Credit Card Surcharges

This morning I ordered several new eyeglasses. There was a $50 credit card surcharge. I told then I go to several businesses that write off the surcharge because they don't want to lose customers and they already charge more than enough for their goods anyway. I could have easily paid with my debit card but I walked out. This is a place I have done business with for over 30 years.

They called me and said they would waive the fee. I told them they could have done that in the store. I told them I'll think about it and call you tomorrow.

Of course I need the glasses and I will relent, but I'm trying to make a point to them.

PINEHEEL said:

Good for you walking out on them!

The experience that lead me to make the post was a $95 surcharge on a dental surgery this morning. I didn’t have my debit card on me or even think much about it until it was too late, but I think I was in shock that a professional business would throw that on such a large bill.

If you’re a mom and pop restaurant or business I don’t agree with it, but I’m at least empathetic to your situation. This felt icky. It was a periodontal specialist, so it’s not like I’m price shopping for the best deal. I drove 90 minutes each way because that’s who my dentist referred me to.

A business makes a choice on whether to accept credit cards of not. If you’re going to, bake it into your pricing. It’s part of your overhead. Do you itemize all of your expenses and offer your customers a la carte pricing on them, or is that just for credit card fees and employee wages?

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complete garbage fee and you should be miffed

I understand and mostly agree, but if the company bakes it into their price, isn't the resulting cost the same?

You see it a lot more now because the credit card companies had policies against charging extra fees until a couple of years ago. Once they started allowing it, a ton of businesses started charging. I don' t do it at my stores I have but it has been tempting since it has become so commonplace.

I average around $1500 a month in CC fees and unfortunately I can't just increase prices across the board to cover. The majority of what I collect in the stores every month is the NC sales tax on high end phones. Not like I can increase the sales tax. So it is just a cost I absorb every month.

kc_heel said:

You see it a lot more now because the credit card companies had policies against charging extra fees until a couple of years ago. Once they started allowing it, a ton of businesses started charging. I don' t do it at my stores I have but it has been tempting since it has become so commonplace.

I average around $1500 a month in CC fees and unfortunately I can't just increase prices across the board to cover. The majority of what I collect in the stores every month is the NC sales tax on high end phones. Not like I can increase the sales tax. So it is just a cost I absorb every month.

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That's a tough model. Just remember that not paying NC that sales tax you collected is embezzling

I pay cash at such restaurants I pay cash at DMV I gladly pay the Voluntary upcharge for things like on line Carolina Giving .If Amazon etc does it I have not noticed-but would not make the purchase if they do
I remember 25 years ago my church paid around $50,000 for Debit/Credit fees

Years ago my BIL had a small store/electronics shop
End of each day he would "account for" checks, credit cards etc
And pocket the cash
Yes there was a Deevorce

On the one hand ...........

VISA and Mastercard have something of an oligopoly on credit cards / credit card transaction processing. This allows them to have rather extraordinary profit margins.

Here are the percentages from the table below:

VISA ....................... 61%
Mastercard ......... 26%
Amex .................... 11%
Discover ................ 2%






VISA and Mastercard appear to be unusually profitable businesses. Their profit margins are in 45% - 50% range. And this is Net Profit to the Shareholders ... not just something like Operating Margin or Gross Margin.

Additionally, VISA's return on equity (last year) was 60%. While Mastercard's ROE was north of 200%.




VISA profit margin trend




Mastercard profit margin trend

On the other hand ............


There are no free lunches ************.

There are only lunches that are paid for in some obvious, direct way .... or .... lunches that are paid for in some hidden way ..... perhaps by other people.



There is a cost to processing the exchange of money when you buy something ..... regardless of how you do that.

The questions are ..........

a) What are these costs ? What might be the most efficient way to pay for something ?


b) Who bears this cost ? And remember the concept of 'tax incidence' -- who appears to pay a 'tax' or other cost may be different from who is actually bearing the economic burden of paying that cost.

So - for instance - if the merchant charges an explicit credit card surcharge, it might look like the customers are paying this cost. But to the extent this apparently additional cost drives away business from the merchant .. (ie., reduces Demand) -- the merchant's income will decline.



1) If'n the merchant "eats" the cost associated with credit card fees -- those costs are just buried in the price of the goods and services you buy from the merchant. So you're still paying these costs in some way. You just don't see it explicitly. Though we should also note that it's likely a portion of this cost may come out of the profit earned by the merchant.


2) If you pay by cash -- I would suspect that's a far less efficient -- a more costly way for both the customer and the merchant and a bank -- to transact a payment.

Customers (all of us) would have to constantly go through the hassle of getting the cash. (Time is money.)

And then the merchant and the bank have deal with processing and accounting for, etc. all this cash. That would have to be a much less efficient process than computers magically crediting and debiting credit card accounts.


3) Ditto, if you pay by check -- then somebody has to process all these checks. That's not free.



Remember -- one of the reasons merchants are willing to accept credit cards is that -- profits of VISA and Mastercard notwithstanding -- it's still a relatively efficient way for customers to pay for stuff and it facilitates greater spending. Customers don't need to carry all this cash all the time and / or they don't have to have the money to pay for everything sitting in their checking account all the time.

If'n we could somehow break up the oligopoly we see in the credit card industry perhaps more competition would lower credit card fees. Offhand, I'm not sure how we would do that. And I'm not positive fragmenting that business would make it more efficient or exactly how that would work ...... ie., would every merchant now have to deal with 10 different credit card processors ????




******** Except for the Grace of God ....... consumer surplus ...... producer surplus ..... and .... arguably, diversification of investment portfolios.