Retailers and other Merchants have long been plagued by increasing costs associated with taking credit card payments without reasonable control over the expense of those payments. There is now a proposed settlement in a long-standing price fixing lawsuit between Visa/Mastercard and retailers that may change the playing field. Here is what you need to know.
Retailers and “merchants” of all sorts that accept credit cards as a form of payment have to pay an interchange fee every time a credit card is used to pay for purchases. This fee varies, but can be as much as 3 – 5% of the transaction cost. Larger merchants, like Target and Walmart, can often negotiate a lower fee. The interchange collected is then split between many providers including; the card issuing bank, the credit card company, the merchant’s bank, the credit card gateway provider, and any other distributors.
The merchants in this system are often powerless at controlling their costs. Why?
|Merchants cannot differentiate. If they accept a card, like Visa, they cannot charge you any extra for using the card. So if a customer who pays with a Visa costs a merchant 2% more than someone who writes a check, the merchant cannot pass that additional cost on to the customer.|
|Prices are not fluid. Banks are the historic owners of Visa and Mastercard, and the pricing models used are very inflexible. In other words, according to many merchants, the credit card pricing is fixed between providers.|
|Losses flow downhill. If there is a problem with the credit card transaction, often the merchant is the one taking the loss. Why? The credit card banks have auto access to the merchant’s bank account and if a disputed claim is ruled against them, there is little practical recourse other than to accept the loss.|
|Rewards cards become penalty cards to merchants. If you use a credit card with a rewards program, the merchant is the one who foots the extra cost. Theoretically, two customers could use the same type of credit card (Visa, Mastercard, American Express), but the credit card cost to the merchant can vary depending on the reward program attached to the card.|
What is Happening Now
In a recent class action lawsuit, merchants have challenged Visa/Mastercard over their business practices claiming price fixing. The merchants wish to recapture some of their pricing authority. If the proposed settlement is accepted:
|Participating Merchants will share in a $6+ billion settlement payment.|
|Merchants will be able to add a fee if you use a Visa or Mastercard to pay your bill, as long as you are located in a state that does not prohibit a credit card surcharge.|
|Merchants will see a .10% drop in their credit card rate for a 6 – 9 month period of time.|
Ultimately, merchants must pass the cost of these credit cards on to the consumer. Here are some ideas to use this information to your benefit:
|Negotiate cost. If purchasing an expensive item, offer to pay cash for a discount. If it is a small merchant you might suggest a 1 – 3% discount to share in the interchange savings.|
|Be aware of surcharges. Given the nature of the settlement, it is unlikely that large retailers will be adding credit card surcharges, but smaller retailers might do so. Please be aware of the store’s policy before you buy.|
|Leverage your credit card costs. Being aware of the interchange profits being made on your credit card provides you negotiating leverage on your credit card bill. Remember, your bank is making money every time you use your card, even if you pay your bill in full each month. Consider challenging a late fee or credit card interest on a late payment.|