I generally avoid credit cards but sometimes rare circumstances make checks or cash inconvenient. A contractor did some work for me. The contractor’s bill was essentially:
- $2500 if paying by credit card (actual result: I pay $2475, he receives <$2425)
- $2500 if paying by other means
It became stark how foolish that pricing is when I saw that I received $25 cash back. Most consumers are easily exploited as they foolishly think they are $25 richer – without thinking about the big margin the MitM took. It means the contractor paid a fee of at least $25 but likely much more¹. Surely he would have profitted more if I paid by other means, like cash. Why didn’t the contractor offer a discount of ~$25—50 for paying cash? I know some do but it’s not as common as it should be.
The merchant agreement generally bans traders from surcharging credit cards (which govs tend to ignore when they accept credit card and add a surcharge). But there’s a loophole for everyone: the rules do not ban giving a discount for other forms of payment. It’s perfectly legit for a merchant to give a cash discount so long as up-front quoted prices match what is charged to cardholders. They should be doing this more.
When a consumer pays by credit card, it would be good for transparency & awareness to print on the receipt: “credit card fee of $75 paid by Bob’s Roofing”.
¹ ~1% is a fee cap in Europe but in the US there is no cap so fees are often in the 3—5% range. So the US contractor likely paid at least $75 in fees.
Quick googling shows that Square charges 2.6% + 10 cents for in-person physical transactions (swipe/etc). I’ll assume that whatever vendor they use is similar.
That means they paid $65.10 to accept the CC, of which $25 went back to you. Any other method would only be able to discount a max of an additional $40.10.
Now, that might seem like a no-brainer. Saving money is always good. But think about the alternatives and what it means. Cash means they now have to physically carry it to a bank to deposit, fill out the paperwork, and wait for it to be processed. If they do a night deposit thing, they still have to set it all up. Checks have historically been bad, creating all sorts of headaches. Still probably requires physically transporting, and quickly before the money disappears. Besides, who uses checks anymore? Square (etc) process and guarantee the transaction immediately, directly into the business account.
Then there’s consumer habits. Back in the early days of credit cards, Visa and the rest put out some promotional materials. These were reasons that merchants should accept cards, even with the fees (which were not allowed to be passed on to the customer). Most notably, people are a lot less concerned with price when it was going on a CC. The contractor may be a unique case, but it does ease the pressure when it comes time for the bill.