[5] Additionally, the seller suffers from indirect costs such as missing interest payments on the balance of goods or services sold using credit.
In the absence of surcharging it is postulated that there are substantial negative social and economic welfare effects including inflation, a reduction in the purchasing power of consumers because of larger debt service, lower ravings rates and inequitable cross-subsidization between consumers paying with cards and those paying with cash.
In 2017, the Australian Competition and Consumer Commission (ACCC) placed an excessive payment surcharge ban on all merchants in the country.
[19] Businesses in Australia were banned from charging customers excessive surcharges on transactions made using EFTPOS, Mastercard, Visa and American Express.
[19]In June 2017, Visa and MasterCard agreed to drop their contractual prohibitions on surcharging in Canada as part of a settlement of a long-standing class action lawsuit.
[25] The Federal Competition Commission has recently (2014) allowed payment schemes to ban surcharging in Switzerland through their standard contract terms.
Countries including the United States, Australia, and Canada have sought to promote price competition among card brands to increase efficiency.
[29] In the absence of surcharging, a retailer will attempt to recover the cost of using their payment platform a uniform increase in the price of goods and services.
They will include a margin on top of their products in order to cover the average cost to the business of using a payment system, such as a credit.
[31] This underestimation bias the consumer is prone to because of increased credit card usage results in a reduction in their personal welfare.
Some merchants impose surcharges to make additional profit instead of to cover official credit card company charges, in violation of consumer protections.
[33] Additionally, many merchants seeking to reduce transaction costs have implemented non-compliant solutions that fail to meet price transparency and consumer friendliness standards imposed by the card brands' contract requirements.
[34] Wright investigated the welfare effect of removing a no-surcharge mandate in a model where a not-for-profit credit card provider gave payment facilities to consumers and a homogeneous monopoly merchant.
[35] Conversely, Schwartz and Vincent found that the implementation of a no-surcharge rule increases the profits for credit card companies but decreases the welfare of consumers choosing to pay by cash and the merchants themselves.
The credit card in their model is provided by a for-profit company to heterogeneous consumers and monopolistic merchants in an open system.