Commerce Commission general counsel Peter Taylor claimed that the introduction of surcharges meant greater transparency for consumers. Now the customers will be made aware of the cost of credit-card transactions to retailers.[From More Retailer Introducing Credit Card Surcharges | TopNews New Zealand]
How does making consumers aware of the cost of one option lead to transparency? My argument is that we should either price all of the payment methods available to consumers, or none of them. If you have this weird sort of partial surcharging then you may misalign private and social costs.
Here’s what I mean. Suppose it costs a retailer 1p to accept cash, 5p to accept a debit card and 10p to accept a credit card when someone buys a pair of shoes. So the retailer decides to apply a 10p surcharge to credit card transactions, a 5p surcharge to debit card transactions and nothing for cash. You would then expect customers to switch their payment method (as, indeed, the recent discussion about IKEA proved). Let’s imagine that they all use cash instead. The retailer has saved money.
But the bank next door has to put more “dead” money in the ATM, which means another armoured truck and some more security guards. So the bank decides to charge people 50p to get money out of the ATM, but the people complain to the newspapers and their politicians (they want to charge me to get my own money out of the bank! it’s an outrage!) so the bank is forced to back down and absorb the cost.
What is the net effect of all of this? The retailer has saved money at the expense of the bank, and to some people that might seem fair enough, but now bank charges have gone up for poorer people, there are more armed robberies and time and money is wasted counting, bagging and depositing the coins. Why is this a good outcome? I would prefer a much more explicit debate, since I really dislike behind the scenes lobbying for transfer payments, which is not capitalism at all but corporatism and (in some cases) cronyism.
The change in pricing has simply effected a transfer payment from the bank to the retailer, which is precisely the effect that has been noted in the payments laboratory down under that is Australia.
In Australia, it was the merchants who were the winners. They obtained reduced merchant services charges because of reduced interchange and, broadly speaking, pocketed the difference.[From Digital Money: Paying for innovation]
I don’t blame them, because I’d do the same thing if I thought I could get away with it. What’s puzzling in the Australian case is the simultaneous arrival of caps on interchange and surcharging.
Perhaps more vexing, Australian merchants, including retailers, restaurants and airlines, are imposing surcharges for each credit card transaction, even though fees the merchants pay card companies have fallen.[From U.S. Looks to Australia on Curbing Credit Card Fees – Series – NYTimes.com]
The big picture, happily, is that all of this jiggery-pokery with interchange and surcharging hasn’t changed the overall trend away from cash.
SIGNS are emerging that Australia is moving towards a cashless society, with the number of consumers making ATM cash withdrawals dropping to the lowest point in more than six years.[From Cash transactions on their way out | The Australian]
It’s still a very shallow slope, though. Perhaps if the surcharging were to be extended to cash and credit card payments, while debit payments remained surcharge free, Australia could take its payments experiments in a new direction. This would be an experiment of real value to the rest of the world: if the total social cost of payments falls (as I’m convinced it would) then the world of e-payments would have a cast-iron, stone-wall, nailed-on story to take to regulators worldwide.
These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]