Credit Card conundrum.

[CCdaCE]

A question on playing the credit card game...

Everyone that thinks they're beating the system uses a credit card to accumulate cash back, air miles, discounts at the retailer that offers the card or whatever.

The thing that's been burning me down is the fact that the retailer has to pay a fee to offer the service of the customer paying with a card.  They have to pay Visa a flat fee plus a percentage of the selling price, or however it's worked out.  So, doesn't the retailer price that cost into the items being sold?

If something is $100 and they have to pay $1 to Visa to run the transaction, wouldn't they then price the item at $101 or $101.01?

So, I get my 1% back, or 5% back or whatever, therefore, Visa is "losing money".  Therefore, do they charge the retailer more?

I've heard the credit card companies' number of transactions processed is skyrocketing... so, I assume they're making record profits...  Or is this all subsidized by the people that don't pay their bill off every month.

What I'm asking, is, by using a credit card, or by millions of Americans using a credit card... is this driving up the cost of things by the amount of inefficiency of credit processing costs, profits, etc.  Or, was the cost of handling, counting, banking cash even more than credit card processing?

Anybody wanna venture a guess on the economics of this situation? Disregard the studies that show by using plastic, you're more likely to spend more...

-CC

 

[Zathras]

Not sure about the whole ball of wax, but I can tell you in general companies don't directly link the cost of their products to the rate charged by credit card companies (ok, at least one company doesn't).

The fees that are paid to cc companies are included in the costs of doing business, which is included when the company prices their products. It is true though, especially online that companies bring in more business if they accept credit cards. The added business virtually always pays for itself (e.g. you will sell 1000 products if you accept cards, 900 if you don't).


The only way for a consumer to be a winner using credit cards is to pay them off every month.

 

[mickeyd]

If something is $100 and they have to pay $1 to Visa to run the transaction, wouldn't they then price the item at $101 or $101.01

?

Credit Cards are now a cost of doing business. This is all factored into the cost that all customers pay for a product. In your example, the cost without a CC would be $99 or so. Those that choose to pay with cash pay $100 for $99 worth of product/service. Those that pay via a CC pay $100 for $100 of product/service. Thus, pay with a CC to get the most bang for your buck since they can not usually give you a discount if you pay desire to pay cash.

It goes without saying, that if you pay off your CC balance each month as about 25% of CC users do, you will beat the system The cash and non-payers of CC Balance  will continue to pay for part of your purchase. Thank them when you get a chance.

Or is this all subsidized by the people that don't pay their bill off every month.

It sure is! This is why a CC is issued. This is how they make the bulk of their profits.

 

[yakers]

Now you will see some places, like the low price gas stations that have two prices depending on if you use a credit card for gas. And small, local merchants often offer a discount for cash over a credit card. Just had some work done at a local body shop I know too well (17 year old rock drummer in the family) and he definitely preferred my check.
But even though there is a cost for using a CC there is one benifit at least compared to checks is that the merchant is paid instantly and not worried about bad checks.
I do find myself using the CC more but it is paid off each month. The 1% back on everything is nice.

 

[Texas Proud]

Mickeyd..

You are right, but got the math wrong... the person who pays in cash is paying $100 for $99 worth of service... the CC person is paying $100 for $99 worth of service...  but it is probably closer to $95 worth of service...

If the CC person does not have a rebate option on their card..  he is in the same boat as the cash guy, paying too much.

Now, do not think that cash is free.. it cost the retailer a lot to handle all that cash.. he has to order enough change from the bank in order to service you, and the banks charge for this service.. he has to have a truck come by every day or so to take the cash away, and the armoured car people charge for this.. and the bank has to count all that money, and they charge for this also.. and then there is the loss if you are robbed..

But as others have said, it is priced in the product no matter how you buy.

 

[Scrooge]

If the CC person does not have a rebate option on their card..  he is in the same boat as the cash guy, paying too much.

If the CC person in your example doesn't get some kind of rebate for his credit card purchases, he has nobody but himself to blame

 

[youbet]

What I'm asking, is, by using a credit card, or by millions of Americans using a credit card... is this driving up the cost of things by the amount of inefficiency of credit processing costs, profits, etc. 

YES. No question about it.

 

[NinjaPigeon]

Of course it's factored in. But all things being equal, would you rather pay the $20 for a product and get no rewards?

I'll keep my rewards and continue to pay in full each month

 

[sgeeeee]

Most things you purchase today are not priced based on the cost of producing and selling the item. They are priced at as high a price as the market will bear. That's capitalism. The manufacturer, the distributor, the retailer, . . . everybody will charge as much as they can get away with charging. If any one in the manufacture-to-sales chain has no competition, they will make a lot of money. If any one of them has lots of competition, they may actually lose money (for awhile or on some items). If the public will pay $100 for an item, then that's what it will sell for. If the cost of manufacture through sales is $50, then someone or several someones will split up that profit depending on the value they bring to the sale and the level of competition each faces.

As a consumer, you can bring additional value to a credit card company and get a share of those profits.

 

[Caroline]

Not to defend the credit card companies (god forbid)...

But it seems to me that there are SEVERAL things you may get when you use a credit card:

1. The product or service you bought,
2. The airline miles and other rewards, if that's the kind of card you have,

PLUS

3. The convenience of not having to tote around wads of cash and / or your checkbook.
4. Fraud protection if your card gets stolen (vs cash, which is gone forever if you lose it)
5. The ability (often abused, but still...) to buy what you need the day BEFORE payday...
6. Insurance on your rental car, life insurance if your plane goes down, etc. etc.

Yes, I know that the credit card companies are sneaky bastards who will tear you a new one if you fail to pay every month, don't read the fine print, etc. etc. But if using the cards didn't have SOME intrinsic value to us we'd all still be carrying cash and / or checkbooks, no?

 

[LOL!]

It probably costs a business more money to accept cash than it does to accept a credit card. It has to have a place for cash, a way to get the cash to the bank, a way to keep the cash from getting stolen, etc. Cash is messy for the retailer.

In Texas, it is illegal to have a price difference for users of cash and credit cards.

 

[Texas Proud]

If the public will pay $100 for an item, then that's what it will sell for. If the cost of manufacture through sales is $50, then someone or several someones will split up that profit depending on the value they bring to the sale and the level of competition each faces.

Just as an FYI... most all products cost 50% or less of to manufacture than the sales price...

Many many years ago, I had an exterminating company. We (which means me, as I was the only one...) would make poisons for stores... if the store sales price was $10, I was selling it to the store for $6 or so.. and it cost me between $2 and $3 to make..

 

[Spanky]

It probably costs a business more money to accept cash than it does to accept a credit card. It has to have a place for cash, a way to get the cash to the bank, a way to keep the cash from getting stolen, etc. Cash is messy for the retailer.

I am not sure this is true since most Chinese restaurants that I know prefer cash.

In Texas, it is illegal to have a price difference for users of cash and credit cards.

We just got back from CA. A couple of gas stations in Santa Clarita charge 10 cents less for gas if you pay cash.

 

[astromeria]

I worked at a dental office in the days before most people had dental insurance. One of my duties was to make the daily bank deposit (during my "lunch hour"). I wasn't paid much more than minimum wage, so this didn't cost the business much. And the bank was just across the street.

I had this job in the early 70s, a time when low-end jobs were getting scarce. Around 40 women were crowded into the waiting room filling out applications for this job, and he only interviewed a few of us (the youngest :). He said he hired me because I had the right combination of looks, smarts, and personality. I think he meant that I was young, thin, not dumb as a post, and extended my hand in greeting and said "How do you do." I couldn't qualify for such a job now even if I wanted one

 

[Alan]

I also use the credit card cash feature as the last chip when buying a car. I always save up for a car so am always paying cash. I hate buying cars so this only happens every few years thank goodness

After going through the usual tortuous process of haggling price and it comes time to pay I present my credit card and that immediately gives the saleman a big problem "but I get 2% cash back and have factored this into the money I am able to pay for the new car" I say : If you can knock off a little more I'll write you a check....

 

[free4now]

The price of handling cash is pretty low for most businesses. Credit card processors charge businesses somewhere between 1.5% to 3-4% or even more, depending on how much of a risk that business is for chargebacks.

An efficient economy would have different prices for purchases with cash versus credit cards. When I was travelling in Southeast Asia that was normal... the prices quoted were cash prices and using a credit card would raise the price by 5% (I could usually talk them down to 3-4%).

The reason we don't have different cash/credit prices here in the USA is because the credit card companies won't let you. If they find out a retailer is charging different cash and credit prices, they won't let that retailer continue to process credit cards. Knowing this can occaisionally give useful leverage when negotiating deals... you can threaten to report a retailer to the credit card companies unless they give you the cash price when you use a credit card. Some will just laugh because the clerk doesn't understand what's at stake, but if the owner/manager is on site they might understand that you're not to be messed with.

I wouldn't advocate that kind of play on small mom and pop businesses, but car dealers are a good place to use it. Of course car dealers are the least likely to give any paper trail that they are charging more to use credit cards. You need a quote like $1000 cash $1050 credit card if you want to have any hope of reporting them.

 

[CCdaCE]

Thanks for all of your replies.

I am still on the rewards train.

-CC

 

[FinanceDude]

I wouldn't advocate that kind of play on small mom and pop businesses, but car dealers are a good place to use it.  Of course car dealers are the least likely to give any paper trail that they are charging more to use credit cards.  You need a quote like $1000 cash $1050 credit card if you want to have any hope of reporting them.

Incorrect.........car dealers pay the same competitive rate as anyone else. They will DISCOURAGE people from charging high deposits, because they have to absorb the transaction fee, since the price has been negotiated by contract. Most dealers have a $2000-$2500 limit on a credit card for vehicle purchases..................

 

[justin]

I wondered about this topic for fast food restaurants. Taco bell, McD's, Hardees/Carls Jr, etc all seem to take credit cards now. The average purchase can't be more than $5-7 bucks. Don't they pay something like $0.33 per transaction plus a percentage like 3%? The CC processing fees would seem to eat up 10% or revenues if this is the case. Or in terms of profit, 25-50% of all profits?

How can I buy $2.50 worth of tacos from Taco bell and pay with a credit card and they still make money off of me?

 

[FinanceDude]

Because MickeyD's and them survive on VOLUME. Think about it...........how many millions of people DIDN'T GO to Burger King over the past 20 years IF THEY didn't have cash??

Enough that they are willing to pay the transaction cost.........

BTW, the soda part of a medium soda COSTS LESS than the CUP it is put in.....................

 

[Texas Proud]

Because MickeyD's and them survive on VOLUME.  Think about it...........how many millions of people DIDN'T GO to Burger King over the past 20 years IF THEY didn't have cash??

Enough that they are willing to pay the transaction cost.........

BTW, the soda part of a medium soda COSTS LESS than the CUP it is put in.....................

Read into this... more people will buy more food if you let them use CC... and you still will have most use cash... and if you do not let them use CCs and the drive in next door does... who gets the business??

 

[jazz4cash]

?

Credit Cards are now a cost of doing business. This is all factored into the cost that all customers pay for a product. In your example, the cost without a CC would be $99 or so. Those that choose to pay with cash pay $100 for $99 worth of product/service. Those that pay via a CC pay $100 for $100 of product/service. Thus, pay with a CC to get the most bang for your buck since they can not usually give you a discount if you pay desire to pay cash.

Yup...I think that's exactly right so paying by CC is better provided you have the discipline. I fill up my gas tank for 50 bucks and I get $2.5 cashback at the end of the month and I have the cash for that particular purchase sitting in a MM account @6% for upto 60 days until the bill comes due so it's important to pay close attention to the grace periods and billing cycles and such....and theres no blackout dates for cashback.