Credit Contends for Payment Among Holiday Shoppers, Despite Potential Merchant Fee Hikes

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Recent reporting suggested major global payment processors, Visa and Mastercard, were each possibly planning to raise credit card fees for merchants starting next month. The added cost would likely be passed on to customers through higher prices. Such a move could be potentially quite impactful given the proximity to the holiday shopping season and the high percentage of Americans planning to shop online for gifts this year. Both companies, however, have since spoken out denying the report.

Whether any payment processor opts to raise these fees or not, CivicScience gauged the impact a fee increase might have by examining credit card usage, how consumers plan to pay for holiday gifts, and the effectiveness of discounts for paying by cash/debit card.

The latest CivicScience data find the majority of consumers with a credit card report they’re currently using their credit cards an average amount (51%). More than a quarter (28%) report using their credit cards more, seven percentage points higher than those using them less frequently than normal. Gen Z adults aged 18-24 exhibit a far higher propensity for increased credit card use, while Gen Xers say they use their cards less frequently than the average.

Fresh data from CivicScience’s ongoing consumer holiday trend tracking reveal traditional payments – led by cash and debit cards – are the clear choice for holiday shoppers. Thirty-two percent plan to utilize a debit card, and 24% plan to use cash for the majority of their purchases. Additionally, more than a third of planned holiday shoppers this year will opt to pull out their credit cards. Mobile payment options like Apple Pay, as well as buy now, pay later services are far less common.

Analyzing holiday shopping preferences further, it’s evident that department stores (48%), specialty or chain stores (39%), and small/local businesses (38%) stand out as the top destinations for credit card transactions, and could stand to feel the burn of any increased merchant fees. Dollar store shoppers are nine points more likely to pay with cash, while big box store shoppers are the most likely to utilize debit cards (35%).

The answer some businesses have come up with to mitigate fees associated with accepting credit card payments? Implementing a surcharge for using credit or offering discounts for using cash or a debit card. Incentivizing consumers to switch to cash or debit cards looks to be a quite popular move – 84% say it would be at least ‘somewhat likely’ they would adopt these methods when presented with a discount over credit card. Just under half say it’s ‘very likely.’

In what might be an encouraging sign for local and small business owners, for which every dollar counts, 85% of those planning to shop small would be at least somewhat likely to switch from credit when encouraged with a discount, more than half of which would be ‘very likely’ to switch.

It’s unclear whether merchant fees relating to credit cards will be raised going into the holiday season. However, given that as many as 37% of holiday shoppers are likely to rely on their credit cards to pay for gift shopping this year, a raise in these fees would have the potential to make a significant impact for businesses and consumers alike. As consumers seem to prefer cash or debit, will incentivizing these payment methods instead of credit be the way forward?

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