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Study: Credit cards may not really increase spending

By Kevin Hagen

A recent study found that customers who use credit cards don't actually spend more. It turns out that convenience of payment is just one part of a customer's overall shopping experience.

A recent study conducted by economists at Carnegie Mellon University shows that people who use credit cards do not spend more than people who pay with cash. The study consisted of a controlled experiment in the cafeteria of a large insurance company. These results contradict the widely held belief that credit cards encourage additional spending. While it may be debatable how this study relates to the overall credit card using public, the results do have some implications for merchants.

Getting rid of your credit card terminal and canceling your merchant account would probably not be the best course of action here. Accepting credit cards should be considered a basic requirement for doing business. You can save on fees and increase your margin by not accepting credit cards, but you would be turning away customers who will go to competitors that do accept credit cards.

It may be necessary to consider payment by credit card as just one component in the larger picture of what encourages your customers to spend. Accepting credit cards contributes to customer convenience; it makes it easier for them to pay you. That will help to keep you in business but won't make you stand out among the rest. There are other factors that will keep customers coming back to you and spending more.

If customers who use credit cards do not actually spend more than customers paying with cash or by check, you may be tempted to try to steer customers away from paying with a credit card. But there are limits on what you can do. As explained by Cynthia Diaz in "Some merchants don't play by the credit card rules," businesses are not allowed to pass on their merchant account fees to individual customers.

Also not allowed are minimum or maximum amounts on transactions paid with a credit card. Tacking on an additional charge for credit card purchases is not allowed. While you can't add on charges for credit card payments, you can offer discounts on cash purchases, as long as this information is clearly disclosed to customers, and the cash price is presented as a discount on the regular price for all other forms of payment.

Having a good quality product or service at a reasonable price, and making it convenient for your customers to pay, are a good start. But to get customers to spend more, you need to provide something extra. Ernest Nicastro in an article on explains why his wife likes to shop at a local Safeway. The prices are competitive, the location is convenient and the produce is good. But the main reason she keeps going there is the warm and friendly smile and sincere greeting she gets from a checkout person. She feels valued and appreciated.

Kare Anderson on "" also stresses the importance of service. She quotes a Gallup poll that found that customers' top three pet peeves are clerks who continue to chat instead of turning to smile at you, finding that the order you called in is not ready for pickup because the clerk was busy with other customers, and asking a question that the clerk doesn't have an answer to.

It may very well be that good service, more than credit cards, is what really makes customers spend more.

Article by Kevin Hagen

Published: June 25, 2009

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