Using a credit card costs extra

It’s to the benefit of credit card companies that we think of credit cards as a cost-free alternative to cash or checks. In fact, those companies are now trying to convince us that using cash or checks is more costly, at least in terms of convenience.

But it costs extra to process a credit card charge, as we learned when we started Cumberland Books. For a business as small as ours to deal directly with the credit card companies, it cost about 5% of the sale when all the fees were taken into account. Back when we charged list price for our books, those fees took a 12.5% bite out of our profits(5% of 40%). When we lowered our prices, the bite shot up to 33% (5% of 15%), and so we had to switch over to Google Checkout, which charges 2% + 20 cents, bringing the bite back down to 13% or so.

This problem could be solved fairly if we added a surcharge for credit card users that covered the cost of charging the sale. But that is prohibited by the credit card companies. They want you to think that using the card is free, and so they require sellers to not distinguish between cash sales and credit sales. As a result, cash customers pay more than their fair share.

Advertisements

14 thoughts on “Using a credit card costs extra

  1. Our culture’s drive for convenience, our ‘Here we are now, entertain us’ mentality, and our inability to think critically make us especially vulnerable to hidden costs.

    We seem to have forgotten that there is no such thing as a free lunch. (But we keep looking.)

  2. I always use my card as debit rather than credit when I’m shopping town, and I’ve mentioned this very thing to store clerks, most of whom aren’t aware that the store is charged for credit card purchases.

  3. Not only are the cash customers paying for the markup covering the retailer’s cost to the credit card company, they are losing the financial benefits of out-playing the credit card companies’ game. We put as many as possible of our everyday purchases (that we would be making anyway) on a no-fee rewards card, and pay off the balance in full every month; this year alone, the credit card company has paid us several hundred dollars. (Yes, I know that most of their customers are paying them for the convenience, and that’s how they stay in business, but you’re not required to make impulse purchases or carry a balance or make late payments just because there’s a card in your wallet.)

    That said, we do also regularly buy from businesses that do not accept credit cards. We just have to have enough incentive to choose them over their credit-card-accepting competitors. Aldi grocery stores come to mind — I can save more by buying staple groceries there than I would by using the credit card at the supermarket across the street. Then there’s the local farmer’s market; I can’t get local sungold cherry tomatoes or anything that tastes remotely like them anywhere that takes a credit card, so I make sure I have cash. I don’t know that the nature of mail-order book-selling would allow you to eliminate credit card usage and remain competitive, but it might be possible, especially if it allowed you to cut your prices even more or if most of your target market would consider your ethical avoidance of credit cards as a reason to buy from you.

    Kelly, some banks have a service charge for debit transactions but not credit transactions when the same card offers both. Hopefully not yours!

  4. Never fear! Help is on the way! On behalf of the Merchants Payment Coalition, we’re fighting the card companies and banks tooth and nail.

    You know first hand how awful they can be. Everything is nonnegotiable with those guys. Visa and MasterCard control 80 percent of the market.

    We hope to get some legislation introduced this month. Check back at http:www.unfaircreditcardfees.com.

    T

  5. Sora, thanks for the tip – I’ll mention it to Mike just to be sure, but he’s the one who told me to use debit whenever possible so I’m guessing he’s already read the fine print on our card.

  6. I don’t know that the nature of mail-order book-selling would allow you to eliminate credit card usage and remain competitive, but it might be possible, especially if it allowed you to cut your prices even more or if most of your target market would consider your ethical avoidance of credit cards as a reason to buy from you.

    Sora,

    Right now our sales run about ten credit card sales for every cash sale. I doubt that offering a 2% cash discount would persuade many of those credit card purchasers to pay by cash instead, since having to send us a check adds a week or more to the wait. You’d be surprised how many people are annoyed that we only ship via media mail, and would be glad to pay an additional $5 or so shipping just to have the package a day or two earlier.

     

     

  7. I stumbled across your website when I found you to be one of the only online retailers where I can easily obtain a copy of An Agricultural Testament. From there, I ended up on this blog.

    Why not add an option on the website for credit card buyers to pay an extra dollar or two for their purchase and explain the reason why. Surely the credit card companies can’t have a problem with an optional charge. It may help you recoup some of your losses and you may find that many of your customers would be willing to part with an extra dollar if it meant helping to balance out your credit card fees. I think that I would probably go ahead and “opt in” for an extra dollar or two. The book I’m interested in is $11.50 on your site or $39 on Amazon.com…if I had the option to pay $12.50 for the book I would still feel like I was getting a very decent deal.

    I don’t know how feasible an option that is, or if it’s something that you would be interested in trying, but it’s a thought!

  8. My daddy uses the rewards card method, as well, and I have contemplated it for a while. Here is my question–it’s not an accusation, but a question–in light of the Westminster Larger Catechism’s discussion of the Eighth Commandment, would receiving cash rewards for purchases amount to 1) obtaining something we did not earn and/ or 2) taking money from others without equal exchange (the other card users who pay the large interest payments would be the suppliers of the reward money)?

  9. ninepoundhammer,
    It seems to me that it would fall roughly in the category of interest bearing checking/savings accounts, though I realize that doesn’t answer your question.

    I have struggled with whether it is appropriate to earn interest – though not enough to move my money market accounts to my sock drawer. I would love to feel convinced either way. On the one hand I want to obey and if that requires that I don’t earn interest, fine. On the other hand, am I being a poor steward if I don’t invest?

    I admit that I am leaning more and more to the not investing (in interest bearing stuff) side.

  10. Matt and I had the ethics of earning interest discussion recently, and he pointed out that the current western capitalistic economy would probably not have come into being if John Calvin had not distinguished between loaning at interest to business interests (which he judged acceptable) and loaning at interest to oppress the poor.

    In the same way, I think there’s a moral distinction to be made between someone keeping their savings in a high-interest savings account, buying a mutual fund, or out-playing the credit card companies on the one hand, and making money on payday loans or misleading home mortgages on the other hand.

  11. Nine pound hammer makes a good point about rewards cards and the 8th commandment, I think it falls under that line of reasoning.

    So far as usury goes, Psalm 15 says that a godly man dose not put his money out at usury. Even if usury was not “covered” by the 8th commandment, there is no shortage of scripture that condems it. Since the reformation, we protestants have done our best to ignore the fact that the bible condems usury. Why, I don’t know, becouse the church’s tolorance of usury has been curse on us all.

  12. “This problem could be solved fairly if we added a surcharge for credit card users that covered the cost of charging the sale. But that is prohibited by the credit card companies. They want you to think that using the card is free, and so they require sellers to not distinguish between cash sales and credit sales. ”

    Its an impressive racket. And its quite ingenious how they use the reward cards to entice us to help them continue to rack up the fees. They prevent the business owner from building the fee into the price, and then offer kickbacks to consumers that use cards instead of cash, creating a self-reinforcing loop based on greed.

    For my part, I feel rather ashamed for having participated in it. The temptation that our flesh presents to us is to not use God’s word as an objective standard, but to rationalise and distinguish our seemingly “small” sins away in light of the “really bad” ones that others commit. Then we can feel good and comfortable about earning interest on our bank accounts, as opposed to the evil bankers that lent it out to payday loan sharks and predatory lenders.

  13. I recently shared during a sermon my belief that the “reward card” concept does indeed violate a proper understanding of the 8th commandment. In regard to the use of interest, it took me some 25 years of being immersed in church life before I even heard of a biblical case against the use of usury.

    I recently found a book entitled “A discourse upon usury” by Thomas Wilson. This particular edition is edited by Professor R. H. Tawney and includes his rather lengthy treatment of the subject of the history of credit transactions and the public policy and the money lender.

    While not the easiest read, it is very interesting to read of the 16th and 17th century controversey that raged in the church in regard to usury. As I indicated earlier, most churchmen are not even aware that a controversey ever existed as they eye their interest earnings on their savings accounts.

    Tawney, in speaking of Calvin’s allowance for the business use of usury, remarks: “Once stated, Calvin’s position became that of the most powerful religious movement of the age. ‘It took with the brethren,” sneered an anti puritan critic of a later generation,” like polygamy with the Turks.'”

    Could you imagine a prominent clergyman today penning a treatise entitled: “A general Discourse against the Damanable Sect of Usurers”, a pamplet written by E Rogers in 1578?!

  14. Usury is a very touchy subject in the church. I approached our Session with my concerns in that regard when they put the financing of our new sanctuary before the congregation for a vote.

    Although they did not agree with my views, the discussion was very amicable and I submitted to their authority. Still, it is amazing how divorced from our history we have become.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s