How Credit Cards Damage Local Economies Jeff Wagner
Groundwork’s Bite-Sized Books Vol. 3 First printing, December 2019 Copyright ©2019 by Jeff Wagner All rights reserved Published by Groundwork www.layinggroundwork.org Bibliography available online at www.layinggroundwork.org/bite-sized-bibliography-3 Cover by Jordan Kump zoundsdesigns.com Printing generously donated by Where There Be Dragons wheretherebedragons.com
Part 1: Credit Cards What is a system related to climate change that needs more attention? Credit cards and debit cards. When thinking about the relationship between climate and economy, we often talk about fossil fuel stock divestment. We talk about investing in clean energy and keeping money in credit unions, but we neglect the actual means for economic transactions.
How are credit cards related to climate change? Our system of credit and debit cards creates conditions that support consumerism and fossil fuel extraction: • Growing concentrations of wealth and power • Difficulty for ordinary people to see and understand the full impacts of their economic choices 2
• Financial systems that impoverish local economies • Systems that encourage consumerism over more rational economic mindsets
How do credit cards create those conditions? Let’s focus on one example: how credit cards impoverish local economies. One powerful but easily overlooked way is through credit and debit card transaction fees.
What is a transaction fee? When a customer pays with a credit or debit card, the merchant pays a percentage of the transaction to a payment processing corporation like Visa or MasterCard. Usually, the fee is 2-3%.1 Millions and millions of tiny fees add up to billions of dollars per year. 3
In 2018, credit and debit transaction fees cost the U.S. economy $107.78 billion.2 That money could go into local economies rather than into huge payment processing corporations. Transaction fees are the cost of convenience for paying with plastic instead of cash.
Why are local economies important? We face a world where large corporations proďŹ t from practices that cause climate change and environmental destruction. Locally owned businesses are dierent because the people who run them are part of the communities in which they operate, so it beneďŹ ts them to adopt practices that are better for the world. Local economies can be a foundation for action against climate change, providing better transparency in supply chains and better options for local production of goods.
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A business like Walmart isn’t really part of the local economy—instead of reinvesting profits in local businesses and non-profits, it drains funds from the local economy by sending profits elsewhere.
Will you help me imagine $107.78 billion dollars? $107.78 billion dollars is 45 times the 2019 U.S. government budget for renewable energy and energy efficiency.3 It’s more than 12 times the budget for the EPA (Environmental Protection Agency).4 Just one year of transaction fees could buy enough wind turbines to replace the 23 largest coal-fired power plants in the United States.5 Imagine funding a program to help local economies become more environmentally sustainable. If we divided those $107.78 billion of transaction fees into annual salaries at double the federal minimum wage, we could pay 3.7 million full-time salaries. That’s more than 1% of the U.S. population. 6,7 5
Why don’t we talk about that money more? Transaction fees don’t attract much attention because cardholders don’t pay them—businesses do. As a consumer, cards seem to be all benefits. They’re convenient. They feel secure. Sometimes, you even get rewards for using them! The cost of convenience is much larger than most people think. When we divide that $107.78 billion by the number of people in the United States, it comes out to $325 per person (including children and babies).8 That’s more than one week of pay for somebody working at the federal minimum wage. Instead of feeding children, that money is being funneled out of ordinary people’s pockets.
Where does the money go? Corporations like Visa and MasterCard don’t lend money. Your bank or credit union provides the 6
financial backing for a purchase. Card companies charge for the infrastructure to process payments, and transaction fees are their main revenue source. The money goes into their coffers. Electronic payment processors are some of the largest multinational corporations in the world. Among publicly traded companies, Visa ranks as the world’s 11th largest. MasterCard is number 22. Visa is larger than most frequently-vilified corporations, including Walmart, Nestlé, Coca-Cola, McDonald’s, BayerMonsanto, and all publicly traded oil corporations.9
What do card companies do with the money? Visa is among the most profitable companies in the world, with profit margins over 50%.10 Its revenues are over $1.2 million per employee.11 The public doesn’t have access to Visa’s financial records, so it’s impossible to say exactly what happens with the money. We know that huge industries are 7
typically connected—big financial institutions lend to big fossil fuel companies. Money tends to flow to profitable industries like fossil fuels. While we can only guess where the money goes once Visa and MasterCard have it, we know where it doesn’t go: local economies.
How else are cards and climate change related? Credit cards are part of a consumer culture that sees immediate personal and material benefit as the highest good. In that belief system, we interact with the world primarily as consumers, not as active agents in the communities and environments we are part of. Credit cards could be seen as an embodiment of the roots of our environmental and social problems. Credit cards and fossil fuels are beneficial only in a short-term, consumption-oriented mindset that offers no space to consider the social or environmental impacts of actions. 8
If I expand my role in society beyond that of a consumer, I can develop a much broader concept of community—one that includes people for whom my actions have consequences that matter. These include people like local business owners, neighbors, and anybody who benefits from money that stays inside the local economy. When my community suffers, consumer benefits become less attractive.
You’re getting pretty philosophical—do you have any examples of consumerism’s effect on society? In the United States, people self-identify as consumers, and we have a lot of consumer debt. The average American carries a $6,354 credit card balance, and total U.S. credit card debt at the beginning of 2018 was one trillion dollars.12 One trillion dollars could install enough solar panels to power the world four times over.13
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I’ve never heard consumerism quantified like that. The U.S. public cannot afford consumerism on this level, and neither can the Earth. It takes a lot of fossil fuel to produce a trillion dollars of consumer goods. Many of those goods are already in landfills, but people are still paying interest on the debt.
Where do we go from here? This needs to stop. We cannot continue, business as usual, ignoring the impacts of our financial decisions because they seem insignificant or mundane. Transaction fees are one of the most overlooked elements of the modern financial system, so they are a good place to begin. Plus, businesses have a financial incentive to address this problem. Our money needs to become a public issue. We need alternatives, and luckily, we already have a great one: cash. 10
Part II: Solutions Doesn’t printing cash also cost money? Yes, but the 2019 U.S. budget for minting coins, printing money, and maintaining a healthy cash supply is only $955.8 million—100 times smaller than what we pay in transaction fees.14 While card transaction fees are 2-3% of expenditures, the budget to maintain the cash supply is just 0.04% of annual cash expenditures.15
Isn’t this just a tiny solution that ignores the real causes of climate change: fossil fuel corporations? If climate change had an easy solution, we would have done it already. A comprehensive plan on climate change should combine solutions on many levels of society. Many people are waiting for big-scale political
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action, but changes like divesting from credit cards will still need to happen at a local level. In the U.S. political and economic system, there are few restrictions on what people can do. It’s up to communities to set cultural norms and take action on all the elements we need to shift to address climate change. We have been talking about the need to reduce greenhouse gas emissions for decades, and it hasn’t happened yet. It’s important to look at all the components of our system that support and perpetuate fossil fuels and environmental destruction.
How can we work with businesses to increase cash use? Just as card issuers incentivize card use, businesses can use several techniques to incentivize cash use. These techniques can help divest our society from 12
harmful financial systems and increase profits for businesses. Here are five strategies businesses can use: 1. 2. 3. 4. 5.
Post whole number prices to eliminate coins Round totals to reduce coin use Give discounts for cash or add surcharges for cards Go cash-only, refusing to accept cards Educate customers about the impacts of cards
1. Whole number pricing makes cash convenient Cash is more convenient when prices are in whole numbers. Paying $10 cash is convenient. Businesses can encourage cash use by listing whole number prices that include sales tax. Especially in small establishments like cafes where customers typically buy just one or two items, whole number pricing is straightforward and easy. 13
2. Rounding cash transactions simplifies cash use Cash rounding is used around the world whenever small coins are eliminated from the money supply. Many industrialized nations, including Canada, Singapore, Switzerland, and Australia have used cash rounding to eliminate 1-cent, 2-cent, and 5-cent coins. Today, Sweden rounds to eliminate all decimal places in final prices. While most rounding eliminates coins because they’re expensive to produce, business owners can consider cash rounding to make cash more convenient. Rounding can be done to eliminate just 1-cent coins, or expanded to eliminate 5-cent, 10-cent, and even 25cent coins. The fewer small coins, the more convenient cash becomes. Typically, rounding moves prices both up and down— you round to the next largest coin. To further incentivize cash use, you might consider only rounding prices down to give customers a small discount for using cash. 14
3. Discounts for cash, surcharges for cards It’s common practice to add a surcharge of 3% to large credit card transactions. There have been lawsuits debating whether this practice is legal, but in 2017, the U.S. Supreme Court upheld card surcharges as legal in the case Expressions Hair Design v. Schneiderman. The court ruled that discounts for cash and surcharges for cards are two ways of expressing the same pricing structure. If one is legal, the other is legal as a form of free speech. 16 Business owners can offer a 1-4% discount for using cash or add a 1-4% surcharge for using cards. These pricing systems have two effects: they create incentives to use cash and help educate customers about the economic costs of their payment methods. As we see with rewards credit cards, small percentages can make a big difference in whether customers choose to use cash or cards. Businesses have the power to create incentives that counteract or outweigh what rewards cards offer. 15
4. Refuse cards The biggest step businesses can take is to refuse credit and debit cards. Many business owners fear that a cash-only business would reduce their income. If one business refuses cards while others don’t, they may turn away customers. We encourage businesses to band together and go cash-only. The more businesses that encourage cash use in an area, the more customers will use cash.
5. Educate the public Business owners have the power to bring their customers into the conversation about payment methods. Most people don’t think about where their money goes when they pay with plastic. Card transaction fees are one of the most overlooked aspects of our financial systems. Small signs at cash registers can go a long way. 16
Conclusion For the sake of convenience, we have established financial systems that siphon hundreds of billions of dollars out of local communities. In the face of climate change, the world demands action in every aspect of our lives. We have the money to do extraordinary things; we just need to spend it in the right places. We need to redirect our funds out of the pockets of corporations and into local economies. Collectively, businesses hold the power to redirect the flow of money back into local economies. The solutions are easy, but we need to move forward together. Help spread the word: please pass this booklet to a business owner. Then, think twice about pulling out your credit card.
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Endnotes 1
The Nilson Report, “Merchant Processing Fees in the U.S.—2018,” The Nilson Report, Issue 1155, June 2019. 2
The Nilson Report, “Merchant Processing Fees in the U.S.—2018.”
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“Funding by Appropriation,” Department of Energy, accessed September 25, 2019, https://www.energy.gov/sites/prod/files/2019/03/ f60/doe-fy2020-summary-table-by-appropriation.pdf. 4
“EPA's Budget and Spending,” Environmental Protection Agency, accessed September 25, 2019, https://www.epa.gov/planandbudget/ budget. 5
“List of the largest coal power stations in the United States,” Wikipedia, accessed October 5, 2019, https://en.wikipedia.org/wiki/ List_of_the_largest_coal_power_stations_in_the_United_States. 6
Board of Governors of the Federal Reserve System, “2019 Currency Budget,” December 12, 2018, https://www.federalreserve.gov/foia/files/ 2019currency.pdf. 7
“U.S. and World Population Clock,” United States Census Bureau, accessed October 17, 2019, https://www.census.gov/popclock/. 8
United States Census Bureau, “U.S. and World Population Clock.”
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Rankings are not by profits or revenue, but by market capitalization. “The 100 largest companies in the world by market capitalization,” Statistica, last updated August 12, 2019, https://www.statista.com/ statistics/263264/top-companies-in-the-world-by-market-value/.
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“Visa Profit Margin (Quarterly),” Y Charts, accessed September 15, 2019, https://ycharts.com/companies/V/profit_margin. 11
“Annual Report 2018,” Visa, accessed December 15, 2019, https:// s1.q4cdn.com/050606653/files/doc_financials/annual/2018/Visa-2018Annual-Report-FINAL.pdf. 12
Sullivan, Bob, “State of Credit,” Experian, published January 11, 2018, https://www.experian.com/blogs/ask-experian/state-of-credit/. 13
Calculated using 2017 global power market and the price per watt of the the world’s largest solar array built in Qinghai Province, China. Power Technology, “Q3 2017: global power markets at a glance,” accessed December 1, 2019, https://www.power-technology.com/ comment/q3-2017-global-power-markets-glance/. Phillips, Tom. “China builds world's biggest solar farm in journey to become green superpower.” The Guardian. January 19, 2017. https:// www.theguardian.com/environment/2017/jan/19/china-builds-worldsbiggest-solar-farm-in-journey-to-become-green-superpower. 14
Board of Governors of the Federal Reserve System, “2019 Currency Budget,” Division of Reserve Bank Operations and Payment Systems, accessed December 1, 2019, https://www.federalreserve.gov/foia/files/ 2019currency.pdf. 15
“In The U.S. Cash Is Sticking Around,” PYMNTS, accessed January 5, 2018, https://www.pymnts.com/cash/2017/united-states-cash-usage/. 16
“Expressions Hair Design vs Schneiderman,” Justia, accessed December 20, 2019, https://supreme.justia.com/cases/federal/us/ 581/15-1391/#tab-opinion-3710972.
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