Will this week's agreement with credit card companies give back money to consumers? A lawsuit had been filed by the Justice Department earlier on where they alleged that the contracts drawn up by credit card companies unfairly restrained the merchants from encouraging their clients to choose one card over another even in cases where a particular card may eat into the profits of the merchants.
What this settlement means for consumers and merchants?
All card companies charge merchant something called 'swipe fees' when the consumer uses the card. While AmEx charges much more, Visa and MasterCard charge far less. This affects the small merchants as it eats into their profits. Large retailers don't feel the heat as they are charged based on volume and hence the rates are discounted. Although debit cards are cheaper, it is not the case always as the small merchant ends up paying more or less the same due to the arrangement with third-party processors.
Some merchants claimed to have lost money due to the high card fees on particularly small sales. The agreement with the card companies refrain them from suggesting one card over another. However, the settlement allows the merchants to give suggestions to clients by way of offering incentives if they use different modes of payment which would in turn cost less for the merchant.
Will consumers get the benefits of the savings right away?
Not necessarily, because AmEx, who is also named in the lawsuit filed by the Justice Department, has not complied with this. They are fighting their case and the issue is still pending in the courts. This means that the merchants who accept AmEx cards are still bound by the card agreements, wherein, they cannot divert the consumers to use other cards by giving preference to one card over another. Hence, merchants who accept only MasterCard or Visa are relatively free to offer incentives for using debit cards, Discover, or cash.
Incentives to the consumer - Will it happen at all?
While it is easier for merchants to offer incentives for paying with cash, the American Bankers Association is rather skeptical if the benefits will be passed on to the consumer at all. For instance, if the merchant has plans to increase prices the following year, if there is a 1% saving on card fees; the merchant might not increase prices the following year.
President, Yours Truly Restaurants, Lawrence Shibley, states that it is best to let the consumer choose the mode of payment such as card, ATM, or cash. By the end of the day, the consumer has to be comfortable with the mode of payment.