Credit Card Fees: Where are the Free-Market People? |

Interesting comments on   We should debate policy, but we should be clear on the numbers:  Every time a consumer makes a purchase on a credit card, the credit card networks skims a fee off the top.  The fee is typically 2%-3% of the purchase price, but sometimes as high as 15%.  The level of fee relates to the merchant's industry and size and, most crucially, the level of rewards.  Merchants pay more when a customer puts down a cashback/frequent flier super-gold high premium card than when another customer puts down a plain-vanilla card.  As several readers explained, this means that if a customer pays for $100 worth of merchandise at Home Depot with a credit card, the store would keep somewhere between $85 and $98, depending on the card the customer used.

According to research published by Adam Levitin, credit card transactions cost merchants, on average, about six times as much as cash transactions and twice as much as check or PIN-debit card transactions.

Because Mastercard and Visa prevent it, the merchant doesn't have the option to charge $10 extra to use a credit card rather than cash, even if the credit card costs the merchant $10 more. 

The numbers cited in Save $6 Billion came from different sources.  The report on the total dollars for these fees ($57 billion) came from .  The numbers for convenience stores and gasoline purchases ($6.6 billion in fees, 65-86 cents per transaction came from ).  I estimated the cash costs based on the  on the relative costs of cash and credit cards. 

We've had some really good posts, but, if I may, I want to re-frame the question just slightly:  Whatever your views of credit cards and consumers, why shouldn't merchants be allowed to pass along higher costs of credit cards--and pass along the savings when customers use cash?  I know how the consumer advocates feel about this, but where are the free market people?  Why aren't those who believe in unrestricted markets jumping up and down over this restraint on trade and demanding that merchants be allowed to determine their own pricing structures?  Isn't this an issue on which two ends of the political spectrum should unite? 

Credit Card Mergers Do Not Affect Card Usage, Says Cardbeat

WESTBURY, N.Y.--(BUSINESS WIRE)--In the past few years, the credit card industry has witnessed landmark
mergers between issuers such as Bank of America and MBNA, JPMorgan Chase
and Bank One, and Barclays and Juniper Bank, among numerous others.
Two-thirds of cardholders whose issuers have been a part of a merger
have not changed the ways they use their credit cards post-merger,
according to research recently published in Cardbeat®,
the syndicated market research report by Auriemma Consulting Group (ACG).

“These consumers were pleased with the
customer service, card pricing and rewards of their credit cards, and
chose to continue using them because the products and features did not
change after the merger,” says Megan
Bramlette, managing editor of Cardbeat.

Overall, consumers are neutral on bank mergers, with 68% expecting
little change to their opinion of their credit card company if their
card issuer was bought or sold.

“Consumers care less about the bank that
issues their card and monthly statements than the benefits they receive
from that relationship,” Bramlette says.
Falloff in activity occurs when card rewards are not as rich post-merger
as they were before, or when interest rates and account fees on the
portfolio rise.

“Merging banks need to consider how consumers
will react to their products post-merger,” she
continues. “Our research shows that most
consumers are confident about the ongoing independence of their current
credit card issuers and have made it clear that they will remain loyal,
even after a merger, as long as cardholder benefits and service levels
remain the same.”

The information in this release includes data from 401 credit card users
surveyed in February 2007. The findings were originally published in the
February 2007 issue of Cardbeat.

ACG is a management consulting firm in the payments and lending
industry. Cardbeat is a syndicated market research study from ACG that
provides insight into how consumer perceptions impact credit card
acquisition and usage.