Online & News Editor
There’s no such thing as a free lunch. Economics is aptly named the dismal science, as seemingly win-win situations can have complicated and harmful implications.
Send surplus food to countries facing famines and chronic food shortages? Domestic farmers now must compete with free food, hurting businesses and deepening a country’s economic dependence.
Raise the minimum wage to $20 per hour? Businesses can’t afford to hire new employees and must raise their prices to offset labour costs.
Get cash-back on your credit card purchases? Yeah about that…
Getting cash-back, travel rewards, gift cards and a slew of other bonuses for using your credit cards seems like a no-brainer for consumers. They get the accessibility, security and speed of credit as well as the satisfying feeling that they’ve just earned back pennies on the dollar.
Yet credit card companies don’t just rely on usurious interest charges to pull in their billions in revenue.
For every credit card purchase, companies like Visa, Amex and Mastercard take a one-to-three per cent cut. According to the Canadian Federation of Independent Businesses, this can wipe out the profit margin of small shops.
People will participate in buy local campaigns, drink fair trade coffee and consider ethical implications when purchasing clothing and jewelry¬, but jump at the opportunity to use their travel-points deluxe card. Many may not be aware of the hidden costs of their payment methods.
It’s hard to imagine that even bigger companies and stores, such as gas station chains and department stores, simply swallow the costs of giving away up to three per cent of their sales.
What makes credit card rewards programs so effective is that price increases of goods and services are often marginal, creeping up over time, and making them hard to pin point.
Getting a free flight to Aruba, or $100 credited to your account is a tangible benefit that negates any perception of higher prices. These incentives force companies to bite the bullet and offer credit card service, in order to keep fickle customers who either demand to pay with a credit card, or don’t have cash.
It’s not just credit cards that hide their real costs while flashing consumer rewards. Social media, allowing you to communicate and connect with friends, family and even customers, has to turn a profit.
Facebook and Twitter are publically traded companies and accountable to investors rather than creative developers. They have to justify their billion dollar evaluations by offering promoted tweets, more invasive advertising and the selling of premium accounts.
These companies are not charities or public services. The outrage at new Facebook layouts, or ads on YouTube is mind-boggling. They, like credit card companies, are obligated to make money. At the end of the day whether the cost is borne by companies paying service fees, or your user privacy and time, there will always be a reaction to an action.
The ubiquitous Shopper’s Drug Mart, with its rewards card, offers customers the chance to get tens of thousands of points by buying everyday essentials. Yet Shoppers has much higher prices compared to other pharmacies. There is also the issue of what the companies do with the information gathered by your purchases.
There are definitely advantages for savvy consumers who take advantage of the environment. By giving up credit cards in favour of debit or cash, an individual may save the store they are shopping at money, but they aren’t going to change the face of commerce. However, consumers can educate themselves about the hidden costs behind their payment preferences.