Accounting 12 - Chapter 14

Link: http://www.cbc.ca/consumer/story/2008/09/11/credit-fees.html

Summary:
On September 11, 2008, the public was notified about credit card companies gouging retailers with transaction fees that cost $4.5 billion in 2007 - and the costs being trickled down to consumers. A newly formed group campaign called "Stop Sticking it to Us" was against the credit card companies, and gave us information about these companies. They estimated that nearly $2 of every $100 Canadians spent using credit cards went directly to Visa and MasterCard, and their issuing banks. Most of money comes from so-called "interchange fees" that Visa and MasterCard banks collect from merchants every time a credit or debit card is used to pay for a purchase. The fees vary depending on the type of card, the size of merchant, but the fees are calculated as a percentage of the transaction. The council pointed out that the interchange fees were not only a problem for merchants, but for consumers as well as the fees would eventually trickle down to them. The money earned from interchange fees goes to cover the cost of credit card incentive programs, corporate credit card benefits, and junk mail. A result and comparison of these types of fees having an impact on merchants and consumers was that "a member of the Stop Sticking it to Us campaign, in one month saw their processing fees.. increase by over $1200." Additional information that you might want to know is that the personal credit card fees increased from 1.6 to 1.7%, and business fees increased significantly.

Connections:
The connection I made between the article and chapter 14 is Credit Card Charges. When the merchant is paid by the consumer with a credit card, the credit card company such as Visa or MasterCard, gets a portion of the gross amount of the credit card transaction. This portion is accumulated by a certain percentage (in the article's case, 1.7%) , and the credit card company gets this amount of cash for every transaction received by a retailer from a consumer using their credit card. Another connection I made was that in both the article and chapter 14, it both noted that "credit cards are more cost-effective than handling cash, and are used so much in today's society that we can visualize a society without money - a cashless society".

Reflection:
After the article about credit card company fees being unreasonable, the day after, credit card company, Visa stated that its interchange rates were reasonable. After careful analysis, I have concluded that the fees charged by credit card companies are reasonable! I think they are reasonable because as today's society is using more and more credit cards instead of cash, companies can charge high prices, but still reasonable price as the demand for credit cards are rising instead of the use of cash. My opinion about the consumer's credit card charges rising by over $1200 can be bias as we only know HE is the only one that had his credit charges go up. Personally this is not an issue for me now as I do not use credit cards, but it might be an issue for me as i get older and start using a credit card. If the fees get too high, then it might be a problem we will want to resolve now! How high are you willing to pay for the use of credit cards?