I’ve been using credit cards for over a decade without any guilt whatsoever. I love responsibly using these little pieces of plastic just like I would a debit card.
I never pay a late fee or interest charge, but I get to earn thousands of dollars worth of rewards. Cash back, airline miles, hotel points… all of them I will gladly take.
Opponents of credit cards harp on several key factors:
- It is so easy to get in trouble with them
- It is so easy to get one in the first place when you don’t know what you’re doing
- It is costly to merchants to accept credit cards
I’ll never say the credit card industry is made up of saints; we all know that not to be true. At the end of the day my view on credit cards is they are tools. Just like any other tool it can be used responsibly (a shovel, to dig ditches) or irresponsibly (using that shovel to whack someone over the head). The problem is not with the tool it is with the user.
However, the merchant side of things is a bit of a different take.
Should we feel guilty about costing our local merchants a few percent when we swipe our credit cards?
The Pros and Cons of Credit Card Processing Fees
There are some costs to merchants, but are the upsides to consumers worth the extra processing fees?
The Downsides to Merchant Credit Card Processing Fees
There is no disputing the fact that merchants get charged significant fees for accepting credit cards.
Some credit card opponents believe that the cost of accepting credit cards raises prices on average across the economy. The higher price is used to offset the fees that are paid for accepting credit.
This may be true, but proving it on a large scale is difficult. If you can go down to your local merchant, ask for the cash price, and get a discount then by all means do it. However, I don’t see much success happening from doing this as a national retailer. To them the cost of accepting credit is just a cost of doing business. They aren’t going to lower prices by 2% if everyone decided to stop using credit cards.
Another problem for merchants is it can take a while to get paid when you accept credit cards. The crediting bank has to send the payment to the merchant processor, who has to validate it and eventually pay it out to the merchant. This can impact cash flow especially for small businesses.
Impact to Small Business is Greater
Doubling up on the damage to small businesses is that large mega corporations often negotiate discounts for accepting credit cards based on the volume they are seeing. The companies that can most afford to pay merchant processing fees end up paying less. In the meantime the struggling small business usually pays the highest merchant processing fees because they don’t have the transaction volume necessary to get a discount.
As you can see it appears that small businesses are impacted the most by accepting credit cards. But is it fair to discount all credit card use because there are costs to accepting them?
The Upside to Merchant Credit Card Processing Fees
As the consumer I could care less how much it is costing you to accept my form of payment. You tell me I can use a credit card and I gladly will.
Running a small business isn’t easy and getting to profitability is difficult. I get that. But accepting credit cards is part of the cost of doing business. If you can’t afford to sell me a product at a high enough profit to deal with merchant processing fees, you are in the wrong business.
Here are some of the benefits consumers get by using credit cards. To me, these items make the additional cost to the merchant (who should still be earning a profit!) more than acceptable.
Credit Card Rewards
If you aren’t getting rewarded for spending your income each and every day, you are doing it wrong.
Want to fly first class to Europe? Get an airline credit card with a big signup bonus and you are about halfway there. Want to stay at a 7 star hotel in the Maldives? Grab a hotel rewards card and start putting all of your spending on it. Prefer straight cash? There are plenty of cards that will give you anywhere from 1% to 5% for your spending in different categories.
You don’t get those with a debit card unless you have one of the three remaining airline debit cards.
Another great hidden perk of most credit cards is you get automatic warranty extension on things like consumer electronics. This isn’t with every single credit card so check your terms and conditions, but that is a great value to me. If you buy a printer with a 1 year manufacturers warranty and use a credit card that gives warranty extension, you now have a 2 year warranty. If the printer fails in the 18th month, you get a new one for free (or equivalent value) just because you used a credit card.
The biggest perk to using a credit card is the fraud protection and dispute assistance.
It is also one of the reasons merchants hate credit cards. You can’t easily scam a credit card user with a faulty product. They can simply do a dispute on the charge which, if proven correct, leads to a chargeback to the merchant.
I’ve rarely had to use this, but it has come up a handful of times over the last decade. You order something and it never ships, or you order an item but it is broken when it gets to you.
If the merchant gives you flack, you dispute the charge with your credit card company and let them deal with it.
Final Thoughts on Credit Card Processing Fees
I love small businesses. I want them to succeed. But I don’t think it is economically viable for me to go out of my way and miss other perks to help them out. The perks of using a credit card and the protections you get from its use are just too good to give up.
There’s also the problem of changing society’s spending habits. Credit and debit cards are here to stay; cash is slowly going away. There are other pros and cons to that fact, but you can’t stop taking credit cards now.