Credit Cards -- Bad for the average person?

[the_platypus]

I'm wondering if anyone has come across any research on this topic, or else has personal business experience, or else knows someone who does.

I recently realized/remembered that credit cards/debit cards charge processing fees. According to this Motley Fool article called, "Average Credit Card Processing Fees and Costs in 2020," the average credit card fees are between 1.3% - 3.4%, plus a fee for the payment processor, plus any expenses for the equipment/software for the card reading machine.

I'm curious how much of this gets passed onto the consumer. Obviously in certain online purchases there is a price and then an online payment fee, which I assume covers the cost of the credit card/payment processor fees. But I'm wondering about other settings like small grocery chains, music shops, bookstores, etc. How much, on average, do small businesses raise their prices to account for this fact?

If the weighted average of all these different credit card/payment processing fees ends up being a significant percentage (e.g. 1,2,3 %), and this is in fact greater than any cashback bonuses provided by the cards, then this would just be a losing deal for consumers who use credit cards not for lack of immediate cash, but for rewards. If I didn't want to feed into this, as a consumer paying cash at some small business like this, I would be paying a penalty for other people's desires for cash back, or for their lack of available cash. But then, perhaps to support said local business, it would be best to use cash.

In the context I am thinking of (small, local businesses doing fairly small transactions, e.g. under $300), it would seem that credit/debit cards just serve to make the customer poorer (since their cash back isn't worth the added fee cost), and make the business poorer (since they theoretically lose business by having to raise prices to compensate for processing fees).

So, to be a good neighbor to my local businesses and fellow people, should I be using cash wherever possible and practicable? And should I be less impressed getting these X% "cashback" bonuses, since they on average raise prices?

[Lemur]

In some gas stations I go to you have to purchase a minimum of $4 of products if you’re using debit/credit card. Yeah bad for the consumer and the small business.

Good for my Visa stock though.

[the_platypus]

I'm glad you could find a silver lining, Lemur!

[Toska2]

I consider myself an average person. I found I "need" lines of credit open to take out a loan. I desire to borrow money if I find opportunities that are beyond the cash I have on hand.


I consider credit cards bad for other average people because of poor impulse control that arises when seeing a number versus counting paper currency at the till.


IOW, its a tool that more dangerous than a knife. People don't realize it.

[the_platypus]

Toska2, I had never realized that. Perhaps that is a small benefit of them. I agree about the psychological aspect of a number vs. carrying a wad of cash. One is definitely more tactile than the other. I'm remembering now, speaking of psychology, credit card companies have used a number of deceptive practices over the years to make money off people. I initially began this post thinking of purely the "best" case use of credit cards -- paying off balances in full, no annual fees, good rewards, etc. But yes, in the middle or even worst cases many people with more sanguine tendencies get screwed over.

[Alphaville]

after years of shunning them i ended up embracing them so i can "exist" for a certain part of the world that wants a credit score.

plus i got tired of subsidizing cardholders with my cash purchases and started claiming my own cashback deals. it's the prisoner's dilemma all over again!

anyway i pay off not at the end of the cycle, but the very day the purchases post, except lately for a 1% drag that's taken my credit into excellent territory in a short time.

see:
https://www.foxbusiness.com/money/why-y ... redit-card

it's stupid, but i joined the dance. since i run my budgets from ynab, it's same as cash with no debt temptation, and my cards are of the no-fee variety so it's all a win for me.

but back in my 20s... don't ask, just don't ask...

[the_platypus]

Alphaville, I'd like to think I'd be the kind of scoundrel who goes down with honor in the prisoner's dilemma, but it seems MMM and others persuaded me otherwise before I even knew the interrogation had begun. Perhaps now I can recant my former position and make good with the other honorable, impoverished prisoners-without-plastic, at least when I shop at businesses I care about.

[Alphaville]

yeah i understand but the nash equilibrium occurs regardless, especially as the prisoner pool expands. it's mostly not your accomplice that you're pitted against, but a mass of strangers who will do what they always do.

(this is why we can't have communism)

same reason i opted for a respirator against covid--i can't count on my fellow citizens not to spray spit. (i do filter my exhalations though because i care)

besides, some places now shun cash altogether, and using debit is not without risks, etc etc.

at some dentist once i asked the snotty receptionist/billing clerk if they offered a cash discount and she looked at me like i had just spat on her mother or something. no insurance+no card+asking for discounts = must be a drug dealer. i should have paid her with singles

[unemployable]

So, to be a good neighbor to my local businesses and fellow people, should I be using cash wherever possible and practicable? And should I be less impressed getting these X% "cashback" bonuses, since they on average raise prices?

Handling cash has a cost. It needs to be counted, stored, recounted, taken to the bank during banking hours -- all by people the merchant has to trust. It can get stolen or miscounted -- clerks do the latter all the time and curiously enough no retailer in the history of forever has ever discovered he had more cash in his drawer at the end of the day than register accounted for. And credit cards give you all sorts of analytics cash doesn't.

That said, cash can be kept off the books. More routinely done by the little guy than by Walmart. This is the real reason places offer a cash discount. Whether you want to buy into (pun intended) this ethic is your call.

Credit cards routinely give an average of 2% cash back now, so I feel if I don't use them the sucker is me. What are they gonna find out, the groceries I buy? My gas mileage? Kroger and Amazon and Exxon already know. Those evil, evil banks, oppressing me so much by giving me free money and 50-day zero-interest loans to buy things I need anyway.

If the transaction fees concern you, don't use American Express. Their merchant fees are categorically higher than Mastercard's and Visa's. I've heard 5% range from more than one source.

Debt? That's your problem. Quit buying shit, get a second job, work harder at your first one, cultivate lower-cost hobbies, sell your body. All the same things I had available to me.

[unemployable]

at some dentist once i asked the snotty receptionist/billing clerk if they offered a cash discount and she looked at me like i had just spat on her mother or something. no insurance+no card+asking for discounts = must be a drug dealer. i should have paid her with singles

The time to negotiate this is before you make the appointment. I see dentists advertise discount cleanings in the newspaper, so they're not all shy about their prices, and I think Trump required them to be public about pricing along with hospitals on 1.1.2021.

[Alphaville]

The time to negotiate this is before you make the appointment.

yeah i knew the price upfront and thought they'd want to save the processing fees but nope.as you say above, cash has its own costs--plus the risk of getting jacked at gunpoint, which is the blight of convenience stores everywhere.

[Dream of Freedom]

Well sales go up on average when a company accepts credit cards. So it's likely not something they need to pass onto the consumer via increased prices since they simply sale more. It's not like the increased spending is evenly distributed either. It's that guy who runs up $30,000 in debt that is really hurt. So it's likely okay for the average person just really toxic for a minority of them.

[ducknald_don]

For the retailer credit card fees are much higher than debit card fees. I think WorldPay charge 2.75% for credit cards and only 0.75% for debit cards (in the UK). Obviously this is why you don't get cash back on debit cards. It is an annoying tax on everybody (just like advertising and Microsoft Office).

Personally I haven't used cash since March last year, I still have the same £50 in my wallet. The banks don't seem to like cash either, Lloyds in the UK charges 1% for cash deposits for small customers and that is only if they haven't closed your local branch.

plus the risk of getting jacked at gunpoint, which is the blight of convenience stores everywhere.

Not in the UK

[Alphaville]

Not in the UK

right! you guys are into knives

but yeah here in 'merica it's a problem.

for many good laughs, i recommend this coen brothers comedy classic:

https://www.imdb.com/title/tt0093822/

eta: oh this is funny too: "Two serving soldiers in a regiment that performs ceremonial duties for the Queen carried out armed robberies across London, a jury has heard."
https://www.bbc.com/news/uk-england-51098600 brilliant

[Hristo Botev]

Personally I'm trying to move away from credit card purchases as much as possible. The older I get the more the entire credit card industry profit model just really disgusts me; there's a reason why Dante put usurers in the 7th circle of hell. And I hate that we're moving towards a cashless society where every financial transaction will be tracked/trackable and necessarily require a third party intermediary. And these third parties are now putting themselves in the position of arbiters with ultimate authority as whether or not to approve a financial transaction (see https://thepublicsradio.org/article/vis ... on-pornhub). I think pornhub belongs in the lowest circle of hell, but regardless, the power VISA/MasterCard holds and is beginning to exercise makes me really nervous. But I also know that I'm personally inclined towards a dystopian worldview, and am also likely either tilting at windmills or at the very least fighting a losing battle. But, at least for now, I still have some control over how I make purchases and accept payments, just as I have control to opt to spend double (in cash) for a record or CD at my local brick-and-mortar record store rather than buy into yet another auto-renew subscription service (with a credit card) to get access to streaming music (so that I never actually "own" any music), or worse, to listen to music for "free" on YouTube--"If you are not paying for it, you're not the customer; you're the product being sold." (blue_beetle). Same goes for choosing to buy actual paper books at my local bookstore (or borrow from the county library or one of our community libraries), rather than buy an e-book from Lord Bezos. But, again, I've probably read 1984 too many times, I guess; if you want to memoryhole or wokewash my Bible, or my collection of dystopian literature, or my collection of Southern literature (Huck Finn, Gone With the Wind, Confederacy of Dunces, Faulkner, Cormac, Harry Crews, etc.), you're going to have to break into my house with scissors and a redacting marker; Lord Bezos doesn't get to just push a button somewhere on his orbital habitat and make my Flannery O'Connor collection "woke" by 2021 cultural norms.

The plus side from an ERE standpoint: as fewer and fewer places accept cash payments, the less money I'll spend, and the more I will be forced to try and solve my "problems" without hitting the easy button and swiping the credit card.

ETA: I know Dave Ramsey is somewhat controversial on this forum, but here's a decent argument for using cash (or debit,when cash isn't possible) over credit cards: https://www.daveramsey.com/blog/5-reaso ... han-credit

ETAx2: Here's another take on credit cards from someone who is less controversial on this forum: https://www.robgreenfield.org/creditcards/

[7Wannabe5]

@Hristo Botev:

I don't understand. Who actually pays for porn on the internet?

[Hristo Botev]

@7W5: I can only guess, but if it's like other Internet platforms there is a "free" version that advertisers pay for and a premium version that subscribers pay for. My understanding from the article I linked is that VISA said they wouldn't honor the payments to pornhub by the paid subscribers anymore.

[Alphaville]

funny story, i read/heard somewhere that porn pioneered credit card payments on the internet (never tried myself).

[eta2: yep: https://www.businessinsider.com/the-pro ... 010-8?op=1]

but looking at the size of the industry etc this cc ban can only bode well for crypto

eta: looks like i'm a couple of years behind the news https://www.thesun.co.uk/news/5635124/p ... token-vit/

[the_platypus]

@Dreams of Freedom, I see your point about increased sales. I suppose increased sales are only a net benefit to the world if the things being bought and sold are necessary, of a good quality, of an ethical source, of a sustainable source, bring genuine, lasting value to the purchaser, etc. However, I do think that the increased sales would be at the margins, ie those businesses would be picking up shoppers who forgot cash or otherwise didn't have the funds immediately available. For those consumers who have cash available and on hand...it would seem that if they were, collectively, to use their credit cards, rather than cash, then businesses would necessarily compensate with increased prices...but if credit card use is a marginal edge case, then perhaps those credit card users would be charged a fee for their payment method.

I know in my life, I have paid rent/college costs via check rather than credit card because the latter comes with a fee. So here it seems in those cases the business has proportionally distributed costs so as to avoid that dreaded, incorrigible prisoner's dilemma...

@Hristo Botev, I sympathize with your concerns. The powers that be play a blue artifact control deck, so it's possible that is where we will end up going. I also have decided to limit streaming and buy my music either on Bandcamp, as a CD, or as a digital download, after reading a good Guardian article about the business. I read your Rob Greenfield post. I have always admired Rob Greenfield for his follow through upon his life principles. There is power in a symbol, and a credit card is obviously that, so sleek and shiny and customizable. Yet, those companies behind the plastic do represent great deception and greed done to a large number of people. So, if I use one, I am with the loathsome. In the words of SN 56.11, " ...association with the unbeloved is dukkha..." I think using cash, making transactions in cash, not being seen using a credit card, not being associated with that in the eyes of others, could be as powerful a symbol against that culture as being seen walking or biking is to cars. I think one's integrity and peace of mind and the setting of a good example is perhaps worth more than a hundred or so cashback a year.

[Hristo Botev]

I think using cash, making transactions in cash, not being seen using a credit card, not being associated with that in the eyes of others, could be as powerful a symbol against that culture as being seen walking or biking is to cars. I think one's integrity and peace of mind and the setting of a good example is perhaps worth more than a hundred or so cashback a year.

I like this, a lot; well said. It's too easy to just throw your hands up in the air and say, "can't fight the system," or "it is what it is," or whatever. But just because an individual isn't likely to bring about systemic changes on his/her own doesn't mean you're (the universal you) excused from acting morally on an individual level. And the credit card company profit model is immoral.