How monetary systems cope with a multitude of dollars

How monetary systems cope with a multitude of dollars
In the past few decades, the count has become incredibly heterogeneous. People can stuff with traditional paper bills, debit card, or a plethora of different credit card payment. All those dollars brand has its own set of services and related fees. In the no frills side is cash. The paper will still bring the lowest pay transaction costs, but also provides its owner no relevant allowance. In the fancy side is the American Express card, which costs about 3.5% per transaction, but twins and benefits, including reward points, controversial affairs, safety raft. MasterCard and Visa are interposed. As you can see, spending a classification dollar there is a very different consumption.

Free banking era and the "masses dollar" question

There is a precedent for this dollar heterogeneity. In the United States, the so-called "free banking era", from the 1830s until 1863, hundreds of different types of paper money in circulation, each with a unique issued by banks. Notes that a certain amount of gold universal redemption. The physical distance change a note last break point and its birth between the issuing bank (usually in another state), resulting in a wide range of different brands of national notes redemption fee. A businessman in Philadelphia who paid bills at local banks need only a few steps needed to redeem the notes. If the same paid by the merchant bank in Chicago issued a statement, however, redemption is more onerous, since travel time and distance from Philadelphia to Chicago needed.

Therefore, in the same way that American Express is the most expensive modern dollar dollars, a distant bank notes it is the most expensive free banking era dollars.

There are two interesting questions. How can businesses have set up a sticker price, but also accommodate a variety of different media dollars to pay? Second, consider that shoppers premium card American Express (or distant notes) to pay to enjoy the widest interests, but also should face the highest cost. How does the system ensure that the marginal benefits and who enjoys the given media-related pay also bears its marginal cost? In other words, how to guarantee compensation?

Workaround: surcharging

In the era of free banking, "a lot of dollars" problem, to be resolved in the form of discriminatory surcharging. First, traders displayed their sticker price in terms of a unit; standard dollars (as defined in 1.5 grams of gold). When a customer arrives, businesses determine what is suitable for each kind of surcharge according to its distance from the redemption of notes handed. With the presence of hundreds of note-issuing banks, which is an onerous task. To speed up the process, businesses will consult what are called "notes reporter." This handy publication, which was compiled by the professional banknote analysts, providing merchants a certain position, saying Philadelphia, and the rate for all notes, in Philadelphia circulation adjust their transportation costs.

The following picture is a section from the bank notes and the Detector Van Court, I have cut from the topic Gary Gorton of presentation. It shows the recommended price of this Notice from Vermont, Maine, Pennsylvania and elsewhere in Philadelphia businessman should accept.

How monetary systems cope with a multitude of dollars
A page from  Van Court's Bank Note Reporter and Counterfeit Detector (1843), showing multiple prices for various dollars. Notation: do=ditto, same as above | par=no discount | 20 = 20% discount | 1 = 1% discount | no sale = 100% discount | fail'd=failed bank, 100% discount | clos'd=bank closed, 100% discount

After a businessman had consulted his notes Reporters up the corresponding additional fee, this is a redemptive note. Merchants did not actually shipped notes themselves, but they are at a discount to face value of the notes sold to local brokers. In fact, where the figures released by the court will be derived from this agency market. Ship broker in turn notes back to the issuer at par value to obtain full redemption. Par value gap between the initial purchase price to cover the cost of transportation broker.

Therefore, the "dollar a lot," the problem is resolved. By surcharging dollar relative to the reference, businessman successfully develop a single array prices, while adapting to a wider range of heterogeneous paid media. It also enables them to effectively through the use of distant notes to those customers who chose to pay with their marginal costs, while rewarding customers who use low-cost local bills made no use of such surcharges.

So why not implement the same technology today surcharging?

Think about it, in our modern society, the credit card networks to recover more of their services (which is a lot, but include incentives and dispute matters like welfare rights), requires retailers to accept the card costs charged from the customer's network representatives. Free banking era of this parallel, which banks require a third party to bear the costs of redeeming transport ticket.

A modern retailers to establish the price of the best way the world is heterogeneous dollars by banks after their free copy ancestors settled in the solution: the sticker price of a basic unit, the paper dollar, and detailed the appropriate size The additional fee for each card transaction at the till.

The court records are not old-fashioned range, businesses can install the card reader software, will soon determine whether the two cards and the corresponding surcharges are being used to this problem. Therefore, consumers who pay the charge card, that each transaction to provide the best bundled services (and thus incurred the highest costs) card, it must bear the greatest additional fee, while those bare bones card will pay a minimum of an additional fee. Anyone with cash, much like those who promised era of free banking with local money, it will not incur any any additional charges. This system will ensure that every customer to bear the marginal costs of their choice means of payment. Retailers, who will all surcharges they collect back card network, did not eat any cost, thus successfully maintain their profits.

If only things that simple. Although surcharging would be a great way to deal with "a lot of dollars," the problem, the card networks such as Visa and MasterCard are the typical "legislation" on surcharges. * The network can successfully undertake this obligation without surcharges retailers, because as an oligopoly, Visa and MasterCard can banish the offender from the network, the sale of a huge dent criminals. Why should I stop surcharge? Card Network One reason this is possible is because they do not want the public to feel that they paid card to be punished in any way. If you feel put off, consumers may choose to cash and debit cards as alternatives, without additional charges.

Another solution: Discount

In no surcharge rule allows retailers trouble. They have an obligation on behalf of the charge card network, but they leave no surcharges imposed absorbed by the network, while customers enjoy all the benefits of the cost of the ability.

There is a neat way, retailers can get around this obstacle. They need to do is to mark all the sticker price, the highest level of cost of credit and provide discounts to people who use lower-cost credit card, debit card, or cash. Discount enable businesses to charge appropriate fees from each customer, funnel these costs back to the network. As before, a given dollar price can accommodate multiple payment media. Each party who enjoys a given marginal benefit also bear the corresponding marginal cost.

In order not to leave us hanging analogy, if the solution has been selected as the era of free banking and retail (probably because of the free bank insisted that businesses avoid bill surcharge), then the price level in Philadelphia will have the best price to value distant banknotes in circulation, say those from Chicago. Those in the not too distant bill pay, say, New Jersey notes, will get a discount of appropriate size.

Exception: We do not see the discount

In an overview of how to resolve, without surcharging modern "the plan of the masses," the problems in the real world, what happened? A strange phenomenon, often played out. Although retailers undoubtedly marked prices to cover the cost of premium card standards (or so), for some reason, they rarely offer cheaper payment method to their customers discounts. Try asking at Walmart cash discount on your next visit. That means that anyone who bought stuff cash, debit card, credit card or bare bones juicy group was forced to pay with American Express cards, the right incentives and fancy disputes, using the associated benefits, without actually get to enjoy these benefits. In other words, businesses effectively overcharging their customers by collecting the actual net cost more than the network needs to maintain this excessive padding their bottom line.

Why is this predatory behavior? Briglevics and shy NOTE: If it creates customer confusion and mistrust of businesses may be wary of discount. Extra set of costs for all parties in the checkout counter potential delays might give enterprises. They also noted that businesses may not find it profitable to offer cash discounts to consumers who pay the cost to use anyway. Shu, shy, Stavins and Trieste reported that businesses may lack complete information on Shipping charges businesses a comprehensive and accurate on the consumer's credit card, and therefore can not achieve an accurate discount policy.

Is that right set of tools to provide discounts not yet produced? Maybe we need a modern version of Van Court notes reporters. This technology will allow businesses to quickly determine the appropriate discount for each different type of dollars, and clearly inform customers about the energy-saving, they are entitled to.

Lack of technology may explain why the cheapest credit card did not receive a discount relative to expensive, but it does not explain why a cash discount never through retailers. There is a saying that, even though some retailers offer discounts, the public can get information overload switch, so that the predatory pricing practices to maintain the status quo. The following observations support this view: The discounted cash and debit card payments are rare, most sectors of the economy, which is very common gas station, as shown in the following image.

How monetary systems cope with a multitude of dollars
Why so? Gas stations sell one homogeneous, universally available, repetitively-purchased good. Gas consumers are by-and-large brand insensitive, gas from one station being just as good as gas from another. Repetitive trips to buy one simple commodity probably makes it easier for lethargic consumers to make dispassionate price comparisons across competing gas stations. From the gas station owner's viewpoint, the consumers' price sensitivity only increases the efficacy of a policy of price discounts on cash and debit. After all, a gas station that offers users of low-cost credit cards a 0.5% discount or a cash discount of 1% should be able to win business away from station across the street that doesn't offer any discount whatsoever.

Other retailers, such as department stores, sell a wider variety of things than gas stations, many of the projects to be purchased only from time to time. This makes comparison shopping more expensive. Brand loyalty increased by only trouble switching. Department store might find that the cash discount policy is simply not worth the effort of discount consumer data is lost in the bombing of the morass by the hour.

That being said, the ability to network the world are more likely to provide faster comparison across retailers in the brick and mortar world can shake things up. Of course, some smart entrepreneur can create a fintech allow businesses to quickly measure the corresponding discount (or surcharge in those jurisdictions that allow it) to each card before perfect. The same tool will provide online shoppers to "see" in a number before hitting the buy now button and abroad competing card discount a user-friendly format. Just as they would cross the street to fight the cheapest gas, they may shift their purchases, at the lowest cost sites. If such a thing the people, we will see long forgotten free banking practices of our time replication.

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*This is currently the case in Canada. In Australia, merchants have been allowed to surcharge since the early 2000s. US merchants recently won the right to surcharge, although it is probably too early to know what effect these rule changes will have.

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