THE READER
March
2007

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Paper or Plastic?
Think About What’s in Your Wallet

by Rick Bernstein, Willy Street Co-op Member

It’s no secret, but most Co-op shoppers don’t know that how they pay for groceries makes a big difference to the Co-op’s bottom line—some $128,000 annually. The costs of using plastic may be invisible to the average consumer, but they are real and growing. Nationally the use of plastic (i.e., debit or credit cards) overtook paper (i.e., cash or check) in 2003. It did the same at the Co-op the following year. That trend has continued to this day. Most credit and debit card users are unaware that with each swipe of the card, the merchant is charged a “discount.” That term may sound friendly, but, in fact, represents an increasingly costly part of doing business.

A long history

First envisioned by Edward Bellamy in his utopian novel Looking Backward (1887), it allowed the holder to purchase “whatever he desires, whenever he desires it.” The credit card’s utopian roots gave way to the need for convenience after World War II, when, in 1950, Frank X. McNamara finished a New York City meal only to find he had no cash to pay his bill. Forced to wait while his wife rushed to the restaurant with cash, McNamara and a partner founded Diners Club to save others from experiencing a similar fate.

Today, who doesn’t have a credit card?

Because of their convenience, introductory 0% interest come-ons, ridiculously low minimum payments and an avalanche of direct mail advertising, we have become a consumer society increasingly dependent on plastic. If it’s a “no annual fee” card and you don’t carry a balance then it doesn’t cost anything, right? Wrong! You may think the airplane tickets are free, but it’s clear that the costs of the “free rewards” plus much more are rolled into the price of everything you buy. These fees are becoming the fastest rising and most uncontrollable cost for retailers.

Here’s how the fees work

At the Co-op, each point-of-sale debit card purchase results in a 32¢ fee. Credit card fees are usually much higher, since they include a fixed fee plus a percentage of the purchase. These fees can vary from bank to bank, merchant to merchant, and from time to time, but at the Co-op, they are about 13¢ transaction plus 1.7% of the purchase. 1.7% may not sound like much, but in a business with a tight margin, such as a grocery store, that can be significant. In 2004, the average U.S. household paid $230 in hidden credit card fees. In 2006, the Co-op paid over $128,000 in credit and debit card fees.

Two things you can do

To help the Co-op defray some of these costs, there are two things you as an educated consumer can do. First and foremost, pay with cash or with a check, especially
for purchases under $5 or $10. (The cash only lane open 11:00am–7:00pm each day is added incentive.) Believe it or not but a 32¢ debit card charge for a small purchase (newspaper and muffin) could actually result in a financial loss for the Co-op.

Secondly, whenever possible avoid using credit cards, especially for the larger purchases. Yes, credit cards are convenient and we have grown to love them, but this convenience comes at a price. For those who can’t give up their plastic altogether, think about using a debit card instead. It might be all the same to you, but it could help the Co-op improve its bottom line.

Doing so may be forgoing points toward that airplane ticket you had been hoping for, but think of it as an invisible “CHIP” to the Co-op. Following the publication of this article and other outreach, Co-op staff will be watching to see if our efforts make a measurable difference. It may not reverse the trend; but it should make a dent. Any money we can keep here at the Co-op could be made available for other uses, chief among them neighborhood improvements, such as to the Marquette/O’Keeffe playground and other neighborhood public spaces. So remember that the small change you make in your payment habits could make a big change here in the neighborhood.