Cash or Credit

People are starting to pay closer attention to their credit card bills, especially now that banks are tightening up their standards and closing or modifying accounts. Most have no inkling about what merchants pay for processing these credit cards. Unless they read the business section closely, they also don't hear the merchants of America pushing Congress to limit the banks ability to pressure them into higher rates and fees. Timing is perfect for such a revolt, with hate for the banks and consumer friendly Democrats about to take over. It's being lead by the biggest retailers, so something may happen.

American businesses pay some of the highest merchant processing fees in the world, and there's really no reason for it. Merchant processing is mostly automated, meaning they do virtually nothing for a business. They feel otherwise. Visa and MasterCard will actually tell us they're raising our fees as a value add. Look, they'll say, we've just added special consumer incentives to use their cards more, therefore your fees will be higher. In other words, we're passing our marketing budget onto you, so you should be pleased. It's a perverse logic, but it's not like any merchant, no matter the size, can call them on it. Who would be willing to drop Visa or MasterCard? About 75% of our transactions are on credit cards, and as a merchant, we want to make it easy for customers to buy things, not harder. Therefore, we take every credit card. I just wish customers knew what that was costing us, and how it will effect our business and how it will come back to them.

For a $100 transaction, seeing cash is a lovely thing. Hand me a Visa card and I'll be paying a percentage of that $100 in fees, about $2 (2%), plus a transaction charge of around 30 cents. So when I see cash on that $100 purchase, it's like you've just handed me a free cup of coffee. If that Visa is a business card or a miles card, the fees are higher, probably in Latte territory. Hand me a Discover or Amex card and the fees are just about doubled; coffee begins to approach lunch.

Yes, you say, but you're a piddly small business, what about the big guys? I've got a friend who does processing that I'm about to switch to who deals with the big guys. The big retailers pay less, for sure, but not a lot less. That $2.30 cup of coffee is only $1.85; a regular cup of Joe instead of something slightly fancier. Doing some bistro math, the average game store does around $250,000 in sales each year, 75% of purchases with credit cards, so pays about $4,875 in credit card processing fees. That's a huge hit.

So what do I do when I buy things? As much as possible I reach for my Amex card, because of the cash back. Second choice is a miles reward card. On vacation this month I'll be staying for free at the Disneyland Hotel. My room at the GAMA Trade Show and Conquest Sac are paid for with miles. I'm not reluctant to use those cards, so I understand that my customers probably aren't either. However, I also understand that this hurts businesses.

My distributors are starting to cut back on this. One stopped accepting cards last year and I don't do business with them much anymore due to the terms. The biggest gives a smaller product discount if you use a card. My primary distributor started adding a surcharge. All of these practices, along with having a minimum charge, like we have, are against the cardholder agreement, but what choice do we have? All businesses are forced to find a way to cope with the costs and pass on these fees, which are always on the rise. Raising prices is not much of an option, but the money has to come from someplace, perhaps reduced labor expenses (fewer employees or employee hours) or fewer phone lines for customer service. The end result is that the business will find a way for the customer to pay more.