We think a lot about credit cards here at Small Farm Central because we help farmers take online orders for CSAs, buying clubs, and everything in between. We've written about credit cards a lot on the blog here, here, & here.
One approach that is popular with our CSAs is charging customers more to pay with credit cards versus paying by check or cash. This covers the bank fees for credit card transactions that can run as high as 3% or more of each transaction. This can make a lot of sense for a CSA share because it is such a large ticket item. However, until this point, charging extra for credit card sales was against the contract each merchant signs with Visa and Mastercard. This has changed:
The New York Times reports:
Under the credit-card settlement on Friday, worked out over months of negotiations, merchants can charge higher prices to consumers who decide to pay for their purchases with credit cards.
A customer, for example, who buys a $100 item with a credit card might be charged an additional $2.50. A judge still needs to approve the settlement.
Until now, the card companies banned merchants from adding such a surcharge, although gas stations and other retailers sometimes offered a discount for customers who paid in cash.
Kevin drum writes:
Until now, credit card companies used their monopoly power to prohibit this. Merchants could discount for cash, but their contracts with Visa and MasterCard flatly prohibited them from charging credit card customers more to cover the swipe fee — and card companies have been adamant about enforcing this prohibition. There's an obvious reason for this: they're afraid that if merchants are allowed to do this, people will use credit cards less. And if people use credit cards less, then banks and credit card companies make less money.
What's more, consumers and merchants get a lot of benefits from credit cards: consumers get convenience and merchants get guaranteed payment. No more bounced checks! Maybe a 2.5% fee is a reasonable price for those benefits.
Some merchants will almost certainly start charging more for credit card purchases, and after a period of experimentation we'll end up in a new equilibrium. What will it be? Perhaps consumers will start avoiding stores that charge for using credit cards, and those stores will lose enough business that they'll give up. Or maybe they'll gain enough cash business that everyone else will follow suit. Maybe merchants will end up charging higher prices for small items but routinely waive the fees for larger purchases. Maybe stores in competitive markets will swallow the fees while other stores don't. Or vice versa. Or maybe it will end up putting pressure on banks and card companies to lower swipe fees and then everything will revert to the status quo, but with no more ridiculous rewards programs. (This is my preferred outcome: keep the convenience of electronic payment, but with swipe fees basically covering the cost of running the network, not acting as a hidden profit center.)
So you can now legally charge extra for a customer paying with credit, a practice many CSAs have already implemented, but of course it is a trade-off. I'll save thinking about the balance of the trade-off for another post!