Plus all the ridiculous fees consumers pay for carrying a debt on their cc. This is why I loved places that are cash only. Forces me to think twice before whipping out the cc to pay for my $3 cup of coffee.

I kind of wish the CC companies charged the customer directly instead of the seller. Then we'd all have the option to pay with cash to save money. Which, I guess, is why they don't do it that way.

Anyone else feel bad about whipping out their cc at mom-and-pop type establishments? I don't think twice about swiping the 'ol Amex card at places like Wal-Mart, but when I'm getting two tacos at the local joint and the proprietor is taking orders, I feel compelled to just pay in cash.

Why are retailers not crying to get fees legally limited to a small percentage? It's absurd for a credit card company to be charging more than sales tax, if not absurd for them to charge anything beyond a monthly fee for the credit card reader. A retailer should pay like 20 bucks a month and be able to process all the cards he wants.

This is misleading, yes the fees are being passed to consumers. But banks charge a business when depositing checks and cash. So the number is not as large as stated.

Also, they save time and manpower by not having to count cash and deal with checks bouncing so a business might actually save money via credit cards.

Didn't the consumerist do an article on consumers paying like %50 more when they have a credit card then when they don't? It seams to me like a small finance charge get's quickly outweighed by a large increase in business.

I rather like the cash only places too.

@sonneillon: I rather like the cash only places too.

So does your future mugger!

The problem with progress is that it's expensive. I'd still rather use my debit card over carrying a ginormous wad of cash for something I could POTENTIALLY purchase. With as often as I walk away from purchases, it would get horribly annoying to withdraw and redeposit money everytime I had indecision.

This is one of those visible vs. invisible things: how much would it cost business to schlepp around and deposit barrels full of extra cash, i.e., counting the money, hiring security, going to the bank to deposit it, etc.? How much business would not happen because there are no credit cards to do online or other remote transactions? And so on.

Also, large numbers divided by the US GDP get kind of small. $50B is 0.33% of GDP, which may well be a reasonable cost to process payments.

Full marks for their use of "Jill's Sandwiches" as the hypothetical sandwich store.

This is what we pay for convenience and speed. The retailers are charged and the costs are passed on to us.

Referring to Cat in a Hat above, businesses do not want you to think twice about a purchase, they just want you to buy - NOW! The transaction volume facilitated by ease of purchase will offset the reduced margin.

Using credit cards allow retailers to receive funds immediately for purchases, rather than setting up their own credit terms for clients (for Best Buy, not for Starbucks) and assuming the risk of carrying the credit account. The fee is the premium the retailer pays to the credit card company for the assumption of risk. Again, the volume offsets the reduction in margin.

I went to using a check card a couple years ago as a way to avoid ATM fees. I would pull out large amounts of money to cut down on the $3-4 gouging that comes from ATM withdrawls. That cash would then quickly burn a hole in my pocket, and I would have no idea where it went.

Now I buy everything with a check card. The hidden markup fees are lower than the 5%-10% I would otherwise pay for an ATM. I also use my online bank to track exactly what I spent, where, and when.

Nowadays, I go 2 or 3 months between seeing actual cash.

Retailers are happy to pay these fees because on average, customers buy more stuff when they pay via credit card then when they pay via cash.

This is something that I keep in mind when I do business with small shops. I am careful to use cash when I can (especially for small purchases) to keep them from having to pay off the credit card networks. Big shops and especially big items I definitely use my card for. Much more protection for me, and I have that much more flexibility.

This will end up being double post as I originally sent in anonymously.

This is what we pay for convenience and speed. The retailers are charged and the costs are passed on to us. Referring to Cat in a Hat above, businesses do not want you to think twice about a purchase, they just want you to buy - NOW! The transaction volume facilitated by ease of purchase will offset the reduced margin. Using credit cards allow retailers to receive funds immediately for purchases, rather than setting up their own credit terms for clients (for Best Buy, not for Starbucks) and assuming the risk of carrying the credit account. The fee is the premium the retailer pays to the credit card company for the assumption of risk. Again, the volume offsets the reduction in margin.

@Corporate_guy: Because once you invite the feds in they never leave, and your probably next on their list.

As a plaintiffs-oriented attorney, I've been privy to some interesting stories from small retailers about their dealings with CC companies and their merchant agreements.

I know consumerist loves the Chargebacks, but one small optical shop I shop at sold a customer a pair of $900 prescription Chrome Hearts sunglasses. Three months latter, the optical shop was chargeback-ed the $900. The woman that ran the shop didn't get a warning, or the glasses back, or anything. Amex just told her to eat it. She stopped taking Amex after that ordeal.

If this website accomplishes only one thing, I hope it will make big box retailers rise up against the CC industry and start beating them back, and that the blow back trickles down to small businesses. The CC companies have been out of control for far too long.

@sonneillon: The merchant accounts I've had, and had to deal with usually have rules stating that you CANNOT charge a different price for cash and credit (or debit).

@stevejust: P.S. Does anyone know whatever happened to WalMart's idea to set up a bank to do the processing for precisely this reason? Did WalMart ever set up the bank, or maybe they just forced the CC companies to give them special treatment due to THEIR overwhelming market power?

I would be very interested to know the answer to this question.

Shouldn't the title read "Your Credit Card Costs BUSINESSES ~$50,000,000,000 Per Year?"

@aaron8301: Nevermind, I figured out what they were trying to say. aaron8301=fail.

@B: Not ALL consumers do. Only enough that it helps them in aggregate.

So cash is "free" eh? It doesn't cost a retailer money to process cash? They don't have to play staff to count and recount cash when they cashup? They don't have to pay for an armored car to take that cash away? They don't have to pay for insurance for cash on their premises? Or sometimes lose money if they accidentally take forged notes and thei banks reject the? And their banks don't charge them to take the cash?

I was a retail manager in a medium sized retailer, small enough that I could call up and talk to the finance director. I asked him if the company should have a preference for payments since customers often asked us how we would like them to pay. He emailed a list to all the branches the next day. Out In Store Charge car was the best, by far, but credit and debit cards came AHEAD of cash. It was cheaper for the business to take cards (Except Amex) and pay their fees than pay all the costs involved with cash.

Maybe a small mom and pop store will be paying a high fee while cash they can just put into their pocket but any sizeable business will prefer cards. They save them money, not cost them as this website believes.

I don't really care so much personally that this is increasing costs for the merchants, and thus prices, because I'm getting it back in rewards cash. I still have a 5% rewards card for gas, grocery, and drugstores, so I come out ahead. Using cash means you get to subsidize the people like me.

It should probably be reformed, but as it stands now I'm getting a lot of it back. Other people should do the same thing if they don't like this.

So, if we all stop using our credit cards, stores will lower that $700 LCD TV to $500 since they don't have to pay all those fees, right? They wouldn't keep it at $700 and bring in $200 more in profit, right?

@stevejust: When I worked as support for Monarch Computer Systems, we were never afraid of chargebacks. If someone threatened a chargeback the line answer was always "thats fine, then we send you to collections and destroy your credit."

That usually shut em up.

I dont know why more of the small retailers dont do the same.

@Cat_In_A_Hat: But I don't carry any debt on my credit card. That $3 cup of coffee gets paid for in full at the end of the billing cycle.

@aaron8301: It's okay.

On the flip side, I've seen more spectacular fails before.

@johnva:

Yeah, right now I get about 1.5% of that 3.5% back. If the credit card issuers were only getting 2%, there's no way they would offer me cash back.

It would be like the bad old days, pre-Discover card, where you'd get nothing but occasional loyalty benefits.

@aaron8301: Actually, I agree that the title should read that it costs businesses the money. I mean, it's not like you read many articles that say 'Warranties make consumers $[large number] each year!' All gets factored into costs of doing business...

@Corporate_guy: Where do you live? Where in the US is sales tax below 3.5%? Here in Dekalb, Illinois, it's 9.5%

@SabreDC: I just realized that both of my sentences ended with "right?" making me sound really snarky. I apologize for that. :-)

@SabreDC: Crap--beat me to it!

Just like if stores didn't have all that shoplifting and shrink and stuff they'd pass all those savings right back to the customer.

Yeeeeeeeeeeeah right....

@johnva: Pretty sure that's why B said "on average."

Retailers see up to 50% more sales when customers use credit cards over cash. They're making more money, I'm not carrying loads of money around in high crime areas, and the credit card companies are making more money. It's a win-win-win (quoting The Office). Also, credit card companies have expenses (spending that which results in more job creation) - and any profit goes into investments (spurring on new business development) and into bank accounts (freeing up liquidity - the economy's biggest problem right now). The economy is not a zero-sum entity. Money lost is not lost at all. Rather, it is redistributed and multiplied.

The burden actually falls different places depending on the good. If the demand for the good is very inelastic, then the consumers are bearing most of the burden of the fees. Think about the tobacco tax--cigarette demand is not very elastic: they are addictive and there aren't really many substitutes. Because changes in the price creates very little change in consumption, the consumer will bear nearly all if not the entire burden of the tax.
In the same way, if the demand for the good is highly elastic, then firms will have to eat the cost of the fees. For the TV, firms will probably absorb most of that fee since most people will just not buy a newer TV is prices go up.
Finally, competition has a large impact as well. In a highly competitive market where little to no profit can be made, this cost will become incorporated into the cost of production, causing most of it to fall on the firms.
Apply the same sort of logic to the supply side and you'll see the same results. The party that pays depends on the specific good. This is purely speculation, but I would guess that on average, firms end up paying most of these fees.

@Corporate_guy: Simple, its because we don't care. I manage a small retail operation. Our gross sales will be around $800k this year. I worry about a lot of numbers, fuel costs, salaries, maintenance, disposal, etc. I barely give a thought to our credit card expenses. The cost is less than what we pay for office supplies and makes life much easier. Like others have mentioned, people paying with credit cards do tend to spend more and even though I hate those commercials as much as anyone, it does make transactions faster at the register. More importantly, it saves a ton of time at end of day. Counting our cash takes at least 30 minutes of my day, every day (assuming everything works out right). Settling our charges takes three button pushes. Plus there is no accidentally giving out the wrong change, no worries about a till that is over or under like with cash. The advantages are even better when compared to checks. Submitting checks only to find out they bounced, printing collections letters, adding the usual service charge, dealing with the customer twice when they come in to pay for the bad check, or even worse having to deal with the county's bad check department to try and get collections from deadbeats.

Oh, and did I mention that when I do have to call my processor, a human being answers on the first ring and generally solves my problem in minutes.

@PandaWatch: Plus you've got rewards and the fact that your money has gone through up to 30 days of inflation before you actually pay that $3, so it's coming out cheaper than cash. The real problem seems to be paying $3 for a cup of coffee.

I've coded interchange rules for merchant banking, and the referenced site is incomplete and misleading in various parts.

Interchange is paid by merchants (acquirers), not by banks or cardholders (issuers). Further, domestically not all merchants are created equal, as there's at least three tiers for merchants in the USA. There's very different interchange rates for debit (pin-based) transactions versus credit (signature) transactions. Wanna know why Sam's Club didn't accept Visa/MC for years? That's why.

In the pack of gum example, Mom and Pop's convenience store pays a different rate for a pack of gum than does, say, 7-11.

It also ignores the costs to merchants in terms of doing business with cash -- theft, fraud, and mismanagement are a lot harder with electronic commerce than cash.

My main credit card costs an average convenience store 2.5 times the average earnings of the store. Which makes me wonder, how the hell does THAT happen without the store, um, closing down?

Was Dante PAYING Quick Stop to come in when he wasn't even supposed to be at work that day?

Stores don't give discounts for using cash unless you specially negotiate it under the table. Since they don't, everyone pays the higher costs, whether you use a credit card or pay cash/check.

Cost of doing business.

@Corporate_guy: The business has a choice to not accept CC transaction. If they do accept them then they pay the fees. While this may seem expensive it is much cheaper than checking processing or the risk with large cash deposits.

Further if the Gov steps in and forces interchange down you will rewards disappear as well as the grace period where many of us get free float.

I charge everything from a pack of gum to car insurance with my card. Using mint.com, every transaction is captured and tracked. Cash has the ability to disappear in the form of drinks and snacks.

@catnapped: Or like how when tort "reform" goes through insurance companies reduce premiums.

This is just one of those things ... we pay for the convenience and the safety. I'm inclined to say it's worth it. Chargebacks give a lot of protection for consumers against unscrupulous businesses, and I'd much rather have a credit card stolen than cash.

My friend convinced me to apply for a credit card. Now I might consider not getting a credit card at all...but I really need a laptop...

small local computer shops when they used to be popular in the 90s used to have cash price discounts because of this.

This is kind of like complaining about how providing paved parking lots or air conditioning is raising prices. Heck, if we just got used to doing all of our shopping during daylight hours, store lighting wouldn't cost consumers nearly as much money.

@PandaWatch: Respectfully, I think you are missing the point. If you pay for your coffee with cash, the vendor keeps all of your $3. If you pay with a credit card, the credit card company or bank charges your merchant a percentage, or a flat fee plus percentage for everything you buy with the card.

So using the 3.5% number for purposes of this example, the merchant only gets $2.89 of the $3.00 you are paying. The merchant, in turn, takes that operating cost and uses it to determine how much they are going to charge everybody for a cup of coffee, to achieve the net operating margin or profit they are trying to make.

So not only does it increase the overall cost of the product, but people paying cash don't get a discount for using cash for the most part, so they are in effect subsidizing the use of credit cards, in so much as their cup of coffee had less overhead cost to the merchant than a cup of coffee bought by a card user, but both pay the same.

And points programs are another way that both the merchant, and the consumer end up paying more for products as well. None of this stuff is"free". Points programs have indirect costs associated with them on multiple levels, although I hesitate to spell it out in too much detail since what I know about how it works contains some proprietary information.

But trust me, you may not know it, but if you think about it for a minute, you'll be able to figure out for yourself that you're paying for those bonus or rewards points. It's just another clever marketing ploy.

@Davan: Advertising that you worked for a company that totally screwed over a ton of people when they went out of business... not what I would do.