Every so often it’s worth reminding readers what a miracle shopping is. Would-be buyers walk into businesses staffed by employees and owners who haven’t a faint clue about them, only to emerge from those same businesses with the goods and services they desire.
These transactions are increasingly made possible by credit-card providers. Stop and think about what they do.
They not only finance transactions for buyer and seller alike, they also provide buyers with a near or long-term loan to get what they want when they want it.
Which then requires us to think about what this means for retailers of all sizes. Precisely because credit card providers are willing to make loans to buyers, retailers of all sizes are able to move quite a bit more merchandize than they otherwise would. And while credit card providers will only be compensated in concert with cardholders paying off monies borrowed, retailers are made whole with great speed by the financing credit card issuer such that they can credibly place bigger and bigger orders for more inventory meant to serve ever more acquisitive customers whose buying is yet again enhanced by credit cards.
For providing these essential services without which store traffic and transactions within would be quite a bit less frenzied, credit card providers charge a “swipe fee” which, according to a critic of them, is “typically between 2.5% and 4%.” Are the fees excessive? Evidently not.
How do we know the above assertion is true? It can be found in the same critic’s report that “Swipe fees will total about $20.1 billion in the holiday season alone.” Lest readers forget, trade is all about buyer and seller pursuing mutually enhancing exchange. Based on $20 billion worth of swipe fees in just the holiday season, it’s more than evident that credit card companies are giving buyer and seller a lot of what they want, and at prices that are competitive.
Despite this, critics of swipe fees abound, not to mention plans by the Department of Justice (DOJ) to attack Visa for what the DOJ deems monopolistic practices. How odd on its face when it’s remembered that a supposed lack of “consumer welfare” has historically informed antitrust cases. Considering $20 billion worth of swipe yet again, it’s apparent once again that consumer and business alike view the charges as good for their welfare as the broad usage of credit cards attests.
At which point it’s worth pointing out that the swipe fees are charged in a market defined abundant competition. For one, there’s cash itself. Except that buyers and sellers alike increasingly disdain transacting with and selling for cash. See swipe fees again.
Beyond cash, there’s debit cards and checks that compete with credit cards. But for obvious problems with both. Convenient as debit cards are, with the latter the providers of same aren’t making loans to the buyer. And it’s yet again the loans that allow buyers to get what they want when they want, and for sellers to move a lot more merchandize than they otherwise would. As for checks, there’s the obvious potential for fraud and the attendant hassles with accepting a check based on that potential.
All of which further explains the genius of credit cards. It’s not just that issuers are loaning money to buyers, it’s not just that they’re taking on the risk of buyers walking away from their debts, it’s that credit cards save businesses from the hassle and time required to conduct split second due diligence on buyers about whom they haven’t a faint clue. See above.
Despite this, some retailers and retail groups have taken to lobbying Washington in search of price controls meant to force swipe fees down. They should be careful what they wish for. See $20 billion worth of swipes over the holiday season alone if you’re confused.
