Interesting comments on Wanna Save $6 Billion at the Pump. We should debate policy, but we should be clear on the numbers: Every time a consumer makes a purchase on a credit card, the credit card networks skims a fee off the top. The fee is typically 2%-3% of the purchase price, but sometimes as high as 15%. The level of fee relates to the merchant’s industry and size and, most crucially, the level of rewards. Merchants pay more when a customer puts down a cashback/frequent flier super-gold high premium card than when another customer puts down a plain-vanilla card. As several readers explained, this means that if a customer pays for $100 worth of merchandise at Home Depot with a credit card, the store would keep somewhere between $85 and $98, depending on the card the customer used.
According to research published by Adam Levitin, credit card transactions cost merchants, on average, about six times as much as cash transactions and twice as much as check or PIN-debit card transactions.
Because Mastercard and Visa prevent it, the merchant doesn’t have the option to charge $10 extra to use a credit card rather than cash, even if the credit card costs the merchant $10 more.
The numbers cited in Save $6 Billion came from different sources. The report on the total dollars for these fees ($57 billion) came from The Nilson Report. The numbers for convenience stores and gasoline purchases ($6.6 billion in fees, 65-86 cents per transaction came from Businessweek). I estimated the cash costs based on the data Adam assembled on the relative costs of cash and credit cards.
We’ve had some really good posts, but, if I may, I want to re-frame the question just slightly: Whatever your views of credit cards and consumers, why shouldn’t merchants be allowed to pass along higher costs of credit cards–and pass along the savings when customers use cash? I know how the consumer advocates feel about this, but where are the free market people? Why aren’t those who believe in unrestricted markets jumping up and down over this restraint on trade and demanding that merchants be allowed to determine their own pricing structures? Isn’t this an issue on which two ends of the political spectrum should unite?
