Retailers Ready To Rebel Against Credit Card Fees
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.
Card Fees Pit Retailers Against Banks [NYT]
(Photo:dooleymtv)
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Comments:
I have NEVER understood why the CC companies would charge the merchants who agree to take their cards and make them money a FEE.
If anything they should be paying the merchants a kick back.
Its just stupid IMO
I don't know how I feel about this. I admit I'm one of the people that will go to the mat and either force them to take the card despite not "meeting the minimum", or take my business elsewhere.
I hate doing that, but on the other hand, if you're going to accept the card, then you need to accept it. If you want to be cash-only, then by all means, be cash-only.
They absolutely should be regulated.
There are two problems:
1) You should be able to pay cash by using your debit card without a fee for the merchant
2) You should be able to USE your debit card without fear of your account being hacked
Both problems could be solved if banks stepped up to their end of responsibility.
Let them raise annual fees. I would rather these fees be less transparent, instead of hidden within the cost of retail goods. Most consumers don't even know about these fees. Pretending the fees don't exist doesn't make them go away!
I have no sympathy for them. It's a cost of doing business. If they don't agree with the fees, they aren't forced to accept credit cards. (I don't accept credit cards any more because of the fees). Same as customers aren't forced to use them. (if in fact the fees get shifted to the consumer later on).
This is why I don't get why people like to provide free enforcement services for the credit lenders. It's not exactly "the good fight."
Agreed. If you don't like the fees, don't take the cards. It's no different than any other consumer not agreeing with the way a business does something and deciding not to do business with them.
Well, I for one don't see anything wrong with a minimum on credit cards. The CC companies have gotten us used to the idea of using cards for everything. (Who hasn't seen those commercials where somebody pays cash for coffee and the world practically comes to an end.) As long as there are fees that are per transaction, instead of just a percentage, I feel a retailer should have the right to refuse CC for small purchases.
What I don't understand is why more merchants don't offer cash discounts. I get 1% back for paying with my credit card. If I could get 1.5% off by paying with cash, I'd start using cash a lot more. And cash discounts are allowed by the credit card companies.
Aren't there multiple merchant banks? What's preventing competition from driving the fees down?
If there isn't actually competition, then by all means, regulate. Heck, the US Treasury could even issue its own cash card.
let's stop using credit cards when at all possible, this will keep more money in the hands of both consumers and businesses, this can only be a good thing for the overall economy, if you use credit cards for their reward programs think about the overall picture and cost of what you are doing, yes credit cards are needed and can be used for good occasionally but let's all try to use them 99% less
I think that credit card transaction fees should be a separate line item on the receipt. Cash customers wouldn't have to pay them at all.
@BZMedia: That's true if you have a B&M shop. However if you're selling online you can't just have someone shove a 10.00 bill into their dvd drive and have it show up in your lap.
Can you guys repost the place where we can submit businesses that are enforcing minimum purchases? There's a couple of places here in town that do it.
When I worked for the former largest independent credit card issuer, specializing in affinity cards, we had to take classes, and it was explained to us exactly how much money we got from interchange fees vs. all other sources. Most people in the class had their jaws drop, but I was savvy to interchange fees at the time.
@menty666: "However if you're selling online you can't just have someone shove a 10.00 bill into their dvd drive and have it show up in your lap."
No, but there are alternatives such as Paypal and ePassporte, or simply invoicing them which is what I do.
@Bruce Blank: It cuts both ways though. I rarely carry cash on me these days and I've skipped over businesses that are cash only because of it. I still go back to those businesses when I have time and can hit the atm before hand, but if I'm in a hurry they aren't going to get my money.
However, I think the old model of 3.5% or so on a purchase only made sense in the days of the 100.00 purchase. 3.5% in a micropayment environment, or even with less labor going into the transaction thanks to computers, no longer makes sense.
@lemortede: How would the CC company make money? For every account holder who carries a balance and pays finance charges their is an account holder who never pays up or one who never carries a balance.
You know in the end that limiting or removing fees would just cost the consumer. Since I have my budget in line, I'd prefer to sock it to the retailer...
There's another fee for those who use cards that accrue frequent flier miles and such.
I learned this because I have a vendor who is actually more of a partner in my business. I pay him over $200k annually to handle my manufacturing and I had the bright idea to pay via credit card to get lots of miles. He asked me to stop because it turns out HE is the guy paying for the miles! I assumed it was the CC company or the bank.
Now I don't pay with these cards when dealing with small businesses; I know how tough it is to eke out a living and I don't want to make it harder for them.
@henrygates: I don't want an annual fee and I don't want to give up my rewards. I make money by using my credit card opposed to cash. Eliminating the CC fees isn't going to encourage Home Depot to lower the price of a new grill by $4...
@spankyshay: Then the retailer kicks it back to you. It's the circle of credit. Or life. I don't know which.
Why is there the assumption the poor retailer is getting hit by these? A business has costs (this being one) which are figured into a price that will net an acceptable profit. The consumer pays these fees ultimately. I am fine with that, since I prefer the convenience of a credit card. It is also advantageous for the business to offer credit card service (for example I will not use a gas station without a pay at pump option)
@jaya9581:
I agree 100%. I got into a small argument with a local grocery and did not feel bad about it. They lost my $4 purchase because they wanted $5 minimum. Don't take the cards if you cannot afford the fees.
@menty666: it's just as much work for the credit card company to process a $5 transaction as a $500 transaction. i used to work at a place that charged a flat extra .50 for credit card orders (most orders were from $5 to $30). i'm pretty sure that's against their CC agreement, but I think it makes sense.
Use cash! The place I get coffee on the weekends always says, "thanks for paying with cash." if you do as a subtle way to discourage irresponsible charging.
I was at my local convenience store this morning, and they had a sign embedded in the counter asking consumers to sign their petition against credit card fees - very weird.
As for the "minimum charge" - well, if you can't scrape up six bucks in cash, maybe you shouldn't be buying whatever it is they're selling.
@BZMedia: How much business have you lost since you stopped taking plastic? If you're a retailer that sells things that cost more than pocket change, my guess is a lot.
When the laws fail to provide justice, people will find it on their own.
It's a reasonable and just reaction. People should pay extra for choosing to leave home without a $20 in their wallet rather than expecting a Mom & Pop to subsidize this selfish foolishness.
@xerotope: I think it's more the CC processors, not the banks, that are charging the fees to the merchants, and there aren't very many of those.
Retailers, credit card companies, and consumers all know that cardholders are more likely to spend money if it's on plastic rather than in cash. The money you spend with credit is less tangible than a twenty dollar bill going through your hands.
The retailer pays a fee for the privilege of accepting the credit card. The retailer gets more customers who are willing to spend more dollars per transaction than the typical cash customers. If the retailer feels the fees are too onerous, they need to refuse to accept credit cards.
Of course, this won't happen. They'd rather break the merchant agreement that they entered into knowing that accepting credit cards would earn them more money. What the minimum charge signs basically tell the cardholder is that the retailer is dishonest and only cares about screwing over other people so he can get ahead.
If any other contractual obligation were so flagrantly violated, for example, repeated and systematic EEOC violations by an apartment complex (the contract being between the apartments and the state), would it be as swept under the rug?
We are. Prices are adjusted expecting that you're going to pay with credit already. When you go into a store that offers a discount for paying with cash, what they're doing is taking that adjustement off for you.
@JohnQPublic: "How much business have you lost since you stopped taking plastic? If you're a retailer that sells things that cost more than pocket change, my guess is a lot."
None. I accepted credit cards for customer's convenience. When I dropped the plastic, I simply explained that I no longer accept them, and will be invoicing instead. Not a one had a problem with it. But I'm not a retailer either.
@BZMedia:
...and PayPal charges you the same usage fee that the credit card companies do.
This is one of the primary reasons why I stopped selling on eBay, after have built up a 500-count reputation. eBay, after buying PayPal (and now requiring that you use PayPal - you can't accept other forms of payment like checks or MOs), made it against the rules to pass on the PayPal fees to the buyer. Which I always did, exposing that policy clearly in my auctions, and people understood why I did that and they chose to either cover the PayPal fees or send me a check or MO instead.
Now, if you list an auction with such a policy on it, they will cancel your auction and possibly cancel your account - because they can. So I don't sell on eBay anymore.
The thing is, virtually everything that sells on eBay sells at a loss to start with. Then you have to pay a final selling fee to eBay for the privelege of having sold something at a loss, making the loss larger...and then to add another ~3% on top of that to pay a PayPal fee, making the loss even larger, just makes no sense.
This, and other reasons, are why eBay/PayPal will always get my vote as the most evil corporation in the universe.
@Trai_Dep: Meh. Nobody is forcing anyone to accept credit cards. If they want to reap the benefits of having them, there are downsides too.
I assume this not only applies to actual credit cards, but also debit and check cards that carry a Visa or comparable logo, right?
Part of me thinks that it's a good thing for businesses to refuse CC for minimum purchases. If you cannot pay in cash for something that small then maybe you should think twice about it. Yes, i know some people don't carry cash but really, is it that hard to carry $20 on you? Just hit up an ATM nearby if you need to. Maybe this would help curb irresponsible spending. I know I can use the CC at mcdonalds but if I cannot make such a small purchase in cash then I skip it.
i guess the consequence would be that people will just buy more to get over the $10 limit but I guess if you are that stupid then you deserve to be in debt.
All the smaller computer component shops I go to in Toronto have a 3% cash discount, exactly for this reason. Seems like a perfect solution: store doesn't lose money, and you have to be more responsible with money.
The only issue is the extended warranty offered by CC companies that don't exist on debit transactions.
@MikeWas: If the retailer can't be bothered to follow the merchant agreement he willingly entered into, maybe he shouldn't be allowed to accept any more credit cards.
@prag: Irresponsible charging? I use either a credit or Visa check card to pay for everything. I rarely carry cash. What's so irresponsible about that?
If these fees are so onerous for businesses, why don't any retailers offer a cash discount?
If I am going to the inconvenience of carrying around a roll of bills instead of a nice, safe thin credit card, I expect a little something for my effort.
Retailers: Put up (a cash discount) or shut up (about the fees).
@lemortede: Easy: if you don't have cash but have a credit card, you'll look for those logos on the door so you can still buy something. If you don't take cards there's the potential that someone will walk by with a need to buy but not have any way to close the deal.
I'd say it depends on the store whether the potential loss of business is big enough.
@menty666: It has nothing to do with the percent VISA, M/C, etc. take, it has to do with the flat rate they take per transaction.
Each time your card is swiped, these places get $0.10-$0.30 + 2%-5% of the total transaction. So that $1 coffee better cost less then $0.50 to make (including utilities, payroll, raw materials, etc) or the place won't make anything if they don't do enough volume and get charged with the higher fees.
If they just charged a fixed percentage, doing 100 $1 transactions would cost the same as doing a single $100 transaction and you wouldn't get the massive inflation on items that cost a couple dollars at the most.
Also, any fee less then 5% is reasonable considering the costs associated with using cash only and the extra security of not having an asset that can't easily be traced.
@lemortede: Do you think the fact that they make money hand-over-fist by doing so might be their motivation?
'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.'
Pay merchant = negative cash-flow for CC company
Merchant pays CC company = positive cash-flow
It seems rather simple...
@MikeWas: Sometimes scraping the cash together means paying a $3 atm fee or going out of the way to find your bank's atm.
Doesn't seem worth it for a six dollar item.
Rock, meet Hard Place.