Consumers Who Don’t Use Credit Card Paying Higher When They Shop

Credit card holders hold an advantage over non credit card holders at the check out line. A recent report from the Government Accountability Office (GAO) says, “Consumers who do not use credit cards may be paying higher prices for goods and services, as merchants pass on their increasing credit acceptance costs to all of their customers”.

Although most consumers are not aware of it, whenever a credit card holder uses his or her credit card to pay for a purchase, the amount that they are paying is actually higher than if credit cards were not a payment option. This is fact is applicable to both credit card purchases as well as cash purchases.

The higher cost of the goods is caused by the interchange fees that merchants have to pay whenever they accept credit card transactions from their customer. Unknown to credit card holders, during every credit card transaction, the merchant has to pay a small percentage of the purchase cost to three entities. These are the bank that of the credit card holder, the bank of the merchant and the payment network that is used to process and approve the credit card transaction.

Credit card companies see a lot of profits from interchange fees, amounting to billions of dollars every year. In fact, interchange fees actually account for more than the profits that credit card companies see from the fees they issue in their savings or checking accounts.

Complaints among merchants about the exorbitant nature of interchange fees are well known. Interchange fees in the U.S. are much higher than those in other countries. Merchants are also powerless to negotiate better interchange fee arrangements as well. However, although merchants would rather be free from interchange fees, they have to accept them since they are part of the package of being able to accept credit cards as payments. Merchants generally pass on the expense of interchange fees to their customers by raising the price of their products to compensate. In the end, it is the consumers who end up burdened with it, especially those who don’t use credit cards for payments.

The report from the GAO suggests introducing changes in the structure of interchange fees such as those used in other countries. This includes allowing waivers that grant merchants powers to negotiate interchange fee rates individually, interchange fee regulation and full disclosure to consumers about interchange fees.

Major credit card companies including Bank of America, Capital One and JP Morgan Chase are naturally against these suggestions and the GAO’s report warns that they may raise their fees in other areas to make up for the resulting loss in revenue.

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