How will typical merchants react to the settlement reached Friday between Visa/MasterCard and merchants who accept payment by credit card? While the settlement means the credit card companies and card-issuing banks will pay the merchants some $6 billion, the impact on consumers is not so clear.
Here is the Wall Street Journal article about the settlement which ran Saturday. There is a little more information in this statement from Visa, and in this statement from Robins, Kaplan, Miller & Ciresi, the Minneapolis-based law firm that represented the merchants. Here is the statement from the ABA and here is the comment from ICBA. Here is a link to the actual 113-page settlement document.
The settlement will allow merchants to charge more if a customer chooses to pay with a credit card instead of cash, check or debit card. Currently, credit card rules prohibit merchants from charging more, although the rules do allow customers to receive a discount for paying with cash (but few merchants offer the discount). So in 2013, when the new rules become effective, will many merchants add a 2 percent or 3 percent surcharge for using a credit card?
I can see on larger purchases — say on furniture and appliances — that merchants would love to surcharge. Yet, retail marketing is so competitive if even one big retailer refused to charge more for credit card use, virtually all players in the market will feel inhibited about charging more. But I am sure it is only a matter of time before they all end up surcharging.
Surcharges will drive people away from credit card use, with debit cards probably picking up the difference. Debit cards are wildly popular, although I know a lot of people who prefer to use credit cards; they pay off their balance every month and really appreciate the month-long float. No longer will that float be free and my guess is most folks won’t be willing to pay for it.
This agreement settles for now the question of who should pay for the card-based payments system. The candidates are the card issuers, the consumers who use the cards or the businesses that accept payment by cards. Up until now, the business have paid by figuring the cost of the payment system into the price of their products, the same way they figure in the cost of rent, staffing and marketing. They could add a surcharge to every product to cover rent, but no business does that. So why do they want to add a surcharge to cover credit cards?
My guess is it is simply a way to make money. In a perfect world, they would lower their off-the-shelf prices to reflect the fact that they no longer have to cover the cost of credit card usage, and make it up by imposing a surcharge on those buying with plastic. But, in fact, I doubt anyone will lower any prices and all consumers will end up paying prices with payment system factors included, and then paying an additional charge if they choose to use a credit card.
It is similar to the Durbin Amendment fiasco where merchants won a substantial price cut on debit card interchange fees but were not required to lower the price of their products a commensurate amount. The idea was sold as a benefit for consumers but the fact is no consumers have benefited at all. Call me cynical, but I suspect that will be the result of Friday’s settlement, as well.