How much do credit cards add to the cost of general merchandise?

Factual Questions
21

A store that sells a lot of big ticket items pays only about 1%. But you could always ask for that discount anyway. Having worked in a gun-store, I know the manager was always happy to come down a little on any gun that expensive.

In any case, even cash has costs (as **IAmNotSpartacus **noted):
hold-up insurance increases significantly when you have a lot of cash on hand.

banks will charge a small fee for depositing cash for some retail customers.
(depending on your account and how they charge you. Of course, certain retail customers don’t pay that fee, they just pay a larger monthly fee, but in the end, the bank does charge a bit for large cash deposits, maybe $5 per $10000)

there is a greater chance of being robbed, and you lose more.

if you have a lot of cash, you hire an armored car service- they ain’t cheap.

extra time after closing to count, recount and confirm cash totals= more wages.

and employee defalcation rises and gets more expensive when it does happen.

Thus, in the case where the average sale is pretty large, it can be more expensive to accept cash than CC.

CC fees are a *very *small part of overhead. The big items in overhead are rent and salaries. Asking “How much do credit cards add to the cost of general merchandise?” is like asking how much does free coffee and donuts add to the cost.

CC fees can be compared to advertising. Sure advertising adds to the cost, but usually it pulls in far more business than it costs.

Now, that being said, I do have sympathy for the dude who has a lot of sales under $10. He’s taking it in the shorts. While we know that “no CC on sales under $10” policies aren’t right, I would go along cheerfully with a sign that said "CC fees are very expensive on small sales. So, if possible, we’d prefer cash to CC on sales under $10- but if you only have your CC, we’ll gladly accept your business either way. Thanks!"

22

I own an online business and even though credit cards take out 2% - 4% off the top (depending on the type of card, etc.), business would be a big pain without them.

For me, the cost of doing business by cash or check would equate to more than what the credit card companies charge me.

I can send the product right away without waiting for the check to clear, I know the money is good, I don’t have to make any deposits, and bookkeeping is easier.

Just think how online companies like Amazon.com or Buy.com would operate if there were no credit cards (and assume not everyone has a Paypal account).

23

Merchants in the US are not allowed to impose minimum purchase requiements on credit card purchases. I don’t know about the UK.

24

It’s quite common in the UK for both credit and debit cards. Usually a £5 minimum spend. The big stores and supermarkets don’t have this rule, just small businesses who are trying to keep their running-costs down.

25

Nevertheless, many stores do have signs saying that that is there policy.

26

If you notify Master Card or Visa, they will refund the fee, and initiate a chargeback to the merchant.

27

Credit card fees don’t really hurt anymore. Small businesses usually don’t know how to use the set up. I used to work as an assistant controller, and at several hotels I’ve set up the credit cards for use.

I was surprised when I first started at a Best Western as at least half their sales were cash. This was a major thing. First of all it took clerk 15 - 30 minutes to close out and properly balance their drawer. Had they had credit cards it would’ve taken 1 minute. So that means you’re scheduling overlap of shifts.

My A/R clerk did the cash, she spent at least an hour or two hours per day counting, processing etc. We also had to pay Brinks to come over and pick up the cash and make change Mon - Friday.

Small business don’t understand how things work. They are especially ignorant of shrinkage. Shrinkage (stealing) is a cost of doing business, like anything else, including paying your light bill or other bills. When you figure out the price of an item you need to figure all those things in. But small business don’t.

They buy a $1.00 widget and sell it for $1.25 and then bitch when they don’t make a profit. They see one item stolen as a loss of a dollar without figuring in that many items will be stolen and should be added into the price of those sold.

It’s kind of like when I do budgets and the company insists, “We won’t budget for overtime.” Do you know how many HUGE corporations do that? A lot, now come on have you ever worked at ANY PLACE that has never had ONE bit of overtime for an entire year.

When you get a cc agreement there are levels of cost.

You can have very secure level that cost a LOT. Or you can have virtually no security which is bascially next to nothing. But most businesses will pay for the highest level.

The last hotel I was an assistant controller at I found that in the prior three years they had TWO chargebacks. That mean only two people disputed their credit card charges. This came to $125.00 loss for three years.

Now we had this supreme level of security and were paying through the nose for it. I told the controller and GM we’re paying through the nose for a level of security we have no use for.

But small business are so narrow mined they can’t see that it’s better to take a few losses and pay less in fees.

I’ve also worked with Ma & Pa types that refuse to get computerized submission. You get huge discounts by submitting your cards online. But they won’t do it. It’s like if Visa said, “If you mail us a $100.00 we’ll take a $100.00” off your bill. If you pay that $100.00 online we’ll credit your account for $125.00"

So in answer to the OP question (yes I know finally :)) there are a lot of costs associated with credit cards, but if you read your agreements and look around you can make it cheaper than cash. Really you can. I found by changing from Chase to Bank of America to process our credit cards at the hotel I worked at we saved 15% in fees.

28

Also in regards to the minimum amounts, you posters are correct when you say that is not allowed but in practice I found no one cares.

If you contact Visa or MC they simply say “We don’t handle it contact your bank that issued the card.” So if I contact Bank of America or Chase they will say “Not much we can do about it.”

I’ve tried it “just to see,” 'cause I have WAY too much time on my hands, and nothing gets done. Technically Visa or MC could pull the machine but they don’t.

29

I bought a defective microwave this morning and when I returned it for a refund, they charged me 2.5% for the credit card fee. Of course, this is in Colombia where the charges may be higher.

30

Let’s look at an example: you have a store with 1,000 sqft that leases for $18/sqft per-year. The store does $2,000 in sales per-day with an average sale of $25, and has two employees making $10 (with FICA included).

Your daily costs are $50 per-day in rent and $160 in salary. If each CC transaction costs $0.10 plus a 2.5% fee, then you are paying $58/day in CC fees. This is more than the rent. It’s not as big a cost as labor and cost of goods sold, but it is by no means negligible. Now you get some of that back by increased sales, but if everyone accepts CC cards then you have no advantage over other stores.

As to the cost of accepting cash, yes you have to count and deposit it, but in a brick and mortar store you will always have some cash sales. Having more in cash does not cost much more because most of the costs of handling cash are fixed. It just doesn’t take much longer to deal with $2,000 than it does $500.

IMHO CC fees are too high. I say this because CC companies have enough left over to offer cash rebates, mileage, and other incentives back to the consumer.

Two stores I have worked at decided to not accept at least one brand of cards because the fees were higher (Discover in one case, Amex in the other). It would be suicide, however, to not accept Visa or MC.

31

They don’t “have enough left over,” per se. Rewards cards are processed at a higher rate to the merchant, anywhere from .5% to 2% additional fee on top of the discount (base rate).

32

Several in this thread have argued that a cash only policy costs more than a hybrid model. So why have some Asian countries not learned this?

In both Bangkok and Saigon, merchants wanted me to use cash. Whenever I tried to use plastic, they wrinkled their nose and warned me that I’d be charged an extra 3%. These were not mom & pops, either. All three of the hotels where I stayed asked for cash (either local or USD). Only in one electronics store did I manage to get them to “waive” the 3% fee because I was buying a rather expensive item (over 3000 baht) and I just didn’t have that much cash on me. They sensed that I was about to walk away and they dropped the 3% fee and got the sale. But it did take a few minutes and I think the guy had to get the OK from his manager.

33

Sure, but your example is skewed. $1500/mo for rent? For 1000 sq ft? True, rents are all over the place (with a quick Google search showing #'s between 2.48/ft/mo and up to $46.22), but that bottom figure shows a rent of 2480 a month. Next your sales figures- anyplace you’re paying that low will not bring in $60000 a month in sales. The general figure is rent is 5% of gross sales (this is when you charge rent as a % of gross sales, which is not uncommon). That would make the rent $3000. Also- making $2000 in an eight hour day at $25 per sale? Whew. We were open at the bookstore for 11 hours a day, and rarely made $1000.

But wait- you are figuring 100% of sales to be CC, and in my experience it’s more like half. And you have picked a business with low average sales per transaction, and a high fee structure. With a more realistic model, it’d be more like $20 per day for fees. Compare that with $100/day for rent.

Sure, at figures of $2,000 vs $500 for daily cash, the difference is not there. But once you get over $10000/day in cash, the fees mount up. Just counting it, recounting it, and checking the figures will take two employees maybe half an hour extra on the clock (Markxxx’s figure is about right). That’s an extra $10 right there, even at min wage. Then there’s the Brinks truck to pick it up (I think it runs about $500-1000.mo), another $100/mo hold-up insurance, and so forth.

So sure, in your skewed little model, the CC fees are too high. In the real world, they aren’t so bad. (Again,like I said, the little guy with very low average sales does take it in the shorts)

Patty O’Furniture;; that has nothing to do with CC fees, and everything to do with taxes. When you pay by cash, they aren’t going to report it to the Taxman. The VAT and Income taxes are hwaaaay more than the 3% CC fee.

34

Here in Australia it’s illegal to charge a different price for cash vs. Credit Card.

You are allowed to charge an extra 2-3% for a Credit Card transaction, but you’re not allowed to say “This LCD TV is normally $1000 but if you pay cash instead of using your Amex, you can have it for $800 instead.”

My experience in retail is that bigger stores (Say, those owned by Woolworths or Coles/Wesfarmers) is that margins on a lot of consumer goods are pretty tight anyway, and that the companies just use sheer volume of sales to eat the (minor) cost of credit card fees.

35

Wow. That’s the complete opposite of the US. You cannot have a surcharge for using the card, but you can offer a discount for paying cash. Odd. :confused:

36

I should probably add that, in a “corporate” retail store, cash is viewed as a pain in the ass for expensive items. If someone buys a laptop and pays cash, there’s $1200 or so in folding money right there in the till (or, more realistically, the safe), on top of the rest of the “regular” day’s cash takings.

Someone has to count that, then double-count it, then take it to the bank, and so on.

Or, the customer can swipe their credit card, sign the docket, walk out the door with a laptop, and everyone is happy. The Company gets their $1200 (even if the card turns out to be dodgy, the company’s insurance covers the loss of the item), and the store doesn’t have large quantities of cash on-premises. It’s a win for everyone.

37

I’ll try to give my perspective from the shop owner’s POV.

  1. If accepting CCs costs me an extra 2-3% then I will have to jack up the prices by 2-3%. Simple as that. And I am not going to lose business due to my increased prices because every shop owner has already adjusted their prices to offset the CC fee. So yes, CC add a cost to the merchandise and it is paid by the customer.

  2. Accepting credit cards will not bring you new customers. The number of cutomers is the same but during the last years many have switched to credit card instead of cash. If you do not accept CCs then you are going to lose those existing customers.

  3. About cash discounts

I am silently increasing the sticker prices of my products by 3% and then I offer a 3% discount for cash. In effect I am imposing a 3% fee on the credit card purchase while I am keeping the old price for cash purchases. Same thing, differently worded.

  1. About the cost of handling cash.

Jeebus, where do you guys get this info from? I operate a gas station and thus get shitloads of cash, especially since gas here costs 1+euro per litre.
Paying an employee for the sole purpose of counting money? No, the gal that works at the front desk does that. Alternatively I do it myself. I also got a money counting machine for 300€ and I can count thousands of euros in seconds.
Also no need for armored car. I just put the money in my pockets and go to the bank. And it is the first time I hear about banks imposing fees for depositing cash.

38

A decade of experience working as both staff and management in retail stores.

Time is worth money. The time the cashier is spending counting that money could conceivably be spent doing something else (restocking the shelves, organising a promotional display, replacing those lights that have been out for two months now, etc). Similarly, as a business owner, I’m sure you have more pressing things to be doing with your time that driving to the bank.

And evidently, wherever you are in Europe, things work differently there than they do in the US and Australia.

I can’t say I’ve heard of the practice, but seeing all the other fees and charges banks impose it doesn’t surprise me either.

39

Those numbers are based on recent experience negotiating a lease in OR and on real life sales of two small retail businesses. Neither of those busoness pay rent based on percent of gross sales. I think that is more common in a mall, no?

40

In what world does charging merchants higher fees not result in having enough “left over” to offer rewards to a customer?