You’ve all seen the $10 minimum signs at Mom & Pop stores, and while these stores aren’t supposed to be placing this type of restriction on their customers (it’s a violation of their agreement with the credit card companies) it’s important to understand why the signs are there in the first place. Fees.
The NYT has an interesting article about the effect the growing number of credit card customers is having on retailers that sell things like coffee.
Of $100 charged to a Visa card, the merchant’s bank receives about $2.25, according to a hypothetical example used by J.P. Morgan in a June report. The bank forwards about $1.80 – the interchange fee – to the cardholder’s bank. Both banks pay a fee to Visa, 10 cents apiece. The merchant’s bank then pays another nickel to a third-party processor and keeps the remaining 30 cents.
While the fee for each purchase is small, combined credit and debit card payments at merchants have almost tripled over the last decade, to more than 58 billion swipes last year from about 20.7 billion in 1999, according to data compiled by the Nilson Report, a journal on the payment industry.
The article goes on to say that while it seems like a small amount of money — the sheer volume of credit card transactions make it enormously expensive for the retailers. Home Depot apparently pays more in credit card fees than it does for employee health insurance. Target’s second largest store expense is credit card fees — after payroll.
Retailers are pushing for Congress to limit the fees, but that might pass the costs along to their customers. The Times says that a Government Accountability Office report found that when the fees were limited in Australia, credit card companies raised annual fees and reduced rewards programs.