It reminded me of the growing number of stores, vendors, and service providers that are passing credit and debit card transaction fees back to the consumer. In my past experience credit card companies like Visa, American Express, and AmEx all vehemently insisted that their credit card fees, usually amounting to 2.0-3.9+% of a transaction would be borne by the company accepting their cards. The fine print in their agreements all indicated that their agreements would end and companies would be cut off if they didn’t swallow the fees themselves as a basic cost of doing business.

But it would seem that sometime during the pandemic and the financial turmoil that has ensued that a growing number of businesses, presumably feeling the squeeze of the economy, have begun passing these fees directly back to the consumer. 

I first began noticing it when paying for our daughter’s ballet school tuition which charged us an extra 3% credit card fee for using our credit card instead of paying by cash or check. Then her private school tuition processor began charging a 3% credit card fee. Now it seems like every small company is taking the cue and passing along credit card fees to the consumer, including the local Mexican food restaurant.

What effects does this seemingly small, yet somehow massive shift in the economy have on consumers, businesses, and the country? How does it effect inflation and its impact on consumers? How does it effect the overall banking sector?  Much the same way austerity measures within the economy ordinarily have an outsized, but “unseen” impact on women, does this additional tax on consumers hit everyone equally? What effects does this have on an increasingly cashless society that has normalized credit cards? What will potential long term changes in credit card processing will this foment? Will the tide change as interest rates decrease?

A common outlier to this pattern before the pandemic was gasoline chain ARCO which only accepted debit cards or cash and charged an automatic $0.35 fee for any debit card transactions to cover the single use banking fee that the bank charged them (though generally the debit card fee most banks charge companies has been in the $0.22 – $0.30 range; research should confirm the specific number). Sometime during the pandemic, the shift in competition/pricing apparently led ARCO to begin accepting major credit cards. However, in their case, they post different gas pricing for cash/debit transactions versus credit card transactions, typically an extra $0.10/gallon, which at about 2.0% of $4.80/gallon of regular gas at my local station in Pasadena represents a rough breakeven point for charging back the overall credit card fee, presuming they’re operating at high enough volume to get a 2% fee. What happens when gas prices go up though? Will their per gallon fee also go up to cover the credit card differential? 

I’d love to see some on-the-ground economics reportage on this growing trend. Perhaps it’s something that Marketplace might take up? 

Featured photo by Clay Banks on Unsplash