I generally avoid credit cards but sometimes rare circumstances make checks or cash inconvenient. A contractor did some work for me. The contractor’s bill was essentially:
- $2500 if paying by credit card (actual result: I pay $2475, he receives <$2425)
- $2500 if paying by other means
It became stark how foolish that pricing is when I saw that I received $25 cash back. Most consumers are easily exploited as they foolishly think they are $25 richer – without thinking about the big margin the MitM took. It means the contractor paid a fee of at least $25 but likely much more¹. Surely he would have profitted more if I paid by other means, like cash. Why didn’t the contractor offer a discount of ~$25—50 for paying cash? I know some do but it’s not as common as it should be.
The merchant agreement generally bans traders from surcharging credit cards (which govs tend to ignore when they accept credit card and add a surcharge). But there’s a loophole for everyone: the rules do not ban giving a discount for other forms of payment. It’s perfectly legit for a merchant to give a cash discount so long as up-front quoted prices match what is charged to cardholders. They should be doing this more.
When a consumer pays by credit card, it would be good for transparency & awareness to print on the receipt: “credit card fee of $75 paid by Bob’s Roofing”.
¹ ~1% is a fee cap in Europe but in the US there is no cap so fees are often in the 3—5% range. So the US contractor likely paid at least $75 in fees.
Quick googling shows that Square charges 2.6% + 10 cents for in-person physical transactions (swipe/etc). I’ll assume that whatever vendor they use is similar.
That means they paid $65.10 to accept the CC, of which $25 went back to you. Any other method would only be able to discount a max of an additional $40.10.
Now, that might seem like a no-brainer. Saving money is always good. But think about the alternatives and what it means. Cash means they now have to physically carry it to a bank to deposit, fill out the paperwork, and wait for it to be processed. If they do a night deposit thing, they still have to set it all up. Checks have historically been bad, creating all sorts of headaches. Still probably requires physically transporting, and quickly before the money disappears. Besides, who uses checks anymore? Square (etc) process and guarantee the transaction immediately, directly into the business account.
Then there’s consumer habits. Back in the early days of credit cards, Visa and the rest put out some promotional materials. These were reasons that merchants should accept cards, even with the fees (which were not allowed to be passed on to the customer). Most notably, people are a lot less concerned with price when it was going on a CC. The contractor may be a unique case, but it does ease the pressure when it comes time for the bill.
That’s interesting, but I have to say I did not mean to imply a p2p transaction. In the case at hand, the contractor was a proper company with employees. So they would not be using Square or some kind of smartphone solution. But I suppose Square is still a good enough example since it wouldn’t deviate much in a b2p scenario.
Woah, why is that? That’s alarming. Does the merchant agreement impose that limit?
If yes, that would answer a question I had. A local business gives a 10% discount on cash payments and refuses all credit cards but accepts debit cards. I thought that’s odd… why accept debit cards but not credit cards? If the merchant agreement for credit card acceptance dictates how much other payment methods can be discounted, that might explain that shop’s policy.
Convenience is certainly a fair factor. But I would not disregard merchant’s inconvenience of chargebacks. Cash is instant and both cash and checks are chargeback immune. Regardless, the question is whether the merchant’s convenience is worth $65.10 on a single transaction (which means that cost adds up to a huge amount). If you figure 5 jobs per week each worth $2500, that’s ~$325 per week in overhead. I would gladly make a bank run for $325 (or even for just $25). Also figure that because cash is an option, there will always be some occasional cash payers anyway, which means making a bank deposit anyway.
If I had a plumbing, roofing, or building gig I would gladly cut out this fat middleman purely from a business standpoint, even neglecting the ethics of supporting the privacy abuses, the war on cash waged by the banks, and the fossil fuels, private prisons, and republican politicians that the banks invest in.
This does not seem like a valid answer. But first, it’s unclear what you mean by consumer. Do you mean the ultimate customer whose house is being worked on? Or do you mean the contractor who is a consumer of payment services? If the former, then that’s not a factor in whether the supplier discounts non-credit card payments – it’s just a factor in whether they accept credit card.
Still not sure if /people/ in this case is the contractor or the payer. A contractor who is not concerned about price is terrible at business. But if you mean to refer to the payer, well, that’s not good… the only reason an informed payer would not be concerned about cost would be if they are forced to spend beyond their means, whereby cash is not an option. That kind of over-spending is precisely what the credit card industry is exploiting in their predatory mission.