Imagine being hit with an unexpected extra charge just for using your credit card at your favorite local shop. Annoying, right? Merchants have been battling credit card companies over these pesky fees for ages, and they've finally scored what looks like a win. But hold on, is it really a victory, or have they just opened Pandora's Box? This 'victory' might actually make things way more complicated for both businesses and customers. Buckle up, because this is where it gets interesting.
Think about it: you're at the counter, ready to buy that new t-shirt from your local boutique. But wait! Because you're using a credit card, there's a surprise 'financing' fee of, say, 2.5%. Or picture this: you're grabbing a quick meal at your neighborhood diner. Cash only, or you're slapped with the same fee. Popping into the convenience store for a soda and chips? Unless you're spending at least ten bucks, credit cards are a no-go.
These practices have always been a major frustration for many. Who even carries cash anymore? Are we, the customers, being penalized for using a payment method that's become the norm? It feels like we're being punished for not living in the past.
Merchants have been waging war against credit card companies over these transaction fees for years. Recently, Visa and Mastercard reached a settlement, suggesting lower fees for consumers using certain cards, especially those with fewer rewards. But did businesses really win? That's debatable. Remember the old saying: be careful what you wish for. And this is the part most people miss...
This so-called 'victory' could lead to a tangled web of confusion for everyone. Fees will likely be tiered based on the specific card used. Some business owners might even refuse certain cards altogether if the fees are too high. The average consumer carries about four credit cards. Until now, all were generally treated the same. Not anymore. Will you be able to use this card for a pack of gum but not that one? Will stores post a list of accepted cards? Will you be penalized or turned away if you use the 'wrong' card? These are legitimate concerns.
By creating obstacles for your customers, you risk losing the sale. Or, even worse, losing a future sale if the hassle of doing business with you outweighs the benefits. Plus, you'll increase your operational costs to manage the different cards, fees, and the upgrades you'll likely have to pay your point-of-sale (POS) system provider to handle the complexity.
Small business owners often complain about high merchant fees, yet they heavily rely on these very services. According to the National Bureau of Economic Research, credit card payments by small businesses surged from an average of $10,000 per month in 2020 to $24,000 per month by April 2022. Around 55% of small businesses surveyed reported using a corporate credit card in the past year.
But here's where it gets controversial... The settlement could backfire on these very businesses. Credit card companies use merchant fees to fund partnerships with businesses, offering customers rewards, perks, and travel benefits. Some cards offer significant cashback rewards at office supply stores, on internet, cable, and phone services, gas stations, and restaurants. Others have partnered with brands like Google Workspace, ZipRecruiter, and Lyft, providing ongoing credits and discounts specifically for small businesses.
It's like biting the hand that feeds you. These services and programs will likely be scaled back or made more expensive. And who will ultimately suffer? The small business owner.
Limiting rewards also means limiting revenue. Numerous studies show that consumers tend to spend more when using credit cards. Credit card rewards programs also include countless small merchants, introducing them to new customers who might never have discovered them otherwise.
Finally, let's be realistic. Do we really believe Mastercard and Visa won't recoup these costs elsewhere? Of course, they will! They might raise annual membership fees for business owners who enjoy these perks, increase late payment and penalty fees, or introduce special charges for things like fraud investigations (paid by businesses, naturally). They could also raise interest rates on foreign transactions and cash advance fees, which are also paid by businesses. Or, they could pass higher costs down to their partners, like banks and other financial service providers, who will then pass those costs on to...you guessed it...businesses.
If you run a retail shop or a diner, wouldn't it be simpler to calculate the merchant fee as a percentage of your total revenue and slightly increase prices across all products? Would a customer really notice if a burger costs $12.75 instead of $12.50? Probably not. But will they raise an eyebrow if you add an extra fee to their bill simply because they don't use cash? Absolutely.
Small businesses are perhaps deluding themselves if they see this credit card settlement as a true victory. Is it possible that all this does is create more costs, not less? What do you think? Is this a win for small businesses, or a ticking time bomb? Share your thoughts in the comments below!
