Good for Consumers, Bad for the Markets

Last week’s multi-billion dollar settlement with Visa and MasterCard will allow merchants to offer discounts to customers paying with cash and to impose fees on those paying with credit, as detailed in a recent New York Times article.

My take is that once consumers see how much they are paying to use their credit cards – in other words, how much those precious airline miles and other perks are really taking out of their wallet – the less appealing it will be to use plastic. So expect a slightly longer line at the local ATM, and more change jiggling in people’s pockets.

But paying cash does funny things to buyers. The pain of knowing that the purchase will immediately be felt in one’s bank account balance will likely give folks pause. After all, frivolous shopping is less painful when one knows that bill won’t come for another 30 days.

As a result, I expect to see consumer spending get even softer when the settlement takes effect in December 2012.

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