The Inconvenient Truth

The Economy of Self-Service and the Price We Never Notice

The Inconvenient Truth

Technology companies have, for years, taught us that technology and competition tend to drive down prices over time. The more we allow technology to make things more efficient, the easier things will become, and prices will come down due to the cost savings companies inevitably push back toward consumers. But one thing has occurred: not only have prices risen, they are now adding premiums for the price of convenience.

So what do I mean by that?

Think about the last time you went to a grocery store. There were nothing but empty lines where the cashiers used to be, and a section now known as self-checkout. Back in the day, you would go through a line where the cashier would scan your items, bag them for you, and take payment. You would even have a friendly conversation with them, talk about how hot it was in the middle of August in Texas, or even talk about their families. Now, that is nothing but a distant memory.

They have now been replaced by self-checkouts and doing it yourself. You scan your own groceries, bag your own items, and pay for them yourself. Not that this is a bad thing, far from it. I am an avid self-checkout person myself. But the real question becomes, why haven’t prices come down? I would argue prices remain high and continue to rise.

Now we have an invisible cost associated with the price of convenience. We are now doing the labor—for free, I might add—and paying a premium for that level of convenience. What is even more perplexing is that even if you go through a line with a cashier, the prices are still the same. So we have to ask ourselves, what gives?

The same thing goes for paying with apps or credit cards. Banks now charge transaction fees for using credit card payment systems that add to the overall cost, not including the sales taxes we pay to the states. It seems all of the middlemen are just finding new ways to add ancillary costs into the process while leaving the consumer holding a heavier bag in the end. That heavier bag is not in the grocery cart, by the way, but in the cost of those groceries, as the amount you can actually buy continues to shrink.

What is even more interesting is that many establishments no longer offer cash payments. For those who do pay in cash, they are often subsidizing those who are paying with their cards. Yes, if you’re using your debit card, you are subsidizing credit card users with their points programs and cash-back offerings. I told my wife this a while ago: stop using the debit card and use the credit card instead, because they are going to charge processing fees anyway. You might as well get some cash back in the process.

So why hasn’t technology made things cheaper, as they have promised since its inception?

The reality is that it was never designed to do so.

People will say, “Look at TVs. They have come down in price over time.” But that is not what I am talking about. TVs are a commodity fueled by competition, and as long as competition exists, prices should fall. But what we are talking about is an industry with very few players: Discover, Mastercard, and Visa payment systems being offered through banks like Wells Fargo, Bank of America, and JPMorgan Chase.

These carriers control much of the overall market for pricing and payment systems. They can charge 2–3% per transaction, which is ultimately either absorbed by the business owner or passed on to consumers in the form of higher prices. Yes, this additional cost simply gets passed on to the consumer in most cases through a small increase in the price of what you are purchasing.

So why am I bringing any of this up?

I say these things because Silicon Valley has lied to us about innovation and the brilliance of what they can bring to the table. We have been conditioned to believe that technology brings down the cost of goods and services over time by reducing the number one cost for many businesses—people. However, if you have not noticed, even when people lose jobs and those labor costs are no longer there, prices are still creeping higher, ever so slightly. Corporate profits continue to rise, and very little of those cost savings make their way back to people like us.

So the next time a technology company says they have the next best thing that can change an industry, understand what they are truly saying. This great invention we are bringing to the table is another way for us to extract more value from the consumer while being fractionally better than the older system we are trying to replace.

This is what it is.

But the most important thing is that we understand the language they are using so we are not blindsided by it.

9innings Podcast: The Economics of Convenience