Swiping your credit card to pay at a variety of small businesses — from gas stations to restaurants to dentists — could cost you more this year. And, no, inflation is not to blame this time.
Small businesses are increasingly asking customers to foot the bill for high fees charged by credit card companies. Following a class action lawsuit in 2013, Visa and MasterCard lifted a ban on credit card surcharges. Now, it’s legal for businesses in most states to charge credit card customers an additional fee to cover these costs, which typically ranges from 1.5% to 3.5% of the transaction amount.
The surcharge is “definitely” at an inflection point, especially as credit card companies are expected to raise merchant fees in April, according to Jonathan Razi, founder and chief executive of CardX, which provides calculation software. surcharge to more than 6,400 companies. CardX was recently acquired by fintech company Stax, and the add-on software will be offered to Stax’s more than 22,000 customers, meaning you may encounter more credit card charges in the not-too-distant future. “One of the reasons you’re seeing more and more surcharges is a result of these price increases affecting businesses,” he says.
If the prospect of paying more at the checkout makes you consider going to the ATM more often, there might be another good reason to fill your wallet with cash: some companies offer a discount to customers who pay with greenbacks. According to a study published in the Journal of Banking & Finance, when offered a discount, a customer who would otherwise have preferred another payment method is 19% more likely to pay with cash.
Even if the amount of a discount or fee is fairly small, these options can subtly influence how you pay and whether you walk away feeling like you got a deal or were wronged. “Language is important, framing is important,” says Sarah Newcomb, behavioral economist at Morningstar.
“Sometimes you’ll see the language of rebates when the company wants to incentivize people for something,” she says, referring to cash rebates. “If you want to discourage something, you can frame it as a fee, like an additional charge for paying by credit card.”
Such incentives will speak to people in different ways, depending on what motivates them, notes Jeff Kreisler, head of behavioral sciences for JPMorgan Private Bank. Faced with the choice of receiving a discount or paying extra for a credit card swipe, some people will feel emboldened to actively choose to save money rather than pay a penalty. Meanwhile, other people react more to loss aversion – or to the idea of trying harder to avoid losing money than seeking an equivalent gain.
Complicate things further? Payment tends to have an element of time pressure, so people have to make a decision when they’re not thinking as clearly, Kreisler says. “We tend to think emotionally, so when we don’t know what the right choice is, we do what makes us feel good.”
Here’s how to think about that money or credit question the next time you’re faced with a discount or additional charge at checkout.
Understand the amount of money involved
A discount or credit card charge is likely to be expressed as a percentage, which may or may not be a substantial amount depending on the size of the transaction. “As humans, we don’t like to do math, we like to follow our guts, so we see a percentage and think that’s a good thing,” Kreisler says.
Compare the different dollar amounts you’ll pay with different payment methods, advises Kreisler. And if you’re trying to be more mindful of your spending, paying cash is best because it’s the “most painful” payment method – meaning you’re more aware of how much you’re spending and how much a article, he adds.
Companies also use a variety of tactics to hide the true cost of an item, says Newcomb, who offered the following examples. When buying cars or plane tickets, you may encounter drop pricing – when a company offers a low base cost and additional charges for other features or options. Some stores or websites use decoy prices – or deliberately add cheap and very expensive options that make the mid-range options seem the most affordable in comparison. Finally, recurring pricing models, such as subscriptions, can end up costing customers significantly more over time compared to the initial cost.
Take the time to make thoughtful spending decisions
More time can yield more considered spending decisions, Kreisler says. If you know in advance that a company is offering a discount or charging a credit card surcharge – and provided you care enough about the money involved – then “you can make a plan and make some choice “, he says. For example, you can choose to show up with enough money for the purchase or decide which credit card will offer the best reward for the transaction.
“Take the time to think about it more and more rationally, because deciding when is all emotional,” Kreisler says.
And if the emotion over a credit card surcharge is an embarrassment, Razi says he “totally understands.” But if companies don’t pass credit card charges on to customers who pay with credit cards, they can instead choose to raise prices across the board, which means customers who pay cash incur a disproportionate burden, he adds.
Plus, money or credit is one of the many questions you ask at checkout, Newcomb warns. Retailers may ask you if you want to sign up for an extended warranty or opt for a buy it now, pay later option to spread your purchase over time. As much as possible, it’s important to do your research beforehand to avoid making big decisions on the fly, she advises.
“You can always leave the cart and go, and that’s true online and in-store,” says Newcomb. “If you find yourself emotionally charged, then definitely leave. You want to buy things with a cool head because buyer’s remorse is no fun.”
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