Friday, January 8, 2010

Debit or Credit

Why don't we all go back to cash instead and stop getting screwed?  The New York Times has an interesting article on the way debit card processors charge us every time we swipe a card at the cash register.

The ascendancy of plastic over currency has driven me crazy for years.  Let's look at what we gain by using debit and credit cards:
  1. a little convenience (with debit cards)
  2. the chance to borrow money in an emergency (with credit cards)
Now let's look at what it costs us:
  1. interest payments on an average household credit card debt of $8000,
  2. late fees,
  3. overdraft fees,
  4. service charges,
  5. risk of identity fraud,
  6. privacy - generating a permanent, searchable record of everything you've purchased,
  7. the loss of responsibility that comes from holding cash in your hand and only being able to spend what you have,
  8. processing fees!  These are paid by the merchants.  As consumers we're led to shrug them off.  But they cost the merchant up to 3% of every transaction.  The small businesses I've worked for (and the one we owned) paid by far the largest rates, since they lack the bargaining power to fight back against Visa and Mastercard.  Given that over a third of transactions are processed with plastic, that means we're handing a whole 1% of the gross domestic product over to Visa and Mastercard just for processing our transactions.  
And yet the merchants are afraid to say no to plastic, because they're convinced that turning down cards would hinder their sales.  (And they're right to be afraid.)

But seriously, if you told anyone in 1956 about those fees, what do you think he'd say to you?   I'm sure it wouldn't be, "Hey, handing a full percentage of our country's wealth to just two corporations is a great idea!  So long as it gets my grandchildren spending themselves stupid into debt!"

I understand the importance of banking, interest, and investment to the economy.  Hell, I'm even grateful for the opportunity to pay the mortgage that let me purchase this house.  There's a time and a place for interest, so I'm not going to go all biblical and say we should kick the moneylenders out of the temple.

But fer chrissakes can't we get this infernal plastic out of our wallets?


  1. Wow! Call me ignorant, but I honestly had not even thought about what it cost a business to process plastic transactions, or that it did cost them! I will sincerely try to use cash only, and fall back on plastic only when necessary. Thank you for the eye opener.

  2. AMEN! I no longer own or plan to own credit cards. It is cash for us, and it felt good to pay cash for our old "newer" car and have no payments. It is a lie that you need credit cards or you will never get a mortgage etc. This country needs to wake up!

  3. You forgot the benefits of not carrying around wads of cash (gone forever if you get mugged or lose your wallet, but recoverable in cases of identity theft) and not being beholden to bank hours (though I suppose that falls under convenience).

    Personally, I think it would be really nice to use cash more often. There's something classy about pulling out a billfold or a nice wallet to settle the bill. It's also especially nice at bars - rather than waiting for the bartender to *finally* get around to you to close your tab, you can just pay as you go and leave when you're ready.