January 28, 2010
-
News: Finding Creative Ways to Process Cards
Nearly every consumer now uses a debit or credit card for most or all of their purchases. Cash purchases are a thing of the past. However, what most consumers don't take into consideration is the cost to merchants each time they swipe a card. Merchants must pay a fee known as the interchange fee for each transaction they process. In some cases, when the purchase amount is under ten dollars, merchants can lose a majority of their profit to the credit card companies. Convenience stores and gas station have become particularly concerned. These types of businesses process a large number of cash back transactions as well. Not only does the merchant pay a percentage of the merchandise price, but also must pay a percentage of the cash back amount. It's no secret that merchants have begun to look for more creative ways to process credit card payments but have many stumbling blocks.
Contracts with credit card companies prohibit merchants from setting a minimum price. They also prohibit retailers from offering discounts if the consumer chooses to use a different payment option. So what's the alternative? Pass the cost of card processing on to the consumer. That means higher prices; like chips. When was the last time you were able to buy a bag of chips for 50 or even 75 cents? Today most convenience stores charge a $1.00 or more for a small single serving bag of chips. Then you have companies like iTones. At .99 cents a pop, it hardly seems worth the expense to be in business. Greeting Card retailers have also had to readjust pricing. When a consumer buys a card at $2.50 and 25 to 50 cents goes to the credit card company, half of their $1 profit is gone. You would have to sell a lot of cards to earn just $1 to stay in business
So what's the answer? Some banks no longer require customers' signature on credit card purchases under a certain dollar amount. This saves some time and money. American Express allows retailers to set minimum purchases if the same rules apply to other cards. Since Visa and MasterCard don't allow minimums, it pretty much eliminates this alternative. Although card companies have released new technology that makes electronic processing faster and less expensive, merchants say restructuring interchange fees is the only viable solution.