Will Consumers Accept Surcharges on Credit Card Purchases?
It’s not uncommon to find gas stations offering consumers a lower price when they pay cash to fill up their cars. But, now that all retailers have the option of adding a surcharge to credit card purchases, will any major retailers actually do it?
According to a Bloomberg News report last week, Macy’s, Sears, Target and Walmart have all ruled out adding fees to MasterCard and Visa charges.
Randy Hargrove, a spokesperson for Walmart, told Bloomberg, "The proposed modification to the no-surcharging rule for Visa and MasterCard provides no benefit to customers or merchants such as Walmart."
MLive.com confirmed that Meijer will also forego adding fees to purchases made with credit cards.
One major chain that is still evaluating whether to add a surcharge for credit card purchases is Kroger. The company’s CEO David Dillon, according to Bloomberg, said the grocery store operator would study its options to determine if fees would add "transparency" to the process while improving efficiency.
Discussion Questions
Do you expect retailers to begin adding surcharges for credit card transactions? How do you think consumers will react if they do?
When this was first announced, I expected to see more of the gas model, where retailers build the most expensive payment fee into “the price” and then try to incent people to move to a lower-cost payment method with a surprise discount at the register. If no one can figure out how to take advantage of the hard-fought transparency then what’s the point of the benefit?
Only the foolish would even consider adding fees for credit card transactions. They’d be better served to offer a discount for cash, but I don’t think you’d ever see that happening (except for the underground economy operators!).
Imagine yourself at the cash register, and the cashier informs you that you’ll be paying 2% more today because of using your credit card; how long would it take you to drop your purchase and leave the store in a huff? And, you’d never come back.
Some retailers may add surcharges for credit card transactions, but it may be difficult to sustain unless there is a broad movement in that direction. Credit card usage is ingrained in American shopping habits. That’s not going to change overnight.
Overall, I don’t expect retailers to begin adding surcharges. For those that do try it, I’m confident it will be a mistake. Retail is not gasoline, so it’s not going to be readily accepted and will feel like another gotcha that e-tail doesn’t have. In fact, as far as I know, the mini marts at gas stations don’t have a CC surcharge—that speaks volumes as to where surcharges are and are not acceptable.
I do know retailers that do not accept credit cards that have a higher sales per square foot than most stores that do. Mostly because they have lower prices. There are times you do need a credit card, like when traveling, using hotels, plane tickets, car rentals, etc.
But for everyday shopping, a debit card would work just as easily. I would not make a large purchase with a debit card, but with small, quickly consumable purchases, I see no harm in switching from credit to debit cards. Perhaps over time, businesses that specialize in quickly consumable products like food and fuel will drop those expensive credit cards.
With a lot of credit cards its a break even for the consumer because they offer 3% to 5% back. I have one card then gives me 10% on certain purchases. Last year my credit card travel rebates hit close to $1,500.
Discount for cash works in fuel purchasing for two unique reasons. First, fuel pricing is very transparent. By law the retailer has to post their price on “the street’ so everyone including all competitors can see the price. Second, the price of fuel strikes a strong emotional chord with consumers. A savings of $.05 per gallon can create a change in purchase behavior even though if the customer were filling up their car, it would amount to a $1.00 or less.
I doubt customers in a supermarket or department store will have the same reaction even if they knew they could “earn” a discount by paying cash. There I agree with Kevin that customers would likely leave their merchandise and find another store where they and their credit card were welcomed.
Kevin’s comment is right on target. If I am at a register checking out and am told an additional X% is being added because I am using a credit card, my response is “You put it back. I am out of here.”
Give it time. Some retailer will not be able to resist the increased margin from the surcharge. They will figure out a stealth plan, maybe the “cash discount” ruse. They will try and fail. But others will try again. Then other retailers will decide “why shouldn’t I get that margin too?” Some will try to turn “no swipe fee” into a competitive advantage, but it won’t be sustainable.
And eventually, just like the frog in the pan of water, consumers get cooked.
How many times does a small business make the mistake with “Charge Limits” at say $10? Same concept, when a merchant makes the consumer “stop to think” about paying, the response in my opinion is a loss in sales—ARCO does this with gas and at least in my case, I never buy ARCO. Same for shipping charges online—I make sure my order qualifies for “free shipping” or I don’t order.
So in my opinion, whether adding a fee for using a charge card or charging shipping without an affordable work-around, the retailer will lose some amount of volume.
I think it’s going to be very difficult/painful for retailers to try to charge credit surcharges.
As consumers we don’t act rationally in a number of important ways, and one of them is that we don’t value all costs equally (Run an experiment offering Free Shipping—a $20 value—vs. a $25 off campaign if you don’t believe me).
Adding a credit surcharge is going to be perceived far more negatively than bundling the fees into the cost of goods. Add to that all the high profile retailers that have already declared they won’t charge fees, and any retailer who does charge them is going to “feel” uncompetitive.
Doesn’t seem fair not to reward the cash and debit customer with some incentive. Credit fees add to cost of merchandise, those paying with cash or lower fee debit cards should receive a discount.
Agreed, it would be foolish to add a credit surcharge, but customers love discounts.
Suicide is the notion that comes to mind, if anyone thinks this is the way to go. You need to look at the pricing structure and adjust a little here and there inside the store, but to add it onto the bottom of the slip will not win any fans at all.
I do think it would be better and more acceptable if retailers offered a discount for using cash. In that way they do not become the bad guy charging more but the good guy offering a discount. Not to worry, retailers will figure it out soon enough.
I believe some retailers will come up with interesting ways to get the surcharges in. (Though I would seriously suggest pursuing it from the discount point of view.) Some will be fiascoes and others maybe not so much. When a critical mass of retailers all head in the same direction, it is no longer competitive and the consumer will lose. Just sayin’….
Adding a surcharge for credit card transactions benefits no one. At checkout it could slow down the process as customers react and change payment method. It could increase use of checks which increases risk for retailers and slows down the process. Surcharges will hurt sales for customers that don’t have a sufficient checking balance to use a debit card.
Just like shipping costs hurt online sales, a surcharge for credit card purchases online will reduce sales. Customers will not pay and will shop elsewhere. Even the gas stations that offer a lower price for cash wind up with lower sales as most customers don’t carry $50 in cash just to fill up the family car.
One possible option is to link the charge to a frequent shopper program where members don’t pay the surcharge.
When I first read about the settlement, I noticed that businesses in New York, California, and one other state (maybe Texas) were exempt. Why?
I also remember the hogwash about the reduction in debit card fees promoted by the NRF that would supposedly reduce consumer prices. You just gotta love those lawmakers.
Building on ‘Roadster’s comments, I thought the prohibition on cc fees was a matter of law, not a contractual issue between card providers and retailers. But whatever the specifics, based on the comments here and in the news stories, the surcharge idea seems dead … for the moment at least.
Savings based on payment is a false strategy. It won’t work. Consumers are too smart and aware of the tradeoffs to fall for this type of design.
Why would any retailer in their right mind add a surcharge? Unless they were required by law, that makes no sense…even for gas stations.
Small local businesses, where a personal relationship exists, will be able to add a surcharge. Particularly big ticket items where the purchase is a ‘considered’ one; furniture, carpet, appliances, repairs, services, etc.