Jun 21, 2007

Living in a world of credit card surcharges

This is another post on my obsession with how credit card surcharges will fundamentally transform the payments industry.

Here is a bank that’s got the consumer value proposition down right, but with an offer that makes these transactions very expensive for the bank.

Pay with your ABN AMRO credit card and avoid the 10% surcharge on card payments in taxis. This is infinitely better than another bank’s offer of 1% cash back on your taxi fare. Still, there are significant downsides even with this promotion.

The fine print says, “The 10% Admin Fee and GST will be credited back into your account and reflected in your following month’s statement.” So you have to check your statement to see if the amount was actually credited. Worse, this means that the bank is paying for the surcharge. The card issuer is paying for the merchant’s full cost of accepting plastic!

This real-life example demonstrates that in a surcharge world, not only could card issuers see their interchange fee revenue disappear, they could in fact be obligated to pay merchants to accept their cards. In the future, you can expect to see the card schemes innovate to create more value for merchants, so that issuers that use those schemes don't need to resort to these tactics.

1 comment:

CreditUser said...

Everyone is always looking for some profit for himself. Not all the things happen as it has been planned. This situation isn't an exception.