Cash or Card?

Did you know that using a credit card when you check out is actually a premium service? Merchants like Walmart (WMT) and Target (TGT) have to pay companies like Visa (V) and Mastercard (MA) for processing — and they pay a lot.

US merchants paid a total of $138 billion in processing fees last year, according to data from Nilson. This is higher than anywhere else in the industrialized world and almost seven times what retailers in Europe pay.

Now, retail giants like Walmart, Target, and Kroger (KR) are leading the charge to reduce processing fees. They’re backing new legislation that’s designed to make the credit card industry more competitive. Merchants argue that lowering swipe fees could be one way to ease prices during this period of high inflation.

Who Actually Pays the Fee?

Even though Visa charges retailers the processing fee, those companies aren’t necessarily the ones to pay for it. A closer look reveals how the process works.

Visa charges Walmart between 1% and 3% every time a customer checks out with a credit card. Since Walmart doesn’t want to eat this cost, they raise their prices by that same amount to recoup their loss. This effectively passes the credit card processing fee off to consumers.

Already in Debt?

Thanks in part to these processing fees, high inflation, and rising interest rates, many consumers have been forced to swipe their credit card more often than they otherwise would.

One thing financial advisors routinely advise against is making only the minimum payment on your credit card bill, month after month. It’s difficult to make any headway in this fashion. For example, TransUnion says the average credit card balance is $5,270. If you were to make only the minimum payment, assuming an average interest rate, it will take you 16 years to pay off that balance. In order to make higher monthly payments, it may be necessary to take on a second job, or sell off unused items.

Thanks to their convenience and rewards, credit cards are valuable tools for both merchants and consumers alike, as long as they are used wisely.

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