using a card
This shouldn’t be the case if you’re using a credit card properly, but it’s true. Study after study shows that when people use a credit card, they spend more. And the fact that, as a nation, we’re over $1 trillion in credit card debt, that kind of logic is hard to argue against.
But that begs the question: do businesses all of a sudden want you to spend less on them? I’ll save you a Google search. The answer is, of course, no. The more you spend at Business Y, the happier Business Y will be.
I think it’s a mistake for retailers to fight credit card companies. It’ll just end up in the court system for years. Case in point: many retailers across the country just came to a $6.2 billion settlement with Visa and Mastercard after suing the credit card companies 13 years ago, accusing them of fixing the swipe fees. If something illegal is happening, it should be dealt with accordingly. But if a bank and a retailer go into business together and they both agree to a particular set of terms (i.e. swipe fees) in advance, I don’t see what the problem is.
Credit card usage has never been higher. I think businesses everywhere need to embrace them instead of trying to deny them.
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