Funny about Money

The only thing necessary for the triumph of evil is for good men to do nothing. ―Edmund Burke

Cash vs. Credit Redux…already!

Did you see Kara’s comment on yesterday’s post about the cash/debit/credit chestnut? Among several issues, she touches on the hot button of AMEX’s outrageous fees.

Well…I don’t know if she’s prescient or if she just works for The New York Times, but presto-digito! This very morning up pops a report that ought to get the attention of us consumers: a group of businesses are on the verge of winning a class action asking that American Express allow them to pass transaction fees along to their customers. They also appear to be winning against the other two major credit card issuers.

What this will mean for you and me is higher prices at the cash register if we choose to buy with a credit card. In the AMEX action, American Express proposes an agreement that will let merchants soak customers for the transaction fees as long as the same amount is levied on other credit and charge card users. Since American Express has the highest transaction fees in the industry, that means you will pay a premium price to use your Mastercard or Visa. Unless, of course, AMEX chooses to lower its transaction fees. Either way, it’s going to cost more to buy things with a charge card.

That brings us, then, to the next question:

If you had to pay for the privilege of buying things on a credit card, would you continue (assuming you’re in this habit) to buy every little thing on the card and then pay it off at the end of the month? Or would you move to cash or debit card?

Presumably, that lovely kickback American Express shares with its customers each year would be eaten up by the transaction fees, especially if, as I do, you charged virtually everything and hardly ever used cash. In the absence of that benefit, AMEX looks a lot less attractive.

You do need it to buy gas at Costco…or so it seems. In fact, you can go into the store and buy a cash card, which works just fine at Costco’s gas pumps. And presumably, in the coming brave new world of credit-card surcharges, it will work without dinging you an extra little gouge.

Personally, I empathize with the business owners. It’s ridiculous that they should have to support a huge, outrageously profitable industry so that their customers can enjoy the perceived convenience of paying with plastic. And as a matter of fact, when my clients decide to remit payment to me through PayPal, I do add the PayPal transaction fee to their bill. PayPal is more convenient for me, too — depositing paper checks is a damn nuisance. But not so much that I want to pay extra for that convenience.

Still, clients don’t seem to mind. Many actually seem to expect to cover the PayPal fees.

So…where do I come down on this? Squarely on both sides of the fence!

If a court ruled that I could charge clients for credit-card transactions, my order for a Square would be winging its way toward that worthy vendor as we scribble.

On the other hand, you can bet I’d pay for a lot more things in cash. In fact, I’d probably use cash for everything but large-ticket items and products that might need to be returned. And even a large-ticket item can be paid for with a check, if you have the cash in your account. Travel reservations, I assume, could be made with a debit card. And one thing you do have to say for cash: it makes life a lot harder for hackers.

How about yourself? When merchants can pass credit-card transaction fees along to you, will that change your choice of payment method?


Author: funny

This post may be a paid guest contribution.


  1. I don’t know, I see the transaction fees as a cost of doing business, just like paying rent, the light bill, employees, etc. The question to ask is if a store simply didn’t accept credit cards, how much of their business would be lost? For most retailers, it would probably hurt their profitability more than what the transaction fees amount to. So, by that logic, the costs associated actually pay off in the long run. Meaning, I don’t feel bad for the retailers to have to pay transaction fees, and I’m pretty sure most retailers have this cost baked into their item prices anyways.

    • I dunno. I’m mighty averse to unnecessary dings. They add up, especially when you don’t have a salary that increases, however slowly, to keep up with inflation. In retirement, these tiny little pinpricks amount to a fair amount of pain over time — they do reduce the buying power of people on fixed incomes.

      Yup, retailers surely do have the credit-card transaction costs added in to their retail prices. What that means is all of us have to pay the transaction fees for those who use credit cards, whether or not we pay by cash or debit card. Also, these costs put small and local businesses at a huge disadvantage vis-a-vis large operations that can afford to sell goods at enough of a discount to make up for the transaction costs. That may be one reason for the dreary homogenization of America’s retail landscape, nationwide: small business are being pushed out by these practices.

  2. Most debit cards use the MasterCard or VISA networks and charge an interchange fee (albeit lower than cc interchange fees). Would merchants also be able to pass along those interchange fees?

    While the interchange fees are an explicit cost of accepting plastic payment, there are also costs associated with accepting cash and check payments.
    1. Cash payments introduce a greater risk of error either in the amount taken in or given as change, must be counted, stored, and securely transported to the bank.
    2. Depending on the frequency of cash deposits, a larger percentage of the business’s capital could be sitting idle as cash at the business. With credit cards, the merchant bank will generally have the cash in the account the next day.
    3. Bounced checks take time and money to collect on.
    4. In the event of fraud, with a credit card the business will still get paid as long as they followed procedures, and the bank will take the loss. That isn’t the case with other payment forms.
    5. There is also an opportunity cost in that there is research showing that people will spend more money using a credit card than they would with cash. There was an MIT study showing that the difference in spending patterns was as much as a 100% increase with the plastic.

    As a business owner I would have the weigh the costs and benefits of implementing a credit card surcharge. It would not surprise me to see smaller businesses do this, but I would be more surprised to see larger businesses do it.

    As a consumer, I don’t like it. Businesses have already baked this cost into their prices. We are not likely to see a discount for cash payments, but rather prices will remain the same and customers paying with plastic will have the fee added on top. I know that I would spend less because I don’t like carrying cash.

  3. Oh now that’s a funny coincidence!

    As far as the credit card fees – I don’t like ’em, but like Money Beagle says above, I just consider them a cost of doing business. I have to balance out the cost of absorbing the credit card fees with the consideration that most of my clients will spend more, if they can use a credit card. A client who might only choose a $500 package if they had to pay cash will choose a higher package if they can use a credit card to either pay it in full or to allow me to break the charge up into manageable chunks. Heck, I offer my wedding clients the chance to pay for their wedding photography in monthly installments, if they use a credit card. Many of my clients have elected to go up a package level since I’ll break it up and automatically charge their card once a month.

  4. If I were to get “dinged” by these fees …I would stop shopping at that store immediately. And if the practice became widespread…I would return to check and cash transactions. Business folks may want to be careful on this “slippery slope”…IMHO if these fees are made legal I think more folks would be writing checks AND more checks would be bouncing. I can’t tell you what a headache it is to collect on a “bad check”. In my neck of the woods the folks at the Courthouse basically yawn when it comes to bad checks…has to be over $1000 to get their attention…

  5. I am in agreement with jestjack.

    For the courts to assume that credit card fees are not already included in the pricing of items – that everyone pays!- is asinine.
    Credit card fees are part of the cost of doing business, so most businesses would already have factored this cost into their pricing. It is how they stay in business.

  6. As you pointed out in your previous post, there are protections for the consumer when paying by credit card. For those of us using rewards credit cards that we pay off monthly, we’d likely at least break even while still enjoying the protections that come with the cards. Those who use a non-rewards card or who carry a balance are going to be paying more.

    I assume that most merchants include the fees in the cost of their merch. Like you, I may elect to use more cash or checks for smaller purchases, but the larger ones — including travel costs such as airline tickets, hotels, etc. — would be continued on credit cards.

    • It’s interesting to add, I think, the issue that research shows that people (as opposed to moi) DO tend to spend less when they use cash. Apparently this is not just a Dave Ramsey thing, and apparently I objectively am the only human on earth for whom cash flows through my fingers like water.

      It’s entirely true, as MD points out, that existing prices — which surely do have those CC surcharges baked in — are not gonna go down, no matter what. So that means all of us, even those of us who pay cash, will continue to pay the higher prices already put in place to cover existing transaction fees. To my mind, that would make it feel even more unfair to have to pay an extra fee when using a card.

      On the other hand, I can remember the bad ole days of writing checks for almost everything, and how jittery retailers could be about accepting checks. And how embarrassed I was when one (count it, one — in all those years!) check to my very favorite retailer (whom I knew personally) bounced. Augh! Credit-card charges are blocked at the cash register if they set of a “suspect” alarm, obviating that kind of difficulty.

      Given the factors that MD points out — the disadvantages of accepting cash and checks vs. the significant advantages of persuading customers to pay with a card — as a small business owner with an acceptable cash flow I just might opt to eat the transaction fees and not raise prices (especially if some or all of the fees were already baked into the existing prices).

      Hm. Also, if AMEX can give a kickback, why can’t Joe’s Appliance and Plumbing Emporium? Couldn’t Joe create his own credit card, for which he promises to rebate all the transaction cost surcharges at the end of a year? So sure, he has to charge his customers the same as AMEX is charging him, but his customers get the entire amount back. Take that, AMEX!! 😀

      Seriously, I would love to have one of those Square devices. Right now I have a client who works overseas (and in the past I’ve worked with people in Europe, Japan, and China). Sometimes, especially if they’re in a country where PayPal doesn’t operate, it’s a pain to get paid. If I could levy a surcharge for the credit-card transaction fee at the time the invoice is delivered (I never know exactly what a job will cost at the time a contract is drawn up, because I work at an hourly rate and can only estimate how many hours a project will take), the Square would come in mighty handy.

  7. Couple of things….First paying with “plastic” has become a way of life and paying with cash is often the exception. This Summer I had a new well pump installed at a rental house and had I not had a relationship with the company would have been …”up the creek”. Upon discovering the problem the tech asked how I’d like to pay….Visa or Mastercharge? I was dumbfounded…the work had not been performed and we were already arranging payment?…What the….? I had the tech call his Boss who I’ve known over 30 years…He ok’d invoicing me and I stopped in the next day to pay the guys…and get a free coffee. Anyway the Boss explained to me, that since the Recession they now almost exclusively go for payment by CC. He further explained he was able to cut back on staff…as they are not “chasing money…bad checks…and unpaid balances”. He also said there was very little “pushback” except for a “pain in the arse” (ie. me) every once in a while. PS …the free coffee and “lively banter” was great!
    As for the spending less when using cash…don’t know about that. DD2 would much rather use her debit card than cash. Her reasoning is that once she breaks a twenty …POOF… it evaporates. But when she has little or no cash she tends to feel “poorer” and spends less….AAAAAND having this child home safe and sound from the “left coast” is ….PRICELESS…..