{"id":29375,"date":"2023-10-25T09:40:45","date_gmt":"2023-10-25T09:40:45","guid":{"rendered":"https:\/\/microloannexus.com\/personal-finance\/americans-relying-less-on-cash-more-on-credit-cards-may-pay-more-fees-heres-why\/"},"modified":"2023-10-25T09:40:48","modified_gmt":"2023-10-25T09:40:48","slug":"americans-relying-less-on-cash-more-on-credit-cards-may-pay-more-fees-heres-why","status":"publish","type":"post","link":"https:\/\/microloannexus.com\/?p=29375","title":{"rendered":"Americans relying less on cash, more on credit cards may pay more fees. Here’s why."},"content":{"rendered":"
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When Brian Marks bought a pastry last summer at a bakery he had been frequenting for years, he noticed an extra charge on his receipt. Turns out, it was a new fee for using his credit card.<\/p>\n

Since then, he\u2019s spotted the fee popping up at more and more businesses.<\/p>\n

\u201cSometimes it’s characterized as a service fee instead of a credit card fee,\u201d said Marks, executive director of the Entrepreneurship and Innovation Program at the\u00a0University of New Haven\u00a0in Connecticut. \u201cIn some instances, businesses aren\u2019t even posting it… More and more so, these fees are borne by the consumer (rather) than seller.\u201d<\/p>\n

What is a credit card fee?<\/h2>\n

Whenever you use your credit card to make a purchase, the store must pay a behind-the-scenes interchange fee\u00a0to process that payment. Most of\u00a0that fee\u00a0goes to the bank issuing the card, but companies like Visa and Mastercard also receive a smaller fee\u00a0for processing the payment through their networks.\u00a0 <\/p>\n

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Fees are charged as a percentage of\u00a0the total sales amount in each transaction, but the percentage charged to each merchant, whether at a physical store or online, varies.\u00a0On average fees run about 2%.\u00a0 <\/p>\n

Factors that\u00a0determine what percentage the merchant is charged include: type of merchant\u00a0(department store, convenience store, gas station);\u00a0type of payment technology used by the merchant; whether the purchase is online or in person; and the type of card.\u00a0 <\/p>\n

Businesses\u00a0used to swallow the costs of credit card processing, figuring that accepting credit cards would bring in more business to offset the costs. However, after more than two years of scorching inflation\u00a0that\u2019s boosted the price of everything, businesses \u2013 especially smaller ones\u00a0—\u00a0sought ways to offload some costs to survive. Credit card fees were an obvious choice for many.<\/p>\n

How are credit card fees passed on to consumers?<\/h2>\n

Businesses usually pass on the cost of credit card processing by:<\/p>\n

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    Charging customers an additional amount if they pay by card. In general, the charges are a percentage of the total purchase, typically the 1.5% to 3.5% that credit card companies charge merchants to accept and process the transaction. Sometimes, though, they\u2019re flat fees. It\u2019s important to note these fees can be called different names: surcharge, service fee, or convenience fee. Both for-profit and nonprofit companies can charge the fees.<\/p>\n<\/li>\n<\/ol>\n

    The American Cancer Society, for example, asks donors to pay a 5.5% fee to help pay “transaction & processing fees, web support and receipts.\u00a0It also includes costs associated with cyber security, fraud, and customer service etc.,” it said.<\/p>\n

    Utility company Consumers Energy said that starting this month, autopay customers must have payments directly withdrawn from bank accounts instead of charged to debit or credit cards. People who pay by debit or credit card would be charged $2.99 per transaction. “Like many companies, we are encouraging customers to use payment methods that don\u2019t incur fees that could increase costs in the future,” said Brian Wheeler, Consumer Energy media relations manager. “More than two-thirds of all\u00a0energy\u00a0providers take this approach, as do businesses of all types.”<\/p>\n

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      Offering a discount if customers pay cash. Discounts\u00a0also are a percentage of your bill or a flat amount.\u00a0 For example, T-Mobile changed its $5 per line autopay discounts earlier this year to only apply to customers who pay by debit card or linked bank account.<\/p>\n<\/li>\n<\/ol>\n

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      Why are we seeing\u00a0more credit card\u00a0fees?\u00a0<\/span><\/h2>\n

      Businesses, burned by rising costs, are looking for ways to cut expenses.<\/p>\n

      \u201cThe cost of credit card fees is our number three cost of doing business behind payroll and rent,\u201d Patti Riordan, owner of Smoke Stack Hobby Shop in\u00a0Lancaster, Ohio, said.\u00a0 <\/p>\n

      Merchants paid $126.4 billion last year in processing fees to accept credit card payments, up 20%\u00a0from 2021, according to global payments researcher Nilson Report.<\/p>\n

      The Electronic Payments Coalition (EPC), an advocate for credit unions, community banks, and payment card networks, attributes the jump to Americans preferring to use credit cards.<\/p>\n

      The reasons range from fraud prevention and the safety of not carrying cash to reward points and cashback that encourage spending, it said.<\/p>\n

      In the three months through June, credit card balances soared to a record high of $1.03 trillion, the New York Federal Reserve said.<\/p>\n

      Is it legal for businesses to charge a credit card fee?\u00a0<\/span><\/h2>\n

      A credit card surcharge isn\u2019t legal in every state, but a discount is.<\/p>\n

      Surcharges are illegal in Connecticut, Maine, Massachusetts, and Oklahoma, according to card processor Visa, as of April 15. <\/p>\n

      Why don\u2019t businesses raise prices to cover this cost?\u00a0<\/span><\/h2>\n

      Businesses have already increased prices significantly in the past few years as inflation surged, and some are hesitant to raise them further.<\/p>\n

      Restaurants \u201cdon\u2019t do that because menu prices tend to be sticky,\u201d said Marks. \u201cSo, they find ways to segregate it.”<\/p>\n

      Since owners want to avoid changing prices too often — moves that can startle customers and cost time and money to publicize, charging the fee on the side gives them more flexibility on how or what cost they want to pass on.<\/p>\n

      Are consumers stuck with having to pay these fees?\u00a0<\/span><\/h2>\n

      Probably. <\/p>\n

      As more and more companies find ways to pass on the fees, \u201cwe\u2019re getting more comfortable paying them,\u201d Marks said. \u201cThe airline industry introduced fees for baggage, has it gone away?\u201d<\/p>\n

      In 2022, 23% of small businesses charged an extra fee to customers using credit cards, according to a survey of 530 small businesses last year by payments consultancy Strawhecker Group, which said more businesses would likely follow.<\/p>\n

      How to avoid credit card fees<\/h2>\n

      You can always carry cash or look for a nearby ATM. But make sure that ATM transaction doesn’t carry fees too. If your credit card offers cash back, you may ultimately come out even or ahead, but you’ll have to wait to get that money back.<\/p>\n

      Credit card fees may end up like tipping, “most people just pay it and don\u2019t think about it. But it adds up: a little and a little makes a lot,” Marks said.<\/p>\n

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      Consumers also feel financial pain, why should they pay?\u00a0<\/span><\/h2>\n

      That\u2019s what a handful of senators wonder, too. In June, a bipartisan group of senators, including Senate Majority Whip Dick Durbin (D-IL), and Senator Roger Marshall, M.D. (R-KS), proposed the Credit Card Competition Act of 2023 aimed at lowering the credit card processing fee for businesses and consumers.\u00a0 The bill was originally offered up in 2022 but didn’t advance in Congress.<\/p>\n

      Based on the argument that Visa and Mastercard have a duopoly on the credit card market (more than 80% of credit cards transactions are processed by them) and set the fee structure, the bill would\u00a0ensure large credit card-issuing banks offer a choice of at least\u00a0two networks over which an electronic credit transaction may be processed, senators said. By introducing more networks into every transaction, they believe the increased competition would lower fees for businesses and consumers.<\/p>\n

      \u201cOur legislation would rein in the big banks and the credit card industry, drive down costs for convenience stores, gas stations, and other small businesses, and ultimately pass those savings down to consumers,\u201d Senator Marshall said in a release.<\/p>\n

      Mastercard and Visa refute the notion that there’s no competition in the payments industry.<\/p>\n

      “There have never been more payment options for consumers and businesses,” Mastercard said in a statement in September. “In addition to cash and check, Mastercard aggressively competes with global and regional networks, buy now pay later providers, person-to-person and account-to-account services, real-time payments platforms (including from the Federal Reserve), digital currencies, wallet providers, and open banking companies.”<\/p>\n

      Government tries to curb fees: <\/strong>How much should credit card processing fees be? A new bill says not so high<\/span><\/p>\n

      Is legislation the answer to credit card fees?\u00a0<\/span><\/h2>\n

      Depends on whom you ask.<\/p>\n