>higher costs for merchants gets passed to consumers?
This is a common misconception. These fees come out of merchant profits. Otherwise, merchants would not care.
This is a common misconception. These fees come out of merchant profits. Otherwise, merchants would not care.
Here's a good paper that goes into this: https://www.bostonfed.org/publications/public-policy-discuss...
From the abstract: On average, each cash-using household pays $149 to card-using households and each card-using household receives $1,133 from cash users every year.
In the real world, reductions in debit card fees (in the USA, via the Durbin Amendment) have not lead to lowered prices, just increased profits. [1]
This explains why merchants care about processing fees.
[1] From page 27 of https://www.law.gmu.edu/assets/files/publications/working_pa...
"In the year following Durbin’s implementation, gasoline retailers realized more than $1 billion in savings from reduced interchange fees. But 'while this should mean savings of roughly 3 cents per gallon, no savings have been passed on to consumers.' This is particularly remarkable and instructive given that the retail gasoline industry is highly competitive, and at least one other study has demonstrated that gasoline excise taxes are almost instantly and fully passed through to consumers"
"There is little doubt that the Durbin Amendment had a major effect on consumers — and would-be bank customers — as issuers have, in various ways, passed on some of the costs of reduced interchange fee receipts, as discussed above"
" retailers of smaller ticket items in particular have seen increased interchange fee costs as a result of the Durbin Amendment, and there is anecdotal evidence that these fees are being passed on to consumers"
I didn't bother reading the entire report, either.
In the short term, if the cost of payment processing goes up or down, the merchant covers the change with its profits; however, prices can move. If I'm a merchant and my costs went up, I'm going to try to increase my prices to cover my costs and my profit target; if my costs go down, I may lower my prices to try to attract more customers, or because my competitors lowered theirs -- especially given all the merchants are paying similar fees, a big drop in processing fees would likely be reflected in consumer costs.
The merchant sets their prices based on the cost of the product and the cost to bring the product to market. If their profit is too low to sustain the business, prices go up. It does not matter why profit is too low. Any cost to the merchant increases the price for the consumer.
Most merchants would prefer the buyer have more information about why something costs what it does. Ergo the cash and debit card buyer would have no such fee on their receipt; someone with an ordinary credit card might have a 3% fee, and someone with a high kickback card might have a 5% fee. Rather than permitting freeloaders.