Fix the credit card market

You’ve probably already read this story on credit and debit card fees. If not, here:

When you sign a debit card receipt at a large retailer, the store pays your bank an average of 75 cents for every $100 spent, more than twice as much as when you punch in a four-digit code…

“A dollar is no longer a dollar in this country,” said Mallory Duncan, senior vice president of the National Retail Federation, a trade association. “It’s a Visa dollar. It’s only worth 99 cents because they take a piece of every one.”

This is a bit beyond the blog’s purview, but we have a handful of economically-minded readers who might be able to help me with this (those who do not understand interest rate fluctuations are welcome to contribute, too).

I try to use my credit card as often as possible for a variety of reasons. I get rewards for every purchase (cash back, in my case). I don’t have to worry about keeping money in my checking account until the bill comes due. By keeping more money in my savings account, I make a very very small amount more in interest each month. If I can’t use a credit card – the case at my local grocery store – I prefer my debit card to cash for one big reason: I don’t want to worry about keeping cash on me.

But I do feel a small amount of guilt when I use a card at a small business (though, as a consumer advisory, know that those minimum charges at bars and convenience stores are actually illegal). But guilt, in this case, is not a big enough incentive for me to change my behavior.

So, my question: is there an incentive system that can be designed to both a) encourage credit/debit card use, and b) avoid hurting the businesses actually providing the goods/services? And what would be the drawbacks here?

The only idea that comes to mind is for the consumer, me, to pay some marginal flat rate to Visa for the use of my card (say, 30 bucks a year). If we can hope that businesses may then charge ever-so-slightly less for each item, because Visa isn’t taking a chunk, it would seem that the prices might drop accordingly to cover at least some of that fee. It shifts some of the burde to the consumer, but the consumer gets as much benefit from the card as the business.

Thoughts?

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