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 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 thought, 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, complain about credit card rates for the transactions that keep their doors open. There's no mention of them feeling guilty because they're too busy being irate. If you've been in merchant services, you would find this amusing too.

Retail and restaurants have whined about credit cards for years. I worked in merchant services for First Data and Diners Club. 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 and overseas cards. Since business people and overseas travelers are the very ones spending more, this made no sense. Not being able to distinguish a business card from a "regular" card makes it worse. 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, according to AmEx.

Merchants have short memories. They forget the bad checks, layaway, counting cash, slippage and losing sales because a shopper has no cash. Even when we show them transactions are 20% higher and servers get better tips, they still grumble 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're 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. 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 bagful of money?

First Data had a customer who called to complain about "bad" transactions. Customer service referred him to me. He was out a couple of hundred dollars. I asked him what his annual credit card volume was. It was hundreds of thousands of dollars. "In a year, you have three bad charges on that volume?" and he said, yes. I told him he was a lucky man. In the end and it took convincing, he 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 guilty about taking a trip on reward points. She earned them and so did 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 every merchant overlooks. Anyway, that merchant consultant, me, would start with merchants who find it 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 ways to save big on fees. Call me.

© June 16, 2010 Kitty Kaufman is a New Yorker living in Boston.
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