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Ask the Experts: Will New Credit Card Surcharge Rules Change the Retail Industry?

New Credit Card Surcharge Rules

In this edition of our “Ask the Experts” series, we see what retail industry insiders have to say about the new credit card surcharge rules.  Will merchants avail themselves of these rules?  Will you face higher prices?  Read on to find out.

While the writing has been on the wall since July 2012, when a group of retailers settled their class-action suit against Visa and MasterCard, consumers didn’t really take note of the potential impact of credit card surcharges until the legal right for merchants to assess them took effect late last month.

The result was widespread initial concern that gradually devolved into cautious optimism.  You see, most credit card experts (including our own) predicted that the sheer ability of merchants to levy their own credit card fees probably wouldn’t result into them actually doing so.  There are simply too many hurdles.  Not only do anti-surcharge laws in at least 10 states supersede the aforementioned settlement, but American Express also has a policy that effectively prevents the millions of merchants who accept cards on that network from assessing them. Besides, you have to believe that merchants aren’t too keen on alienating their customers during these economically uncertain times.

Still, the retail industry can be finicky, and like the stock market, it often fluctuates based on public perception.  So, just to be safe, we decided to touch base with a few of the foremost retail experts from around the country to determine whether or not there’s more to the story than initially meets the eye.

You can see what each of the following experts had to say by clicking their respective name below, or you can jump right to our Takeaways section for a brief overview of what we learned from them.

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Steven Kirn

Director of the David F. Miller Retailing Education and Research Center at the University of FloridaWhat effect will the new credit card surcharges rules have on the retail industry? I don’t think retailers are going to do it. We’re moving toward an increasingly cashless society. All you have to do is go to McDonald’s or some place and see how many people are swiping to get the Value Meal for $3. I’m here on a university campus where the students hardly seem to carry any cash. Everything – even small transactions – are done via credit card, and I just don’t think that they’re going to [rock the boat].

Kirn also notes that the list of states with laws against credit card surcharges contains some of the biggest states in the country, such as California, Florida, Texas, and New York. When you consider that through the prism of Visa and MasterCard rules that require retail chains to apply the same pricing rules at all store locations, it’s clear that the biggest national chains – in other words, the Walmarts and Best Buys of the world – won’t be able to join in the fee party. That in turn will limit the direct impact on consumers, though it could keep prices high for everybody.

If the credit card companies charge a swipe fee, and I’m [a merchant] in one of these big states and not allowed to pass that on [to the consumer], what am I going to do? Nothing’s free, so if I can’t pass on a surcharge, then I’ll probably have to adjust the price that I’m selling the item for. For example, super markets operate on about a 2% net margin. Well, if the swipe fee is 2% and you let someone buy their $100 in groceries with a credit card, you’ve just given away every bit of margin that you have on that. They can’t do that, so effectively they’d have to raise their prices. Is there anything else on the retail radar that consumers should be on the lookout for? All the mobile apps are certainly causing brick-and-mortar retailers to take a hard look at how they do business. I think that’s really going to cause the brick-and-mortar retailers to really rethink what it is that they’re doing in their stores, what their stores look like, and so forth. They’ll have to find ways to convince the consumer that their brick-and-mortar experience – which, by and large, is much more expensive to provide than a virtual experience – is worth it and that they can create something like an experience and such that really makes it worthwhile.
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Eugene Fram

J. Warren McClure Research Professor Emeritus of Marketing at the Rochester Institute of TechnologyWhat effect will the new credit card surcharges rules have on the retail industry?

Some will try it long-term, but I don’t think they can get away with it because the customer does not look at it from a point of view of the plastic at all. The plastic is there, and if I can’t use plastic in your place without a surcharge I’ll just simply go to someplace else or I’ll create a fuss.

So, even if some merchants decide to implement credit card surcharges, it likely won’t lead to increased prices for consumers overall?

You have to look at that from the point of view of consumer motivation, in terms of what motivates consumers to choose one channel versus the other channel. Right now, the two leverages are price and service. There’s a third element that’s in there too: the change in technology. What Amazon offers and what others are attempting to offer is to improve the service operations, getting the merchandise to [consumers] more quickly. In addition, department stores are using different technologies to sell in-store and online. That’s also factored into it. So, what’s happening is the three elements are changing.

Is there anything else happening in the retail industry that consumers should be aware of?

There is a tremendous change in the nature of price competition. What is happening is some of the luxury stores are opening more discount operations, such as Nordstrom Rack. … In the office supply area, Staples is closing some stores and going more heavily online than they ever have been before. You also have the experiment that Neiman Marcus is conducting with Target. This last Christmas, both Target and Neiman Marcus have offered the same merchandise at the same prices in both of their stores, so you can see what a radical change that is. So, in summary, it seems like everybody is attempting to eat everybody else’s lunch. That’s a huge change in retailing. I think it’s a watershed change in many ways that we have to watch. This is all tied in with what is happening in relation to the question that you asked me [about credit card surcharges]. It’s hard to delineate [their impact] in itself with these other things going on.
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Janet Wagner

Associate professor of marketing at the University of Maryland What effect will the new credit card surcharges rules have on the retail industry?

It’s hard to say. I think some of the smaller merchants will give people the option of paying the surcharge and paying less and paying with cash. Actually, we’re starting to see some of that already. For example, our local gas station has started offering a lower price per gallon if you pay with cash. This may mean more people will start using debit cards and prepaid cards because those aren’t affected by the rule. The other thing is the people who really want the convenience of the credit card will just get used to it and they’ll pay it. People will just adjust.
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Kit Yarrow

Chairperson for the Department of Psychology at Golden Gate UniversityWhat effect will the new credit card surcharges rules have on the retail industry?

I don’t think they’re going to have a big effect to be honest. Major retailers, they’re not going to charge because they’ll lose business. … Most of the major retailers have already said they aren’t going to be doing it, adding on any sort of fee. Any national retailer that does is just asking to lose customers in a really competitive market. They won’t be stupid enough to do that. Now, the places that might do it, I think, are small local retailers. I think it matters to them more than it probably does larger retailers – that extra 2% or 3% that goes to Visa or MasterCard that could be in their till. So, I think they might be tempted to add in a credit card usage fee; I don’t think it would be a smart move on their part, but they might be tempted. Already, a lot of smaller retailers do a version of that, which is that they offer a 1% or 2% discount for using cash. If they are going to do it, they should do it that way – to jack up all their prices 1 or 2% and then offer a cash discount. But to just add on a fee? Consumers hate fees…hate, hate, hate fees. They hate fees, and if they feel like they’re being charged fees they’ll shop elsewhere, and they’ve got plenty of choice.

Is there anything else happening in the retail industry that consumers should be aware of?

I think the credit card fee thing is important to consumers because I think it’s really the first time that consumers have thought to themselves that the cost of using Visa has to be absorbed somewhere and that it’s been picked up by retailers up until now. That’s not a bad thing to know. If you love your dry cleaners, you love your local business and you want to help them out, pay with cash. Actually, I always tell people to pay with cash anyway because they tend to spend less money. In a way, it’s a little bit of a non-issue because I don’t think most retailers are going to take advantage of it, but I think it is important to consumers because it’s not a bad thing for them to really be aware of the cost of using plastic.


There are a few conclusions that we can reach given the insights offered by our experts:

  • Major retailers are unlikely to assess credit card surcharges:  A combination of competition in the retail space and conflicting rules will prevent major national retailers from availing themselves of their newfound freedom to charge credit card users more.
  • Local retailers might experiment, but that shouldn’t hurt consumers too much:  Even if certain retailers do dabble with surcharges, consumers will still be able to avoid increased costs by paying in cash or shopping elsewhere.
  • The new rules will have minimal overall impact:  The factors conspiring to prevent the adoption of credit card fees greatly outweigh those in support of it.
  • There are more important trends in the retail industry:  From mobile shopping apps and the changing face of brick-and-mortar stores to name-brand goods at bargain prices, there are a lot of other interesting things going on in the retail industry aside from credit card fees.

Image: Alexstr/Shutterstock

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