In Defense Of Smallenfreuden

A new ad campaign by Visa is drawing the ire of retailers and small businesses across the country.  Smallenfreuden, or the joy of small, is Visa’s attempt to get consumers to use their credit card for small purchases under $100.

The ‘small’ purchase segment is dominated by debit and cash users, and retailers would like to keep it that way.  The Canadian Federation of Independent Business says you add two to three percent to the transaction cost for the vendor each time you use your credit card.

Go Smallenfreuden or Go Home

If you ignore the fact that smallenfreuden is a stupid, made up word started by a giant credit card company who’s trying to get you to spend more, you’ll find the premise is actually not that bad.  Here’s why:

Call me selfish, but when I decide which method of payment to use, I want the one that’ll cost me the least or pay me back the most.

That’s why I use the Scotia Momentum Visa Infinite card when I shop at Safeway or when I fill up at Shell – to get 4 percent cash back on everyday purchases like groceries and gas.  I don’t care if my bill is $3 or $300, I’m getting that 4 percent back.

You know how much I’ll get back when I use cash or debit?  Nothing.  In fact, if you’re one of many Canadians who bank with the big 5, using your debit card a lot can cost you $14.95 per month or more.

I used to pay for everything with debit, and it cost me big time!  Now, instead of paying $14.95 per month in bank fees I use my cash back credit card and earn at least $50 per month in cash back rewards.

Related: How To Boost Your Credit Card Rewards 

My spending habits haven’t changed – I’m just using a different card.

Added costs for Retailers

Most retailers prefer it when you use debit because the cost per transaction is substantially lower.

Retailers pay a membership fee to Interac based on the number of transactions they process each year.  In 2013, the fee is $0.006534 per transaction, or $65.34 per 10,000 transactions.

Dealing with cash can be a nuisance.  From bank deposits to account reconciliation to rolling coins – not to mention theft, there’s a cost to handling cash.

But credit cards cost retailers the most per transaction because of steep interchange fees imposed by Visa, MasterCard and American Express.

A Bank of Canada survey looked at the cost of processing a $36.50 transaction – the median cash transaction in its survey (how smallenfreuden).  The costs broke down like this:

  • Debit card: 19 cents, or 0.52 percent
  • Cash: 25 cents, or 0.68 percent
  • Credit card: 82 cents, or 2.24 percent

The same survey also broke down how we pay for our transactions:

  • Credit card: 31 percent of transactions
  • Cash: 29 percent of transactions
  • Debit card: 26 percent of transactions

What’s in it for me?

The CFIB wants to play the David versus Goliath angle, claiming BIG CREDIT CARD just wants to take a larger bite from mom and pop shops, so they’ll have no choice but to raise prices.

But we all know these costs are baked into the price of goods sold anyway, whether it’s Ma and Pa’s dry cleaning, or a giant retailer like Wal-Mart or Superstore.

Related: I Hate Paying Fees

If I were to put that same $36.50 transaction on my credit card, I’d earn $1.46 cash back (at a grocery store or gas station).

Those who say that the increasing popularity of rewards credit cards have caused prices to go up may be right.  But you’ll still pay the same price whether you use cash, debit or credit.

So we’re left with the choice of putting some much needed cash back in our own wallets, or helping retailers save an extra few cents.

As dumb as it sounds, I’m going to keep smallenfreuden my way to savings.

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  1. Elizabeth on June 17, 2013 at 4:47 am

    If I remember correctly, don’t Visa’s fee increases to merchants start this spring? (The fee increases they announced last fall, I mean.) If that’s the case, then this marketing campaign is aptly timed.

    Having worked for many small businesses, I disliked this idea when I first heard about it — but as a consumer I’m on the fence. If costs are going up because more people are using credit cards, then I can understand why people want to use reward credit cards that give them cash back. (Though it’s not so much “free money” as it is keeping up with rising costs) I think people generally don’t care that they’re providing a wealth of information about their spending habits.

    Still, I’m not going to change my spending habits or payment habits just because a credit card company tells me I should.

    • Echo on June 17, 2013 at 2:39 pm

      @Elizabeth – I’m not positive, but I’ve seen some mention of interchange fees increasing back in April.

      I’d like to think you can support small business with your patronage without being made out to be a villain when you pay with a credit card.

      You bring up some excellent points, though. Thanks!

  2. Ed on June 17, 2013 at 6:13 am

    I have been doing this for YEARS. Welcome onboard.

  3. Michelle on June 17, 2013 at 6:40 am

    I use my credit card for almost all of my purchases. If it’s $10 or more, it goes on the card. It’s the best way to get free travel. I pay $29.95 a month for a bank plan that waives my VISA fee but the debit transactions are not unlimited. Already paying enough, why pay more?

    • Echo on June 17, 2013 at 2:41 pm

      @Michelle – Wow, $29.95 per month for your bank plan? Does it come with other benefits besides waiving the Visa fee? That’s $359 per year!

  4. Michael on June 17, 2013 at 7:32 am

    Smallenfreuden. I like that word. Fortunately for me I bank with Suntrust. A Bank with branches all over the South Eastern United States, they are one of few banks left with free checking.

    I agree with you Michelle, those flyer miles are a VERY nice perk. What I really like is that in addition to the rewards I get with my credit card transactions, Suntrust offers a reward program as well, but with my debit card. As long as I run my debit transaction as a credit, I get reward points. Creating a win-win for me (free gas, flyer miles, groceries etc.) and my banks/creditors (higher transaction fees). =)

    • Echo on June 17, 2013 at 2:46 pm

      @Michael – Rewards programs in the U.S. are much more lucrative than those offered in Canada.

      I’ve noticed the war is heating up over credit card surcharges in the U.S., with some States banning them and others accepting them. Something to watch for up here soon, I’d imagine.

      • Michael Smith on June 18, 2013 at 6:25 am

        I just looked into it and you are absolutely right! In fact, Florida, passed statute 501.0117 in 2012 which prevents pretty much anyone who accepts a credit card from charging a fee for using their card. Merchants, however, are allowed to offer discounts for using cash over credit and many do. I see it everyday, especially when I go to get gasoline. It’s not uncommon to see signs reading, “$0.05 off per gallon. Cash customers” or some variation. Also, Mom and Pops get to write off the fees incurred as a business expense on their taxes so it isn’t the end of the world.

  5. Robert on June 17, 2013 at 7:43 am

    I have done this for about a decade, and gained rewards dollars from it. Just in the last few weeks started opting out – so I am feeling very new to the non-smallenfreuden world. Like Michelle I am setting a limit – I am trying $30 because I rarely impulse buy over that. I decided I liked neither what smallenfreuden did to me on a value level (to actually worry about a few cents rewards on a small purchase – it was starting to feel like grovelling) not how it affected my habits.

    I had not seen the Smallenfreuden ads but found one on youtube just now that is encouraging it for impulse buys (the video claims it is something the actors would buy anyway but it is clearly impulse).

    I actually do care about Visa raising prices through its impact. True, one person cannot affect the overall prices but I don’t want to be the one overdoing it (one person cannot affect a national election and it can cost time and money to vote – but I do that also)

    I have never run into an Interac fee unless using a banking ATM from a competitor of my bank. So I am out of the loop on that discussion.

    • Echo on June 17, 2013 at 2:54 pm

      @Robert – that’s interesting because I feel like I make my impulse purchases when I’m carrying cash – it’s easy for me to lose track of it, or spend it frivolously on coffee, snacks or magazines.

      Ultimately, my budget drives my everyday spending choices and so I consider cash, debit and credit to be just a tool – a method of payment.

      I choose to use a credit card, not only for the rewards, but for the speed, ease of use, insurance and fraud protection.

  6. My Own Advisor on June 17, 2013 at 7:53 am

    Everything goes on the credit card.

    • Echo on June 17, 2013 at 2:55 pm

      Hear, hear!

  7. Chris Sibbald on June 17, 2013 at 8:19 am

    Makes one consider Bitcoin as an alternative, no?

  8. Bet Crooks on June 17, 2013 at 9:12 am

    I use my credit card about once a year. They just don’t appeal to me. So I guess I’m subsidizing you cash-backers.

    I do get a discount for paying cash at most of the restaurants we dine regularly at.

    I’ve never paid a fee to use debit or to have a bank account.

    • Echo on June 17, 2013 at 2:58 pm

      @Bet Crooks – If you get a discount for paying cash, that’s great. Ultimately that’s all we’re seeking – the method of payment that saves us the most money.

  9. Denis on June 17, 2013 at 10:08 am

    The problem with using credit cards OR debit cards, is that we have a tendency to spend more when we use plastic vs cash. McDonalds figured this out and has is quite happy that we spend about 30% more on plastic than when we use cash!

  10. Keith Charles Cowan on June 17, 2013 at 10:47 am

    The consumer will pay the price. The retailers have won a class action suit that enables them to charge more to process a rewards credit card. Since the banks don’t pay for them, we can assume that they retailers do. This allows the retailers to put the added cost where it belongs, on the backs of the consumer.

    So just be prepared to return to debit when they introduce the surcharge.

    • Echo on June 17, 2013 at 3:05 pm

      @Keith – I’ll believe it when I see it. We’ll be paying with our smart phones by then and have a new fee/reward system to deal with 🙂

    • Echo on June 17, 2013 at 3:28 pm

      Clarification from the CFIB – Recently the Code of Conduct clarified that merchants could offer lower prices for cash/Interac. Surcharging is still prohibited.

  11. The Passive Income Earner on June 17, 2013 at 11:25 am

    I use my credit card wherever possible. It’s a great accounting tool as well for simplicity. If I use cash, I don’t track it. If I use my Credit Card, I know.

    I am shameless and will use it for $2 when I can. However, I respect the small business and work within their rules. For example, buy a $2 coffee at Starbucks, it goes on VISA. Grocery store is the same.

    • Echo on June 17, 2013 at 3:09 pm

      I went to Waterton Lakes yesterday and stopped at the local convenience store to buy sunscreen. I must confess I wasn’t feeling very sympathetic to the plight of Mom & Pop shops when I saw the price tag – $13.52.

      “Do you take Visa?”

  12. Justin on June 17, 2013 at 2:42 pm

    I feel the same as The Passive Income Earner. In addition to the points noted, I feel that my Visa card is ‘safer’ than my debit card, given the respective card-holder agreements. If a thief takes my debit card and gets my PIN, I’m on the hook for money the crook spends. If the same happens with my Visa card, Visa likely stops the transaction first, but even if not, I’m not on the hook for the whole amount (and likely not for any of it).

    • Echo on June 17, 2013 at 3:11 pm

      @Justin – I do agree with you, although it should be noted that Interac has a Zero Liability policy that protects you in case of unauthorized charges on your card.

  13. Ramsey on June 17, 2013 at 2:53 pm

    The problem isnt with the fees, but with the conditions that Visa & Mastercard impose.

    The merchant’s price has to be the same regardless of the payment type (I know this is what is being disputed in the courts).

    IF the retailer charged an amount for the product, then passed on a processing fee for the payment type that was clearly displayed at the point of sale, the consumer could make the decision on weather the reward miles are worth it.

    Until that happens i’ll be using my rewards cards…..

    • Echo on June 17, 2013 at 3:14 pm

      @Ramsey – I agree, if retailers start imposing a surcharge for credit card transactions, I’ll change my habits.

      I remember some small businesses, Pita Pit comes to mind, who added 25 cents to your bill if you paid by debit. This was a while ago, when I was still using debit, and I thought it was ridiculous. Guess what, I don’t eat at Pita Pit anymore.

  14. Shafi on June 17, 2013 at 3:09 pm

    I buy everything with my credit card, even a gallon of milk ($2.99) at the corner store. However, I make sure that I pay the bill before the due date and in full.

  15. Judy on June 17, 2013 at 6:03 pm

    I don’t smallenfreuden. It’s too easy to charge more than you realize and then have trouble paying off the balance at the end of the month.

    I do put my groceries on my credit card at Wal Mart, but then I pay it off immediately right at the till.

  16. Michael on June 17, 2013 at 6:56 pm

    I once tried to negotiate a discount on some furniture by paying cash. They said no. So I used my credit card and got the rewards. That doesn’t make any sense for the merchant because they could have avoided the fee they pay, but oh well. I don’t pay cash unless I get a discount. Even if it’s $5, it goes on the credit card.

    • Gerard on June 19, 2013 at 12:33 pm

      Michael, I would guess that most furniture stores choose a credit card plan where they pay a lump sum per transaction, rather than a percentage, so saving $2 on a $1000 furniture transaction isn’t really going to appeal to them enough to offer you a discount.
      wrt smallenfreuden, I just came from a grocery in Toronto’s Chinatown that won’t accept a credit card for any purchase under $30. I guess that’s another way for retailers to deal with it!

  17. Bryan Jaskolka on June 20, 2013 at 6:46 pm

    There’s never anything wrong with healthy competition, whether it’s between the big banks or retailers and creditors. If the vendors really have a problem with it, they can put in a surcharge for amounts under $100 that are paid by VISA. Just like they put a $0.50 surcharge on debit purchases under a certain amount, $10 or so.

  18. Value Indexer on June 23, 2013 at 10:24 am

    If I can’t buy something with my Visa I’m probably not buying it. I would be fine with extra fees on small amounts because it would be another incentive to spend less.

    All those transactions go into Quicken through the automatic import so we are very aware of possible over-spending and always think before paying. If don’t want to be reminded of how much we spent on something we keep it off the Visa (which is hard for me since I don’t carry cash and I’m not sure which of my other cards still work or what most of their PINs are).

    This ad campaign looks completely ridiculous though. I came across a blog post about it yesterday (apparently from a small-time blogger paid to promote it) that was basically a guide to spending more. I think that will be its main effect.

    Visa may claim they aren’t promoting that, but when you see a tobacco company ad that doesn’t have cigarettes in it you still know what’s going on. Merchants should be happy that more customers will be spending freely. Interac’s slogan that “there’s no bill later” is clever but I think Visa has much more pull with consumers on this one.

    As a Visa (and bank) shareholder I guess I can enjoy a bit of schadenfreude 🙂

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