The cost of accepting credit cards is an ongoing issue in the U.S., and the re-introduction of the
At its heart, the argument comes down to competition and cost. From the merchants' perspective, there is no competition: Merchants have to accept Visa and Mastercard, yet merchants cannot negotiate the price they pay on each transaction, known as the swipe fee.
The CCCA attempts to address this in a roundabout way: by allowing merchants to send credit card transactions over a network that is not Visa or Mastercard. The thinking is that this will increase competition for payment volume and thereby reduce swipe fees; one of the chief counterarguments is that by reducing those fees, the CCCA will limit the ability of issuing banks to offer card rewards programs.
The debate over the CCCA is a complicated one being waged throughout the payments world; I'm not weighing in on either side.
But there is a better way to increase competition and allow merchants to reduce their cost of card acceptance: with price transparency and better surcharging options.
Let's start with a question: Should a mom and pop store owner be required to pay an extra 1% to cover the cost of a cardholder's airline rewards points? I argue this should be an option, not a requirement, as it is today.
Transparency and surcharging are how to resolve that question.
Today, merchants don't know the cost of a Visa/Mastercard payment until after the payment is made; the information is in the system but not disclosed. When you tap your card today, all the merchant gets is a message saying the transaction has been approved.
I suggest that this message also provides the cost of that specific payment, a cost that will differ depending on how the payment is made (e.g., debit card, cash-back card, airline rewards card, etc.). That information is available today, just not widely provided at the moment of a transaction.
Retailers fed up with interchange are trying numerous strategies to offset these costs, including piloting Pay by Bank use cases and even, in some cases, refusing to accept cards altogether.
Now to surcharging: how and how much?
Merchants benefit from accepting card payments and should share in the costs. How much is that? Conveniently, we have precedents: In several markets, including the EU for debit and credit and the U.S. for debit cards, the base cost has been determined. That could be done for credit cards in the U.S.
Subtracting the base cost of a transaction from the total cost — something the processors would do — you'd have the incremental, or "rewards-related" cost.
Merchants should have the option to pass this rewards cost on to those who benefit from it: the cardholding consumer.
How would this work? Before the consumer approves a payment, the display would show the cost of the transaction and the surcharge for that payment method; it might also indicate what that surcharge would be for a different payment method. The customer could agree to continue or choose a different payment option.
This would improve competition: Consumers have choices when it comes to making a payment; there is competition between payment methods. Most credit card-holding consumers have multiple credit cards and a debit card, and some carry cash. If a consumer knows at the time of payment the cost of a payment choice, she could decide whether it is worth the benefit and, if not, choose to pay a different way.
It's important to keep two points in mind. First, this would affect the checkout experience but would be similar to what happens today when a consumer is asked to add a tip, get cash back or pay a surcharge. Second, this would be wholly at the merchant's option.
The merchant could decide if the benefit from passing along the cost outweighs the risk of losing a sale. Some merchants will do this, and others will not. However, they will know the cost of accepting a payment and be able to make business decisions based on that information.
This proposal would not cap prices or change the way that payment pricing is set today; rather it would provide a means to address merchant concerns about the cost of payment acceptance while at the same time enhancing competition — something we can all agree is a good thing.
