Consumers and businesses alike are being fleeced by banks and credit card companies into paying unnecessary fees because of a shift in spending with cash to plastic. Consumers can directly impact their product or service costs by paying with cash rather than credit. Banks and credit card companies lure consumers and businesses into spending and accepting plastic by offering rewards and rebates, but still the rewards don’t compensate for the increased costs. Reward members are only getting ripped off slightly less than other consumers. Below, I will discuss the details of how these fees work their way into the cost of everything you buy. Furthermore, I will discuss the struggle in the business world and why companies trying to gain rebates at the expense of vendors is a poor long term solution. And lastly, why consumers should stop spending on credit as often as possible and why rewards cards are still a rip-off.
Why do banks encourage you and me to spend our money on our debit and credit cards? We’re now a culture of card carriers, plastic for this, plastic for that, hardly anyone carries cash anymore. And the banks are laughing all the way to the, well, the bank. It’s not funny though, because we are essentially paying an additional 1 to 3% on every purchase we make with our plastic payments. That 1-3% is going right into the bank’s shareholder pockets or to help pay someone’s exorbitant bonus, with little value added to our transaction.
Who is paying this premium? Someone has to pay and the merchants aren’t footing the bill forever, after all – you’re making the purchase with a Visa or MasterCard, or Discover or whatever card of your choosing, and those card companies charge the merchant for accepting payment. Instead of making smaller payments via card, consumers must work together and make them with cash and help drop prices for everyone in the long run. Although, some would argue that the businesses compensate in the lost fees by the uptick in credit spending.
In the business world, companies constantly try and take advantage of their vendors over terms and methods of payment, but this is a bad long term decision. Treasuries departments try to become profit centers by engaging with bankers offering a quick buck in the form of rebates for using their company credit cards to pay for everything. In essence, companies encourage their vendors to accept payment via credit cards (p-cards, T&E cards). These companies think they’re smart in trying to slip a fast one by their vendors.
As mentioned, the company sending payment via card receives a rebate from the bank (or card company), because the bank charges the company receiving the payment around a 1-3% fee. The bank or credit card company then cuts the company paying via their credit card a rebate of something less than the 1-3%. Eventually, the company receiving payment raises prices to compensate for the fees and or changes their terms on the paying company to recoup the costs. In the long run, both companies lose while the bank profits. It simply doesn’t make sense to grab short term profits in trade-off for long term losses, but these bankers will continue to flash the cash in front of the company big dogs and wine and dine them as long as they’re silly enough to fall for their crap. Ultimately, the companies harm customer relationships and sacrifice too much for these short term rebates. The company earning the rebate will often tease the vendor owed money telling them they will pay faster, increasing their cash flow while reducing overhead.
Small businesses are fighting back. In New Jersey, gas stations are offering cash discounts to help consumers kick the habit of paying with cards.
Consumers and small businesses must unite and eliminate the card companies from the transactions all together. However, we’ve played right into the card companies’ hand by cashing in on rewards cards, partially passing the cost of the fees to those consumers who don’t use reward cards. This is simply a short term solution to a long term problem. If you keep it simple and keep the banks out of your transactions as often as possible, you limit their ability to take your money, and everyone is going to better in the long run.
Truecostofcredit.com shows how much vendors accepting your cards pay to the card companies. The numbers are similarly disgusting and staggering for debit and credit cards. Below are some examples of fees on common purchases with debit and credit cards, and in most cases these fees are passed on to you.
Many people argue that rewards cards are the way to go, but you can clearly see that the card companies are making off like bandits by offering crappy rewards for a considerable increase in costs to you. Are you willing to do your part and start using cash? Or are you happy with 1% rewards and increased product costs of 2-30% or more? Reward members should really consider stop being greedy and start making a stand to remove the middle men. In the long-run we would all be better off!