Monetizing Big Data For Big Profits: It Takes More Than Algorithms
Forbes Business, September 9, 2015

It's hard to say at this point, but some experts speculate that Friday's proposed multi-billion-dollar settlement between major credit card companies, banks and merchants will make credit-card perks harder to come by for consumers.

Friday's announced deal settles charges by merchants that Visa, Master Card and major banks engaged in anti-competitive practices. It also allows merchants to impose higher prices on consumers using credit cards.

Yet it's hard to tell how that will play out at the cash register.

It's Only Money wrote in 2010 about how those credit card rewards cost us a lot of cash. Swipe fees on credit cards are much higher (1.5 to 3 percent) than swipe fees that merchants pay to accept debit-card payments (most capped at 21 cents). Yet Congress chose in the Dodd-Frank financial reforms to regulate debit card fees, not credit card fees.

Some analysts think retailers won't do anything differently than they do now for fear putting off customers, who spend more when they use plastic, studies show.

"The risk of ticking off the customer would keep most big national companies from doing it," said Paul Swinand, an analyst for Morningstar in Chicago, in a published report.

In industries with less competition, such as airlines, adding surcharges may be easier, according to Russell Walker of Northwestern University's Kellogg School of Management.

If they do, banks could cut back on rewards. They essentially stopped offering debit-card rewards after the Dodd-Frank reforms imposed a 21-cent cap on debit-card swipe fees from major banks, pointed out.

Some consumer advocates applaud the settlement because it could shine a brighter light on the true cost of a transaction. Credit-card swipe fees already are baked into the price of items, yet a Federal Reserve study concluded people paying with cash end up subsidizing the rewards of credit card users.

"If it's done right, consumers have more information about prices, and they can make their decisions about payment methods based on what the price may be," Ed Mierzwinski, consumer program director of advocacy group U.S. PIRG, told Reuters.

"If (retailers) go to surcharging, the theory is that the extra cost of accepting credit cards will be captured by the surcharge, and everyone else will pay less," he said.

Frank Curmudgeon at Bad Money Advice evaluated it well:

I buy a shirt for $50 on plastic: $49 goes to the store, and $1 to Visa and the bank. Who is paying that $1? Is it me or the retailer? It is almost a philosophical question. I do not see the fee, so it appears to come out of the retailer’s money. But the store would likely be just as happy to sell the shirt to me for $49 cash, so you can argue I am paying an extra $1 whether I know it or not.

The best answer is that we are both paying it. Like sales taxes and other transaction costs, swipe fees (technically called interchange fees) make doing something that both the consumer and the retailer want to do just a little less attractive than it could be, for both of them.

Ten states already have laws prohibiting surcharges on credit card transactions. Oregon and Washington are not among them.

What do you think? Should retailers be allowed to give discounts for paying with cash or debit or impose surcharges for credit cards? Will you pay more to use a credit card and keep your rewards?

Russell Walker