When most of us think of the cost of using credit cards, we think of annual fees, interest charges and over the limit costs. Few of us think about the costs that everyone pays when it comes to using credit cards. However, there is merit to the argument that the increase in credit card use over the past couple of decades has contributed to inflation for everyone.
Who Pays When You Use a Credit Card?
Yes, you can save money by choosing credit cards without annual fees, and by paying off your balance each month to avoid paying interest. However, what about other costs that are incurred? Few of us think about the transaction fees and other fees that businesses have to pay to process our credit cards.
And, while businesses have to pay to process debit cards as well, the cost of credit cards is actually higher. For some reason, the signature transactions come with higher fees charged to merchants. (This is, perhaps, the reason that many banks offer incentives and rewards for those who use signature transactions rather than PIN transactions.) You may think that businesses are the only ones who have to pay, but, as The StarPhoenix reports, we all pay a more indirect price:
The revenues lost by businesses in credit card payment fees can push prices that merchants charge customers higher, Braun-Pollon said.
Those revenue losses can also have an effect on how many employees a business can afford to have on staff or the ability of a business to sponsor community and charitable organizations, Braun-Pollon said.
What Can Be Done?
In order to try and convince consumers to use their credit cards less, the Canadian Federation of Independent Business (CFIB) is planning a campaign to educate shoppers about the high charges Canadian businesses face. The burden is especially high on smaller, independent businesses. The StarPhoenix points out that debit transactions cost about 12 cents each. With credit cards, though, the transaction is a percentage of the purchase price, usually 3%.
That means that if you use a debit card to purchase something for $100, the merchant only pays 12 cents. However, a 3% charge represents a $3 fee. That's a big difference when added into a business profit margin. The difference is even more pronounced as the purchases get bigger. A $500 transaction would mean the difference between 12 cents (debit) and $15 (credit). And, of course, if you use cash, the business wouldn't see any of these fees.
Education about how things work is one way to help you make a more informed decision when you choose a payment option. The CFIB is hoping that consumers will step up, and reduce their credit card use, sending a message to credit card issuers that it is time to reduce fees charged to businesses.
What Should You Do?
Using your Canadian credit card can provide you with convenience, and even a number of perks. However, it is important to weigh what you get against the long-term costs of credit card use. If you believe that credit cards really are contributing to inflation, and stifling the ability of independent businesses to hire more local workers, it might be worth it to reconsider using them so often.
This post was included in The March Break Edition of the Carnival of Personal Finance.