[cherdanno]

jdonn, on Jul 6 2009, 07:40 PM, said:

kenberg, on Jul 6 2009, 07:02 PM, said:

Whoever thought up this racket is a ***** genius.

I think your example is wrong. The credit cards are probably making nothing or next to nothing from people who pay off their monthly balances. They simply make up for it many times over off the people who don't.

I am too lazy too google but I am sure this is wrong. The cut paid by merchants is a lot higher than you think.

[cherdanno]

helene_t, on Jul 7 2009, 06:42 AM, said:

Do they charge the shops 2.5? That's ridiculous.

Anyway, if the shops get screwed it's their own fault. If CC is more expensive for them than DC or cash, they should just pass on the costs to CC customers.

That's disallowed by their contracts with the credit card companies.

Edit: Sorry of course many other have pointed this out as well.
Anyway, I disagree that taking 2.5% from the merchants and paying you back 2% is a difference of "next to nothing".

[helene_t]

It sounds like a strange system to me.

Why don't merchants let CC customers pay the fee, with a subtraction of the (much smaller) costs of handling cash? They could offer cash payers substantially lower prices then.

[Apollo81]

helene_t, on Jul 7 2009, 05:24 PM, said:

It sounds like a strange system to me.

Why don't merchants let CC customers pay the fee, with a subtraction of the (much smaller) costs of handling cash? They could offer cash payers substantially lower prices then.

Is 3% really "substantial" for 99% of purchases? And if merchants opted instead to ONLY accept cash, I bet it would cost them 3% for the increased security they'd have to have to prevent robberies.

[barmar]

Credit card companies don't want the fees passed on to the card users, because it would discourage people from using the cards. I'm not sure how gas stations get away with it, and I've also seen some small restaurants (like sub shops) that charge extra for credit cards.

[Apollo81]

jdonn, on Jul 7 2009, 04:47 PM, said:

So perhaps am I really out of it. When I was 15 and worked at a grocery store, I was told they were charged by American Express to accept that card, but not by any other card. Has that changed, or was it never true, or might it only have been true where I worked?

From wikipedia:

Costs to merchants

Merchants are charged many fees for the privilege of accepting credit cards. The merchant may be charged a discount rate of 1%-3%+ of each transaction obtained through a credit card. Usually, the merchant will also pay a flat per-item charge of $0.05 - $0.50 for each transaction. Thus in some instances of very low value transactions, use of credit cards may actually cause the merchant to lose money on the transaction. Merchants choose to pay these costs in exchange for the increased profitable sales they can create. Thus, they are considering part of the overall cost of marketing. Merchants with very low average transaction prices or very high average transaction prices are more averse to accepting credit cards. But rates are often reduced in an attempt to include more of these types of merchants.

[jdonn]

Apollo81, on Jul 7 2009, 04:29 PM, said:

jdonn, on Jul 7 2009, 04:47 PM, said:

So perhaps am I really out of it. When I was 15 and worked at a grocery store, I was told they were charged by American Express to accept that card, but not by any other card. Has that changed, or was it never true, or might it only have been true where I worked?

From wikipedia:

Costs to merchants

Merchants are charged many fees for the privilege of accepting credit cards. The merchant may be charged a discount rate of 1%-3%+ of each transaction obtained through a credit card. Usually, the merchant will also pay a flat per-item charge of $0.05 - $0.50 for each transaction. Thus in some instances of very low value transactions, use of credit cards may actually cause the merchant to lose money on the transaction. Merchants choose to pay these costs in exchange for the increased profitable sales they can create. Thus, they are considering part of the overall cost of marketing. Merchants with very low average transaction prices or very high average transaction prices are more averse to accepting credit cards. But rates are often reduced in an attempt to include more of these types of merchants.

Informative, but did not answer what I asked...

[luke warm]

jdonn, on Jul 7 2009, 03:47 PM, said:

So perhaps am I really out of it. When I was 15 and worked at a grocery store, I was told they were charged by American Express to accept that card, but not by any other card. Has that changed, or was it never true, or might it only have been true where I worked?

they all charge now, and i believe there's also a monthly fee ($10 or $15) for the electronic swipe machine

[Rain]

afaik, different countries have different merchant agreements with the cc companies, but in most countries (including usa):

-Merchants cannot require minimum purchases to use cc.
So if you visit those chinese restaurants or pizza places that require $10 minimum for cc charges, that technically violates their merchant cc agreements.

(In BBO's case, the product, BBO$ is sold in units of 10s, so it is legal, since the product is 10 BBO, 20 BBO, etc)

-Merchants cannot charge more for cc usage. So they cannot say use cc, this item costs $10.50, use cash, item cost $10.

However, it is legal to offer cash discounts.

A few countries have different prevailing merchant agreements, but most of the developed world has the same one as this.

----------------------
There's a cost to cash too, as mentioned by some posters above. Cash crimes, having to visit places to deposit the cash, some lost opportunity cost of money, and I guess printing the bills is more costly than plastic cards that last longer? (And of course, the amex black card is made from titanium, which should last a very long time!)


------------------------

Josh, it's generally accepted that Amex charges higher merchant fees than visa/mc. Perhaps during visa/mc's early years they could have offered special promotions to push their product? Wonder if that's legal actually - isn't that kinda product dumping? To use their profits from other merchants to subsidise a foray into another market.


Please don't give banks more ideas in charging cc users fees, I love my frequent flier miles and want them for free!

[helene_t]

Apollo81, on Jul 7 2009, 10:27 PM, said:

Is 3% really "substantial" for 99% of purchases? And if merchants opted instead to ONLY accept cash, I bet it would cost them 3% for the increased security they'd have to have to prevent robberies.

Well it's about four times what is paid for DC transactions, and from the merchants point of view there is no difference between the two. So as a DC using customer I would feel kinda screwed having to contribute to the higher fees the shop has to pay for CC transactions.

[Apollo81]

jdonn, on Jul 7 2009, 05:50 PM, said:

Apollo81, on Jul 7 2009, 04:29 PM, said:

jdonn, on Jul 7 2009, 04:47 PM, said:

So perhaps am I really out of it. When I was 15 and worked at a grocery store, I was told they were charged by American Express to accept that card, but not by any other card. Has that changed, or was it never true, or might it only have been true where I worked?

From wikipedia: [stuff]

Informative, but did not answer what I asked...

Too lazy to do historical research, sorry.

[barmar]

Rain, on Jul 7 2009, 06:08 PM, said:

-Merchants cannot charge more for cc usage. So they cannot say use cc, this item costs $10.50, use cash, item cost $10.

However, it is legal to offer cash discounts.

What's the difference? Is this a loophole based on how you describe the prices?

One of the pizza/sub shops I go to frequently has a note on the register that says that the prices on the board include the 5% cash discount.

[mike777]

When I next see her I will ask my next door neighbor. She is bigwig with VISA.

Exactly what is the question?

[onoway]

One large Canadian chain store offers "store money" coupons for any purchases made by cash or debit card, I think it amounts to about 2%. Lots of people disregard them..toss them away or give them to the kids to play with etc. I find it quite satisfying to pay for something with money I got for free.
It's a way to encourage people not to use credit cards, although the store also offers its own credit card. They are very clear that they figure it is better to give their customers at least a part of the money they would otherwise have to give the credit companies.
I have seen ads in the local freead paper asking for donations or even offering to buy these coupons. No idea if that worked out, but for at most 1/2 the value of the coupon someone may be making pretty good return on their investment

[onoway]

Something about credit cards I dont understand...a friend was saying she wanted to get a mortgage on her property, to do some work on it. The house is clear title, and what she wanted to do was going to require less money than she has available on credit cards ( I think she said around $10 000 she was asking for).

So..she has unsecured credit for $10,000 but..she cannot get anyone to give her a mortgage for the same amount, on a clear title piece of property. So if she wants to do these repairs, she will have to either ask for a minimum of $15 000 (one outfit said $50, 000 was the bottom line for bothering to go through the mortgage approval process) or put it on her credit card at what ever the going rate is (something like 25% now?) This make no sense to me (or to her!) Are we missing something here, aside from the banks hoping she will go ahead anyway and they will make pots of money (as long as she doesn't say to hell with it, sell the house, max her credit cards and move to Mexico )?

[JoAnneM]

I must admit it has been 9 years since I retired as a corporate controller, but back then we were charged fees by all the credit cards, more by American Express/Discover. I remember Mastercard/Visa being around 2.5% at that time. They were handled by the same company.

It has always cost more for a merchant to offer American Express/Discover, but then we get more back from our Discover card, and we do collect on it.

[barmar]

onoway, $10K does seem pretty low for a mortgage. Usually people get home equity loans for things like that. Closing costs could run 3-5% of the value of the loan.

Unsecured credit is easier to get, but they make up for it by charging higher interest rates. Was she really going to put up the full value of her home as collateral for a $10K loan?

[onoway]

well in this neck of the woods, homes are not generally as expensive as in many other parts of north America, so it isn't quite the $5000 loan for the Jaguar as collateral joke. In her area, $10, 000 is the going rate for a serviced lot, I think, and the house isn't exactly a mansion. As far as I know, she figured she would get the best rate with a mortgage and she knew she could pay it back, so why not?

[helene_t]

onoway, on Jul 12 2009, 07:02 PM, said:

As far as I know, she figured she would get the best rate with a mortgage and she knew she could pay it back, so why not?

If mortgage lenders refuse to lend less than say $20000 I suppose it's because the fees you pay don't cover all of their costs so they have to earn the remainder of their costs by taking higher interests than what they pay on the bonds.

Over here, the fees are too big to make it meaningful to go for such a small mortgage. My own mortgage is 30,000 pounds (some 50,0000 USD) and that is quite borderline, it might have been cheaper for me to get an unsecured loan.