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% 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% to 3% of the purchase. But when asked in the CreditCards.com survey if they were willing to pay a surcharge in that range -- 2% -- Americans said "no way." In fact, only 2% of Americans would be willing to pay a fee that was capped at 2% 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% 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%), compared to 63% 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% 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% versus 60% 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% said they'd stop using a credit card if they saw a surcharge. Of those making $75,000 a year or more, 71% would stop using credit cards.
Larry Compeau, a professor of consumer behavior at Clarkson University, said the numbers don't surprise him. "It's a lot easier to say you won't pay a fee in a telephone survey than it is to actually follow through when you're standing at the checkout and you realize you don't have cash," he notes. "I do think a certain percentage of people will refuse to pay, but what's more important is that the people in the poll are sending a clear message to retailers: Don't pull this on me."
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.'"
In a July 2012 research report, Morgan Stanley estimated that as many as 30% 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% of consumers were "very likely" to switch to paying with debit, cash or check if asked to pay a 1% to 2% surcharge for using plastic. Another 33% 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% 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.
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.