Gfactor, thanks for the link. If I am reading this right, although it bans the setting of different prices for credit card and other transaction it does not outlaw the merchant passing on the cost of the credit card transaction. This corresponds with my experience that some businesses do make a surcharge for credit card purchases (2-3%). This seems to be common with holiday companies and airlines (particularly low cost airlines).
Surcharges for online/telephone transactions, which necessarily require credit cards, are different than surcharges for in person transactions.
Although it has been somewhat addressed, keep in mind that when you are a franchisee with a major fast food chain the franchise fee often runs around 12.5% or so, the owner of the McDonald’s is getting the screws just as hard over very small credit card purchases.
I’m not saying you won’t make money if you own a McDonald’s, but small credit card transactions can reduce your profit to virtually zero when you realize that McDonald’s corporation always gets its 12.5% (franchise fees aren’t assessed on your take-home profit, they’re generally assessed on your total sales.)
The reason that the small business owners who have decided to go the fast food franchise route don’t set minimum purchase amounts on credit card transactions is that generally this is forbidden by their franchise agreement. Generally a franchise agreement is a more serious and more enforced contract than the Visa/Mastercard merchant agreements. The parent company doesn’t ever want to lose business of even the smallest amount (and they aren’t paying the credit card fee, the franchisee is), they are the ones who are looking at the national picture and they want customers to come in for a purchase no matter how much they order or what form of payment they use. For this reason the compliance enforcers of the parent company will take it seriously if they find out one of their franchisees is setting a minimum payment.
What a lot of people don’t realize is that when you’re a franchisee it’s pretty much standard that if you remain out of compliance with the agreement for long enough you eventually can lose your business–the franchise agreements actually allow the parent company to seize your business and continue operating it, if it gets to this point you generally have to go to arbitration with the parent company if you really want to stick to your guns and think you should be able to remain out of compliance with the franchise agreement. Long before that point the franchise agreement typically allows the parent company to assess fines against the franchisee–so for this reason it’d be rare to see a franchisee of a major fast food chain setting a minimum price on credit card orders.
FWIW, Motel 6 allows its franchisees to set minimum CC purchase limits.
Let us say the customer buys a large soda and charges it. Do you know what the Profit margin is on that soda? Now, why do you think that a **1% **difference will somehow reduce the profit to “virtually zero”?
What some people aren’t getting is that CC companies offer rewards to the users of the CC. So I’m incentivized to use my CC when I make purchases, no matter the price.
People seem to think we need to zoom out and look at the “big picture,” that if we use a CC, we force the merchant make business decisions which may lead to an increased price in the product (or them taking other steps to reduce their costs instead).
So, if I choose to pay with cash instead, I am being nicer to the merchant. Which may or may not pay off for me in the future.
But if I choose to pay with a credit card, I receive a nearly immediate benefit - I get cash back (on whatever my next cycle of receiving a payout is). So you want me to give up this benefit (which is very tangible for me, my last Amex payout was $250 which I can redeem for cash at Costco), in return for a semi-tangible, maybe the merchant will help the customers in the future, kind of concept?
You should do what is in your self-interest. If that means you don’t shop at merchants that set minimum charges for credit card purchases then you shouldn’t shop at those merchants. It really is that simple.
As far as reporting the merchant, as others have said it has limited effect as Visa/Mastercard don’t really seem to follow up on it. All told they probably make way more in a year from that merchant than they do from you, and you’re probably going to keep using your card elsewhere even if you don’t shop at the merchants in question. So they don’t have a huge financial incentive to follow up on it.
Also, I would wager that the proportion of the UK population likely to complain to the card issuer about a surcharge for using the card is (even) smaller than that in the US.
ETA: sorry, the above was in reply to MarcusF’s post #39.
If i’m reading Gfactor’s link correctly:
As far as i can tell, the law prohibits credit card companies and merchants from entering into an agreement whereby merchants agree not to discriminate against credit card by charging higher prices for using them. That is, the law allows merchants to decide whether or not they want to impose a surcharge for credit card use, and forbids the CC companies from prohibiting such surcharges in their merchant agreements.
Am i reading it correctly?
Visa Interchange Rate Sheet, the issue for many merchants is not at all the small % fee but the mandatory minimum of around $0.10-0.17.
A fountain soda is probably a terrible example tho, the margin on fountain beverages is quite nice (even giving away free refills, most people won’t take more than one refill.)
But on say, $2.00 worth of frozen yogurt you may be looking at food costs of 35%.
So:
$2.00 sale price
-0.70 food cost
-0.20 labor cost
-0.04 (average interchange cut)
-0.10 (additional minimum tacked on as part of the interchange fee)
So from that one sale you made $0.96, that’s still a pretty good margin. But the real picture will always cut the actual margin down much lower (I’m not factoring in that with many business leases the land lord gets a % of sales), I’m estimating labor cost of 10% which would be impossible in many eatery type environments unless you’re an owner-operator who doesn’t employ a full time manager.
Anyway, you’re still making a profit. I think it’s dumb to charge the minimum fees for pretty much any restaurant because even the places with the lowest profit margins (generally QSRs, traditional restaurants actually have a much stronger margin especially on wine and liquor sales) still have enough margin to never “lose” money on a sale, even with paying the merchant fee.
Now small convenience stores are a different matter as they sell items with a very low cost. Say you buy a $0.15 Atomic Fireball, if you pay with credit card then there is actually a decent chance the merchant is making 0% profit.
Even on a $1.29 candy bar that $0.10-0.17 can really hurt. But one thing to keep in mind still is that convenience store markup is generally a lot higher than supermarket markup.
I’d say the only business that might be justified (from a business perspective) in putting up the “minimum amount” sign for credit cards would be a supermarket because they operate at such low markup that small orders could actually result in a net loss for them. However supermarkets are all about volume, almost all of their customers come in to spend a decent amount of money, that’s how they get by on such a small markup in the first place, it’s all about quantity. So even for a supermarket the very rare customer who comes in with a very small order: probably worth it to let them pay with credit card since people tend to often shop at the same supermarket on a regular basis and that person may come in next week to do their family’s grocery shopping and drop $300.
I don’t agree with putting up minimum purchase signs from a business perspective, but I do know how business owners “get to that point” in their heads. On a transaction by transaction basis sometimes the mandatory $0.10-0.17 is killer, but I still think from the big picture perspective SBOs are always better off not doing this.
Again, not nessesarily. Cash has costs too. Many merchants prefer CC to cash. Now sure, as a merchant, you prefer your “average transaction” on a CC to be high, so your fee is lower. So, ideally, you want small purchases paid with cash, large purchases paid with CC.
However, everyone knows that CC bring in more sales. So, if the choice was 1000 $10 with cash or 1000 with CC, they’d pick cash. But if it was 500 with cash and 1000 with CC, which woudl they pick.
Absolutely.
When i first moved to the US, i was dumbfounded at the tiny purchases people make with credit cards. Before coming here, i don’t think i had ever pulled out my Visa card for any purchase less than about 20 or 30 dollars.
One exception to my general opinion that minimum CC purchases is bad business might be a bar, though. In some bars that I’ve been in if you want to pay by credit card they inform you that all tabs must spend at least $20.00 minimum in drinks.
I don’t own a bar but I imagine the business logic in this case has nothing to do with the interchange fee but is more about them not wanting someone taking up a spot in the bar if they aren’t going to spend at least $20.00. When someone is paying cash and they order one drink and sit there for two hours there isn’t much you can do. But you can at least make sure credit card customers spend a certain minimum amount. Note that the bars I’m talking about are ones who actually operate at capacity as set by the fire department, so it really is not in their interests to have a customer who only orders one drink but spends many hours inside.
Not so much give up the benefit but realize that actually trying to do anything about it isn’t really worth your time.
If this is a place you might frequent once a week and you maxed out at spending $4.99 (getting 3% back) every single time then you’d have to value your time at less than $7.80/hour to come out ahead one 30 minute investment of time in getting it to happen. Then keep in mind that the odds of your 30 minute investment has maybe a 1% chance of succesfully changing the stores practices meaning your time would have to be worth less than $0.78/hour for the gamble to make sense.
So sure, I can understand not liking it. I just don’t really understanding wasting any time actually trying to change it (unless the odds of success are very high, it can be accomplished in a very short amount of time, and your time is worth relatively little). Kind of like my mom who will drive an extra 10 minutes to get to the gas station that charges 2 cents per gallon less. I just can’t convince her that spending 20 minutes of time to save 22 cents on a full tank of gas is a silly thing to do.
(Note: I am not saying that all your time should be always viewed as having a cash value. Just when you are specifically deciding whether it is worth your time to pursue some money.)
Cash can also be stolen by employees, and cash purchases are always susceptible to being skimmed. Even well designed POS systems and security cameras can only prevent so much.
FTR, in the past, when I complained about a credit card surcharge at a local Gyro franchise, neither the Chase Bank customer service rep nor the manager in that department at Chase were knowledgeable in the matter.
I called Visa International, and after about 30 seconds of my insisting to their CSR that my financial institution was incapable of assisting me in this matter, Visa did, in fact take my complaint.
A week later I got a letter in the mail acknowledging my complaint, chastising me for not taking the issue to my financial institution, and promising an investigation of the merchant.
I used the merchant again 6 months later, and the surcharge was no longer evident. I can’t establish causality, however.
If I gotta’ obey the rules, I expect those around me to obey the rules.
I particularly expect them to obey those rules when those rules are set in place in an attempt to make my life more convenient.
That’s a good enough reason to call. Additionally, I did it for amusement value, and out of spite at the merchant for arguing with me about said rule.
I did it when I did it.
Nowadays, I run a part-time business from my house, and with the realization that I can make a solid $20 with the half-hour I spent making that complaint, I don’t waste that time anymore.
There may be very little Visa or MasterCard can do about either suppression or a surcharging problem. V/MC are just the networks. They do not actually own the relationships with merchants. This relationship might be owned by one of the larger merchant acquirers in the US, like First Data, RBS, or others. The are affiliates of V/MC, manage the customer service relationship with their merchants, pay their merchants, and manage their risk, V/MC may have very little ability to contact delinquent merchants whatsoever.
No, bars generally do it because of the time it takes to convert the transaction. Most bars, during their busy hours at the end of the night, need to turn as many transactions as humanly possible in a short period of time. When your effective business hours are 11PM-2AM (the vast majority of pubs are close to empty during the day) every extra 2-5 minutes that it takes to run a credit card and wait for a signature kills your overall ring. This is multiplied by the fact that young, dumb, drunk and careless people are in high concentration and those are the types likely to try and charge one $4 beer 6 separate times. Those same customers can make getting a credit card out of a wallet and a signature on a receipt seem like a Sisyphean task. Having a minimum forces those folk who just want one beer to use cash and forces others who are going to drink all night to open up one tab instead of 8.
Why can’t they just use more modern point of sales systems and not require signatures for, say, anything under $25?