I don't know the details of the fight between the merchants and the credit card companies but this is what eventually came out of it.
Since Jan. 27, 2013, merchants have had the ability to assess a surcharge on customers who pay with credit. However, if they choose to take this step, there are a lot of rules that must be followed, including:
- Notifying consumers that they’re being charged for using credit, both at the register and on the receipt. On the receipt, the merchant is required to state the exact dollar amount you paid in credit card surcharges.
- Charging customers only what they’re paying to the credit card payment networks in swipe fees (again, this is usually around 1%-3.5% of the cost of the transaction). In other words, merchants are allowed to pass on the fee to the customer, but aren’t allowed to make a profit on credit card surcharges.
- Staying on the right side of state laws. As of August 2014, nine states prohibit retailers from passing credit card surcharges onto consumers. They are: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, Oklahoma and Texas.
- Limiting surcharges to credit card transactions. If you pay with debit, the retailer isn’t allowed assess the fee. This includes debit transactions where you sign for your purchase as opposed to entering a PIN. Only credit card users can be hit with a surcharge.
Before 2013, Visa and Mastercard forbade credit card surcharges. However, cash discounts were allowed.
The problem was the Most Favored Nation clause in the credit card contracts. Merchants could offer cash discounts, but they could not offer discounts to non-Visa credit cards.
Since the antitrust settlements, all four U.S. credit card networks have allowed surcharges. Also, the Most Favored Nation clause only applies to "equal or higher cost" competitors.
Walmart US could fight Visa by adding a surcharge only to Visa cards. Walmart Canada cannot. In 2013, a similar antitrust case was dismissed in Canada.
Thank you for taking the time to find a good answer.
> Staying on the right side of state laws. As of August 2014, nine states prohibit retailers from passing credit card surcharges onto consumers. They are: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, Oklahoma and Texas.
Florida doesn't really prohibit it though. The last sentence of the the relevant statute is "This section does not apply to the offering of a discount for the purpose of inducing payment by cash, check, or other means not involving the use of a credit card, if the discount is offered to all prospective customers."
As a Florida resident I can tell you that if there is any enforcement of this, I've never seen it. It's very common to see verbiage like 'must pay x% if using credit' or 'credit cards additional $x', especially in non-chain restaurants. Some gas stations just list two prices. I don't like it, but I am not going to carry cash around so it's just how it is; I was almost denied service at a restaurant once for pointing out that their credit surcharge was not legal.
Cash is not free for the merchant: there's a cost associated with handling it.
Also, some merchants cater to a demographic that likes to use cards a lot and is sensitive to convenience; and making that distinction may cost the merchant in terms of customer appreciation.
Cash isn't free for people either the vast majority of banks either charge you withdrawal fees or bake them into your flat account fees.
If you are a large business then cash handling companies that securely transfer, count, and deposit / clear it for you charge the same and even more than many credit card companies.
Cash is only "cheaper" for really small businesses that handle the count and the deposit themselves.
And even then there are some fees because banks can also charge a deposit fee when you bring in unsorted cash.
Many business owners prefer cash so they can avoid paying taxes and directly insert the cash into their pocket. Its nearly impossible to trace whereas there is a paper trail left when a credit card is charged.
However, that's tax fraud and carries a risk of significant penalties.
But there are other reasons for preferring cash. For instance, a bank or authorities cannot quite as easily shut down your business if it runs on cash money, compared to having everything in bank which can be confiscated instantly, on-line.
There are indeed fees for a checking account at all physical banks I know of. Typically they waive the fee if you maintain over a certain balance so they can invest it while you're not using it and make a profit on it, which they then use to [more than] pay your fees and profit from. Many also have further restrictions e.g. Charging you a fee for checking accounts unless you have direct deposit set up from your employer into their checking account.
His point is, cash isn't free. It costs money to secure it, have guards refill ATMs, check it for fraud, etc. Somehow, as a customer of the bank, you're paying for it. Either though service fees, poor exchange rates, etc.
> There's also no fees for having a checking account
In the US, people with poor credit are often unable to get even a checking account. This is because banks figure those customers are not going to be profitable since they're not going to use the services they can earn fees on.
Many (not all) banks have requirements to keep your account free. Number of debit card transactions/bill pay, minium balances, direct deposit requirements, etc.
"Going to your banks ATM" isn't very convenient 99% of the time unless you never leave town. You end up going to the closest ATM. Especially if you are on foot.
There are many ATMs which don't charge any fees at all, even for other banks. I'm on the other side of the country as my credit union, and I have lots of options for fee-less withdrawals. Although you may end up paying a fee if you need money quickly and you just go to the nearest one, which may or may not charge a fee.
I've never seen one that doesn't charge anyone at all in the US.
Credit unions have alliances that they can join to use each others ATMs fee free, same with banks. That doesn't change the fact it's often inconvenient to go to an ATM you don't have to pay for and you need to pay sometimes.
Poster you replied to is talking about deposits, not withdrawals.
Banks treat cash very carefully. If you bring in a stack of cash that they have to count once to see how much it is and then again to verify it's going to take time and they might charge you for that.
> Poster you replied to is talking about deposits, not withdrawals.
They literally said "withdrawal fees."
I don't know of any bank which charges you to deposit cash. I occasionally drop off large stacks of cash and have them count it—there's never been an issue.
It is true that business bank accounts typically aren't free, but that isn't what the poster was talking about.
If you get paid via direct deposit then you almost certainly have many options for getting a free checking account regardless of what city you live in.
My interest rate is maybe 0.3%, so they're definitely making money on that.
But that's not a "fee." Obviously banks cover their operating expenses somehow. That doesn't mean they charge me to have an account or to deposit cash (in fact, charging for deposits would be counterproductive).
They do it directly or indirectly, I don't know how US banks works but usually over the world bank accounts vary accounts with no/low fees give low interest and vice versa.
I think, for small businesses, the problem is that the setup cost and fixed operating costs are amortised over too few transactions to be negligibly cheap - and that's before considering the slightly higher actual transaction fees for such businesses.
Square, iZettle and I think PayPal and a few other are doing things in this area, leveraging smartphones, but it's still early days.
The Square POS terminals using tablets (it is iPads?) that rotate for you to sign are nice. I especially like how they'll automatically email you a receipt, which is great for reimbursements or filing taxes because it means I don't need to scan anything.
I've never been impressed with anything using a cell phone though. It's too clunky of an experience. I get that it might be useful for farmer's market and other very small retail situations, but when I'm going into a retail store, a real POS terminal is better.
Some (most?) gas stations make more money on the convenience store than on the gas itself. So setting up a scheme to encourage the customer to come in the store is in their interest. They make it super easy to toss in a side item with the gas purchase.
Good context. Lottery tickets, tobacco products, monster energy drinks, coffee, soda, 5 hour energy, protein bars and beef jerky are evidently where the money is made.
This is true. Gasoline is sold with almost no profit. It's one example of a perfect competitive market converging on zero profit (at least for the retailer). Gasoline is a commodity, it's all the same and everwhere it's sold there are usually several competing retailers and prices are highly visible from the street.
I suspect it's quite common. Gas is an ideal loss leader -- the price on the sign, and your need for gas, gets you into the station. But now you're there, and you're less sensitive to the price of a Coke or bag of jerky.
But there are a lot of markets where price competition drives down the margins for the "main" product, so that the retailers make up their profits on smaller stuff. I've read that a store selling electric guitars or bicycles makes relatively little profit on those items, but instead, makes their nut on accessories, things that wear out, service, lessons, etc.
It was the same in Indiana. Most commonly gas stations charged two prices, one for regular and one for a cash discount. The reasoning was that they weren't making enough profit from fuel to cover the cost of the credit transactions with the price of gas as it was. The cards had different tiers for the fees, and when gas went up, more common people went over into the 2nd or 3rd tier.
Additionally, some small restaurants and shops did the same thing. Usually these folks get charged more for processing credit cards than the large places.
Specs Liquor in Houston (a pretty large operation) offers a flat 5% discount off your total for not using a credit card. Everything in the store has a "cash price" and a "regular price."
And some Australian retailers charge extra for specific cards with higher fees (eg JB Hi-Fi stores have a surcharge for using AmEx or Diners Club cards, which typically charge the merchant more than Visa or Mastercard do).
I was going to link to The Good Guys and their "Pay Cash Pay Less" marketing, but it appears they scrapped their cash discount after finding customers increasingly prefer to use electronic payments:
No, customers prefer to pay electronically. The linked article points out that cash sales in Australia have crashed from 70% to just 47% and is on a fast decline.
I think the point of removing the cash discount is they can use the 'extra' 3% margin earned on those remaining cash sales to subsidize lowering their price via credit card to be more competitive. Their business is based on offering the lowest prices, but the cheapest price was cash only. The discount for cash no longer lures customers to come to their stores, so there's no incentive for the store to continue passing on the discount to the customer.
