Nearly two in three Americans say they would stop using their
credit cards if retailers start tacking on extra fees for paying
with plastic, according to a new CreditCards.com poll.
The scientific survey found that 65 percent of Americans who use
credit cards would pay another way if any fee was charged, no
matter how small.
Visa and MasterCard have long banned such surcharges at
businesses that accept their cards, but they recently agreed to
abolish that rule as part of the settlement of a longstanding
class-action lawsuit. If finalized, the settlement will free up
retailers to impose a fee on their customers, possibly in early
2013, to help recoup the so-called "swipe fees" they have to pay
every time a customer pays with a credit card.
According to the terms of the settlement, which still needs
judicial approval, retailers can charge customers no more than the
amount of the swipe fee, which typically ranges from 1.5 percent to
3 percent of the purchase. But when asked in the CreditCards.com
survey if they were willing to pay a surcharge in that range -- 2
percent -- Americans said "no way." In fact, only 2 percent of
Americans would be willing to pay a fee that was capped at 2
percent of the purchase price.
The scientific telephone survey of 1,005 adults was conducted
Aug. 3-5, 2012, by GfK Roper Custom Research North America using
random digit dialing. (See poll methodology.) Survey participants
who use credit cards for retail purchase (76 percent of adult
Americans) were asked how much of a surcharge they would be willing
to pay and were given a list of possibilities. Their responses:
Younger Americans more willing to pay
The CreditCards.com poll indicates that those least likely to
flinch at paying a surcharge are those under age 35. In the survey,
the younger the respondent, the less willing they were to stop
using their card. (See infographic, "Would you be willing to pay a
credit card surcharge?" )
Only about half of 18- to 34-year-olds would use a different
payment method to avoid a fee (52 percent), compared to 63 percent
of those age 35 to 49, and more than 7 in 10 of those older than
50. Also, one in four in the younger group said they would pay up
to $1 extra to use plastic, while only 13 percent of those over age
65 were willing.
"The younger you are, the more accustomed you've become to
electronic transactions and having credit," says Ken Manning, a
marketing professor at Colorado State University. "Young people
don't go to banks, and they tend to see dealing with cash as a
hassle. So they might be willing to pay a fee."
Other highlights of the poll:
- The groups who say they use credit cards always or frequently
for retail purchases were more likely to report they would stop
using their cards when faced with a fee (69 percent versus 60
percent of those who sometimes or rarely use plastic).
- Income makes a difference in how willing people say they are
to put away their plastic if faced with a fee. The least willing
to switch: those earning $30,000 to $39,900 a year. About 42
percent said they'd stop using a credit card if they saw a
surcharge. Of those making $75,000 a year or more, 71
percent would stop using credit cards.
Will retailers impose a surcharge anyway?
That kind of negative reaction may prompt many retailers to keep
the status quo or to consider the cash discount system now used by
some gas stations rather than surcharges, Manning says. "I suspect
surcharges to emerge mostly in situations where there's a lot of
price sensitivity, where consumers really compare prices. There
would be pressure on the retailers to lower their prices on the
shelf and then you would pay a surcharge only if you paid with a
card."
Compeau says he thinks it's unlikely that large retailers and
chains will hit up customers because they can easily absorb the
cost of the swipe fees. "If anyone is likely to implement a fee on
customers, it's going to be small operations like family-owned
restaurants and retail shops because that swipe fee is a
significant cost to them, it really hurts them," he says.
The swipe fees cover the expense of processing cards and the
risk of fraud, but merchants say they are being overcharged. The
National Retail Federation says the fees, which are invisible to
customers, are one of their biggest costs after labor and health
care, and estimates that they cost the average U.S. household $427
a year in the form of higher prices.
The settlement for the first time gives businesses the choice to
lower prices and charge more for those who pay with cards to help
cover the swipe fee. In making that decision, the key questions is
who customers will blame, Compeau says. "Some consumers will say
the bad guys are the credit card companies, so I'm not going to
punish my retailer who's trying to make a living," he says. "Then
there will be a significant number of consumers who will say,
'Enough is enough. I'm going elsewhere.'"
Similar results
In a July 2012 research report, Morgan Stanley estimated that as
many as 30 percent of U.S. retailers would eventually choose to
surcharge based on the experience of other countries, although
Morgan Stanley analyst Glenn Fodor notes that the number is "a very
generous estimate."
As part of the report, the firm did a survey similar to the
CreditCards.com one. It found that 43 percent of consumers were
"very likely" to switch to paying with debit, cash or check if
asked to pay a 1 percent to 2 percent surcharge for using plastic.
Another 33 percent were "somewhat likely" to switch.
Despite the negative reaction in both polls, Fodor says he
expects any new surcharges will have only a nominal impact on Visa
and MasterCard. He points out that once the consumers who were
surveyed were reminded of some of the benefits of credit cards,
particularly fraud protection, their eagerness to pay another way
dropped significantly. "If you're going to shift to different
payment methods, a bunch of dynamics come into play," he says.
Consumers "like the rewards, they like cash back. And for some,
it's a financial need because they just don't have the
liquidity."
In addition, 10 states -- representing 42 percent of U.S. retail
sales -- currently prohibit surcharges, he says. And the card
networks will pick up some new revenue from customers who switch to
debit cards, which are not affected by the settlement.
Poll methodology:
The survey was conducted from Aug. 3-5, 2012, by GfK Roper, a
division of GfK Custom Research North America, on behalf of
CreditCards.com. Random digit dialing phone interviews were
completed with 1,005 adults, all 18 years of age or older. The raw
data were then weighted by a custom designed computer program that
automatically developed a weighting factor for each respondent,
employing five variables: age, sex, education, race and geographic
region. The margin of error was plus or minus 3 percentage points
for the full sample.