Extra Credit: It's always something

Shop Girl by Kitty Kaufman

Liz Pulliam Weston, who writes about all things money for msn.com, was having some pangs recently about using credit card reward points for a trip to Hawaii. She cites research showing "credit cards contribute to inflation and may impose unfair costs on people who don't use plastic." This was so amusing that I started thinking; would she feel less guilty if she charged the whole trip on a credit card and coughed up 20% interest to the issuing bank to pay it off?

The retailers, where she earned the points to take the trip, are complaining about credit card rates they're paying for the transactions that keep their doors open. There's no mention of them feeling the least bit guilty because they're too busy being irate. If you've been in the business, you would find this amusing too.

Retail and restaurants have been whining about credit cards for years. I worked in merchant services for First Data and Diners Club in the '90s. There were just four interchange rates then: 1. Swiped transactions incur the lowest rate; 2. Keyed in sales, where the card is not present, are more risky and thus, more expensive; 3. Business cards, and 4. Overseas cards which go through at higher rates as well.

Because we charged them more in fees, merchants didn't like taking business cards and overseas cards. Since business people and overseas travelers are the very ones spending more, this makes no sense. Not being able to distinguish a business card from a "regular" card makes it worse. Merchants always ask how to tell the difference between the cards. It is also common for American Express cardholders to be asked for "another" card because AmEx charges merchants higher rates than Mastercard and Visa. They are shoppers who, in general, also spend more.

Merchants have short memories. They forget the days of bad checks, layaway, running tabs in bars, and losing sales simply because a shopper had no cash. Even when we showed them checks were 20% higher and servers got better tips, they still grumbled about the rates, the transaction fees, the settlement fees, the statement fees, and having to wait on hold for someone to complain to at First Data while we were out listening to someone else.

Second, Weston's comment that "credit cards could be costing you even if you don't have one" doesn't ring true either. It's hard to imagine anyone who doesn't shop at least in part with plastic. Really, you're going out shopping Saturday afternoon so you'll be stopping at the ATM first for a pocketful of money?

This is a favorite story. First Data had a customer who called me to complain about "bad" transactions. He was out a couple of hundred dollars so I asked him what his annual credit card volume was. It was hundreds of thousands of dollars. "In a year, you have 0 of bad charges on that volume?" and he said, yes. I told him he was a lucky man. In the end and it took some convincing, he finally had to agree.

Weston's suggestion: get the banks to charge the merchants less. This could be interesting if it weren't so funny. No one will be regulating a bank's interchange fees or any other fees any time soon. Mastercard and Visa, which are associations of banks, prohibit merchants from adding surcharges to any transaction although they themselves do it all the time. Those four interchange rates in the '90s are up to 243, according to Weston.

I don't think Weston should feel the least bit guilty about taking a trip on reward points. She earned them and so did all the merchants where she ate and shopped. The issuing banks get big dollars from big spenders looking to collect reward points. And of course, processors like First Data take their percentage and so do the funding banks.

As for the merchant dilemma, someone could make a very nice living telling retailers legitimate ways to keep their fees in check. There is a very big one that nearly every merchant overlooks. Anyway, that merchant consultant, me, would start with you who find it too taxing to hand over my credit card receipt. This is what it sounds like: "Do you need your receipt?" Or, they simply neglect to hand it over with my purchase until I ask. I always ask. It's always something.

There are easy ways to save big on fees. You should call me.

© June 16, 2010
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