Credit Cards Make Purchases Cost More

by The Happy Rock on January 30, 2009

pay-cashier-neon-signHere is another strike against credit cards.  Not only do they often cause us to spend more, but they make merchants charge more to cover the credit card processing fees are usually 2-3%.   The best cash back credit card that I use can end up costing merchants even more because credit companies pass an extra fees to cover the rewards which then  gets passed right back on to the consumer.   Americans spend an estimated $50,000,000,000(500 billion) in processing fees, almost the cost of one stimulus or bailout package.

Here is the scoop from True Cost of Credit :

Rewards cards cost businesses more than non-rewards cards because the credit card issuers pass the cost of the rewards onto the businesses by charging them higher Interchange rates. Rewards interchange rates are typically around 0.30% higher than the rate for a regular card. However, many smaller businesses actually get charged more than 0.30% additional for such transactions because it triggers a downgrade, which allows their credit card processor to charge them as much as an additional 1.50%.

The True Cost of Credit site combines information from several sources to provide you the  estimated fees that were paid by merchants to your given credit card company.   Just click through to the site and put in the first six digits(Issuers Identification Number) of a credit card and the site will give you a report on the fees merchants pay when using that card.  Here is the report for the Chase Freedom Card, if you are interested.  The report also offers examples of fees for different types of purchases that is also quite eye opening.

A pack of gum at a convenience store: $1.50

Credit Card Fees: $0.38   (25.1%)

So next time you swipe your card think twice about how much it might be costing you.  What do the readers think about all of this?

{ 10 comments… read them below or add one }

Discover January 30, 2009 at 12:21 pm

They should do away with the fixed transaction fee. I always feel bad for the merchant when making a small transaction on an old credit card to avoid that the card will be closed for inactivity.

It is wrong to make the merchant pay the extra fee for something that only the card issuer will benefit from, but I think that debit cards are becoming just as much of a problem as the additional rewards fee. Most banks now offer higher interest rates on their checking accounts if you use the debit card at least 10 times a month. This encourages small transactions as people want to earn rewards for their larger purchases.

I tried my debit card on the truecostofcredit website and the fee for the small transaction is over 27%.


Home Mortgage Loans Refinance January 30, 2009 at 9:53 pm

I agree that credit card fees are too high. I think your example of “A pack of gum at a convenience store: $1.50 Credit Card Fees: $0.38 (25.1%)” might be somewhat misleading because I don’t know of any vender in my city that would take a credit card as payment for that small a figure. Most places have a $10-$15 minimum.


John @ Curious Cat Investing Blog January 31, 2009 at 5:41 pm

I agree that the fees seem excessive. I do not normally use my credit card for small purchases, other than gas.


The Happy Rock February 1, 2009 at 12:38 am

@Discover – Merchants often do benefit, because people wouldn’t shop there if it wasn’t convenient, and also people spend more with plastic. For small transaction they usually charge a flat fee + a percentage which is we small charges get hammered.

@HMLR – I have actually swipe my card for a pack of gum before, it isn’t uncommon for stores to not have a limit.

@John – Good for you. You are probably better off for it.


jake Home Worker February 1, 2009 at 2:54 am

We can only hope the new regards in Washington for the merits of regulation will shine a light on the credit biz, which effective writes it’s own regulations through it’s lobbyists.
I have seen a couple of replica watch/jewelry sites offering 10% – 15% discount for paying through Western union, rather than credit cards, it’s disturbing to think some might consider that the second best choice to using a credit card.


Spartan Saving February 1, 2009 at 7:45 pm

Alas I no longer even carry cash around. For every purchase I make it’s usually with some sort of a cc. Most of the stores in my area will accept payments from cc’s even if it’s less then 5$. The others can politely tell you to bring your purchase to 5$ or pay in cash, although I’ve never had either done.

Then again in Canada maybe it’s not such a problem as it may be in the States.


Kristy @ Master Your Card February 2, 2009 at 1:52 am

I think the merchants are being charged too much on the interchange fees, and the costs only go up every year. That said, we don’t get a discount for paying cash, so I look at it like the cost of doing business. If it’s too high, I’ll go somewhere else. However, I try not to use my credit card for small purchases, just out of habit. Most places around here have the $10-15 limit, but some places choose not to restrict their customers that way.


Cassy February 2, 2009 at 7:21 am

You know I always knew how much the fees are for processing CC payments and it got me crazy. Though credit cards are much more convenient I try to pay cash, avoiding any fees and extra expenses.


Spartan Saving February 2, 2009 at 10:03 pm

I’ve read up into it now and maybe I’ll change my ways. Considering some of the interchange fees are up to 2$ and then a 50 cents processing fee, you can’t even make profit on the smaller sales considering some of them are only in profit for less then 50 cents. (Phone cards and such)

For the smaller stores this must be quite a blow.


Jonathan@Friends&Money December 6, 2009 at 2:50 pm

In the end businesses,especially small firms are also victims of credit card companies excessive fee charging, it’s crazy that they can get away with the amounts charged


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