Jul 31

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Could Credit Card Surcharges Mean a Renaissance for Cash?

As part of a recent proposed settlement with credit card giants such as Visa and Mastercard, retailers will now be able to pass on the credit card surcharges [the charge incurred by the retailer when a transaction involves a credit card] to the customer.  The charges, usually 1-3%, used to be absorbed by businesses as operating costs.  Now it will be up to the discretion of the individual business owners whether they will decide to charge customers extra for using plastic.

Although many store owners might not add the charges and continue to absorb the cost as a customer friendly measure, those who do will spark a change in how consumers think about credit cards.  Many consumers value the ease of credit card purchases over cash transactions, even for purchases for which they do not need to utilize the pay over time aspect.  However, it will be interesting to see whether they value this convenience at a now known and avoidable price, thus showing the elasticity of the price.  Price elasticity is an economic concept that analyzes the impact of price on demand for a good or service.  In this case, credit card usage has historically been high at a price to the consumer that is, or at least perceived to be, zero.  As the cost increases, usage will predictably drop, as some portion of the population finds the cost exceeds the benefit of the service.  The shiny new credit card might be put back into the cookie jar for “emergencies only,” while the dusty dollar bills or even the checkbook get to once again see the light of day.

About the author

Richard Russell

Richard is a Consultant at Fulcrum Inquiry, an accounting and economics consulting firm that performs economic damages analysis involving commercial litigation, financial investigations, business valuations, and forensic accounting.

Permanent link to this article: http://betweenthenumbers.net/2012/07/could-credit-card-surcharges-mean-a-renaissance-for-cash/

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