Monday, April 12, 2010

No Cash, No Groceries

Perhaps it’s another sign of the decline of the credit card. I stopped by a supermarket this morning and saw that it was no longer accepting credit cards for payments. I paid with cash myself, but I had to wonder what all the other customers were doing.

Supermarkets and other retailers have been trying for two years to get people to pay for their purchases with debit cards. They’ve negotiated better payment terms for debit card transactions, saving them about $1 per transaction, so they’ve been trying to gently nudge their customers in that direction.

I have to imagine this supermarket decided that “nudge” was no longer its strategy. Credit card payments are no longer available, or at least no longer visible, at checkout. The supermarket may lose 5 percent of its customers this way, but with lower transaction costs, its earnings should come out about even.

To the supermarket, this change is no big deal, but if it becomes a trend, consumers will no longer be able to rely on a credit card for emergency money in the event that their bank fails. To be safe, consumers will need to have cash at home or deposit accounts in two unrelated banks. In addition, obviously, this could be a major blow to the credit card industry. It’s not just the lost transaction fees from the supermarkets. The smaller balances and interest payments that result are just as consequential. At the same time, the credit card industry depends on the meme of “I have my credit card. Let’s go shopping!” If that advertising message becomes a punch line, credit cards will lose most of their standing among consumers.