When I was checking in to a hotel the other day, I saw a sign on the counter advising that there would be a £2.50 surcharge for paying by credit card. Naturally, I asked the receptionist about the impact of explicit pricing of payment instruments on customer preferences (remember, I do this so you don’t have to). I’m interested in both why retailers do this and what impact it has on their customers.
She told me that it made no difference to business customers, because they aren’t paying the bill and they always pay with credit cards anyway, and many of them pay with corporate credit cards and there are no corporate debit cards. For personal customers, most of them paid by debit card anyway, but the surcharge had pushed even more of them in that direction, to the point where probably four-fifths of personal customers paid with debit cards. Of the remainder, most paid with credit cards but some paid with cash. I thought it would be impolite to enquire further as to whether the cash payers were predominantly drug dealers, prostitutes or (given the location of the hotel) politicians.
Are these results typical? To what extent pricing drives payment choices is uncertain. In some cases (remember the case study of IKEA steering customers to debit in the UK) it clearly does, in other cases — such as my favourite case study of the parking at Woking station, where it costs 40p extra to pay by mobile, and half the customers do it — it doesn’t. In theory, though, there’s nothing wrong with the idea of making the costs explicit and then letting the market choose. Except… A little while back, Deborah Baxley of Capgemini (talking about the US environment) wondered if the appearance of explicit pricing for payment instruments (in itself, a good thing) might lead to a perverse outcome as merchants seek to externalise the cost of payments.
Merchants benefit from lower acceptance costs for debit cards. In a surprising twist, incentives and steering could have the perverse result of driving consumers toward cash and checks.[From Changing the Game in Cards – pymnts.com]
I think this is a realistic projection, especially given that merchants don’t care about the costs they impose on the rest of society by driving up the use of cash and because customers simply do not pay the real cost of cash or checks. I would love for this to change, but it’s not going to. It’s reasonable to wonder, in response, whether banks can use EMV, NFC, SMS or some other TLA (three letter acronym) to generate added-value around payment transactions and thus stem the shift to cash. In the case of NFC, I think they probably can. Since NFC is now entering the consumer market, it might be time to firm up on some value-adding plans. This has been clear, I think, for some time.
Last week Google confirmed that Android 2.3 will support Near Field Communication, as will Nokia and RIM smartphones, starting next year. And judging from Apple’s recent hiring of an NFC expert, and patent filings for a probably-NFC-powered iTravel app, the iPhone 5 will boast NFC too.[From I Have Seen The Future, And It Looks A Lot Like Bump (Without The Bump)]
But just because the idea has been around for some time, that doesn’t mean that finding genuinely value-adding applications around technologies such as NFC is easy. But I digress: the clear problem is that when you make the pricing of things explicit, then that pricing appears in the first instance to show an increase. Hence the perverse thinking that emerges.
Banks have never lost out because of their gracious generosity in allowing customers to use cheque books, debit cards or cash machines for free.[From The end of free banking would be another slap in the face | Chris Leslie | Comment is free | guardian.co.uk]
This is what people in the UK genuinely believe. I have no idea who they think pays for all of this stuff (hint: you do) but it does make it very difficult to introduce “real” pricing that allows consumers to make informed choices. This real pricing would take offline prepaid debit as the benchmark and then price everything else from there: debit, then probably cash, then credit, then cheques, that sort of thing. Then the consumer preferences would be meaningful.
These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]