Surcharges And Headwinds Loom As Credit Card Spend Rebounds

Credit Card Spending

You pays your money, they say, and you takes your chances.

Or, in a twist on that saying: You pays more money because you’ve taken your pick — of payment method, that is, which in this case would be the credit card.

At a high level, consumers are picking up the tab, and then some, for what it costs merchants to offer credit card payments.  It’s a practice that begs the question: Where will we see charges popping up next?

The debate over interchange — and how merchants account for that cost of doing business, and whether or not they can (or should) pass those costs along to end consumers — has raged for a while. And the clamor may grow louder as consumers shift at least some of their debit spending back onto credit cards.

Surcharges, of course, are the additional fees that merchants attach to transactions when users pay with cards. And though the surcharges cannot exceed the amount the merchants pay the card networks to have their payments processed, passing those fees on to the end-user might become a hot button issue, spurring consumers to opt for other payment choices.

Smaller Firms Embracing The Surcharges 

The Wall Street Journal notes that only about 5 percent of smaller firms actually institute surcharges, but that’s up markedly from the 2 percent seen just a few years ago. In terms of mechanics, let’s say the interchange cost levied on the merchant stands at 2.7 percent — that merchant can move to levy a charge equating to 2.7 percent onto the consumer. Options to offset those charges include a tactic where discounts are applied to cash transactions (though in the age of COVID, that option may be less warmly embraced by consumers).

We’ve seen a movement toward lifting the surcharge bans. Colorado became the latest state to lift a ban; Connecticut and Massachusetts are the only states left in the union with those bans in place. Next year, the card giants will boost interchange fees, which will likely bring the surcharge debate front and center.

Also read: Mastercard And Visa Postpone Planned US Interchange Hikes 

And it won’t be an issue confined to the U.S. alone. Earlier in the month, an Amazon spokesperson informed PYMNTS via email that the eCommerce giant is putting a surcharge in place in Singapore for transactions that use the Visa card. The surcharge equates to 0.5 percent and will take effect next month.

Learn more: Amazon’s Singapore Surcharge May Signal Sea Change Ahead On Cards 

As Amazon said in the statement: “We understand this is inconvenient for customers, and encourage them to switch to other payment methods moving forward in order to avoid a surcharge.”

We might see some headwinds on the horizon — or at least some hesitation on the part of consumers — amid the great shift back to credit cards.