The ideal solution would be product level surcharging, where merchants charge fees only for high cost cards. The incremental cash back I receive on my signature card is at the expense of other consumers. If merchants could identify high cost cards and charge fees only on them, the true cost of the purchase would be transparent to the consumer and consumers would likely reduce their use of high cost cards. Eventually, we would return to a healthier equilibrium between merchants and issuers where the cost to process the card is in line with the value the merchant receives. This will be impossible for most merchants without merchant acquirers offering new capabilities at the point of sale.
Will consumers object to the charges and take their business elsewhere? As long as checkout fees remain with small local merchants who can personally explain the need for the surcharge, I think few consumers are likely to abandon their business. After all, I'm already at the coffee shop and I can't order my muffin online.
Eric Lindeen is marketing director for Zoot Enterprises Inc., a provider of credit decisioning and loan origination solutions for large financial institutions.