Will paying with plastic cost you more?

credit card swipeOn Monday, the Department of Justice came to a settlement agreement with Visa and MasterCard. The decision was a long time coming (two years), and the details are fairly complex. The upshot for consumers is simple, though: Merchants are now allowed to create pricing tiers based on how you pay, so pulling out the plastic could cost more than paying cash.

Many consumers think all methods of payment are created equal, but from the merchant's point of view, they're not. Stores have to pay what's called an "interchange fee" -- generally one to three cents per dollar spent -- every time you pay with a credit card. Reward credit cards command higher fees, which is why card companies can afford to dole out those points or miles you accrue when you spend.

"The retailers do have a lot more flexibility now," says Beverly Harzog, spokeswoman for CardRatings.com. "This certainly has the potential to really benefit consumers."

Merchants absolutely hate the fees they have to pay to process credit cards, claiming that they drive up prices for everybody. Whether or not they'll actually drop prices for cash-payers remains to be seen; merchants could just keep their base prices and pile on surcharges for card users.

There are also serious logistical difficulties to creating tiered pricing, as this article points out. Some states would require stores to list each pricing tier, so if a merchant wanted to charge one price for cash, one for no-frills cards and one for rewards cards, they'd have to have three prices on every piece of merchandise in the store, plus spell out somewhere what cards are good for what price. For big national retailers, this might be too much of a headache to be worthwhile, especially because the learning curve for customers and cashiers alike would be steep. This article points out that tiered pricing might turn up more at online merchants, since they don't have to put physical price tags on items and don't have checkout staffers to train.

If retailers do go ahead and implement tiered pricing, the math for customers suddenly becomes much more complex. Imagine this: You're at your friendly neighborhood big-box discounter, and you pull out your rewards card to earn miles when you suddenly notice at the register that you'll be paying 3% more if you use that card. Now, you'll have to do some fast arithmetic in your head to figure out which is greater: the amount of the surcharge, or the value of the points you'd be collecting.

"People will definitely have to make some choices," Harzog says. "I would suggest that consumers be on their toes and think about it carefully -- are they better off using cash or the rewards?"

Harzog adds that it's not out of the question that card companies will add or increase cardholder fees to make up for lost revenue if people do shy away from using their cards. Keep an eye on your mail so any fee increases don't catch you by surprise.

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