The always-hilarious Jon Stewart and the Daily Show writers take on the credit card industry in the way that only they can. They explain how the Credit Card Accountability Responsibility and Disclosure Act of 2009 won’t be the panacea many expect it to be. Embed below, direct link here.
Daily Show on Credit Cards
February 25th, 2010How to reduce your credit card processing fees
January 29th, 2010The Wall Street Journal has a great article for credit-card processing merchants today: For Businesses That Accept Cards, Tips for Cutting Fees. They rehash much of the advice we’ve been touting here at Prestige Payment Systems, but hey, the more aware merchants are about fees associated with merchant accounts, the better.
Included in the article is a good point about not requiring minimum purchases for credit card use:
Requiring consumers to spend $10 or $5 before they can use plastic violates both Visa and MasterCard merchant guidelines. Although American Express and Discover don’t directly prohibit purchase minimums, they do require all credit cards be treated equally. A merchant can’t, for example, put price minimums on Discover transactions and not also put them on Visa and MasterCard transactions, says Jon W. Drummond, a Discover spokesman. To avoid violating credit-card agreements — and potential penalties — make purchase minimum suggestions.
Check back soon, we’re putting together a longer blog post with lesser-known tips and tricks to minimizing credit card processing fees.
Dangers of Using Paypal, Part II
January 23rd, 2010We’ve already posted one harrowing tale of small businesses having to deal with the unregulated machine that is Paypal, but today WikiLeaks – “an non-profit organization funded by human rights campaigners, investigative journalists, technologists and the general public” – has put up a note explaining that Paypal has frozen their assets for the second time:
Paypal has as of 23rd of January 2010 frozen WikiLeaks assets. This is the second time that this happens. The last time we struggled for more than half a year to resolve this issue. By working with the respected and recognized German foundation Wau Holland Stiftung we tried to avoid this from happening again — apparently without avail.
We are working on resolving this issue as fast as possible. Please use our bank accounts for direct transfer in the meantime, or contact wl-donations@sunshinepress.org for any further questions.
WikiLeaks is not the only non-profit organization with this problem. This is a regular occurrence, that from our perspective should not be tolerated by the global community using this payment system.
Effects of Banking Reform on Merchant Account Fees
January 22nd, 2010How could President Obama’s banking reform initiative possibly end up affecting merchant account fees? Buried in a New York Times article about the likelihood that free checking accounts will cease to be a common offering – Free Checking Could Go the Way of Free Toasters, Ron Lieber mentions this:
Well, remember our old friend the debit card, which upended the industry a decade or so ago? Banks don’t just get overdraft revenue. They also get a cut of the fees merchants pay when someone uses a debit card, and banks generally get a bigger cut if cardholders sign for their purchase instead of using their PINs.
You see where this is heading, right? If banks can get enough people to use their debit cards and sign for their purchases often enough, it will go a long way toward keeping checking free and even subsidizing better interest rates or rewards. (It may also cause merchants to raise prices to cover those card fees, alas.)
We would agree that those increased merchant fees being passed along to customers is not only very likely, but almost guaranteed. With the increased consumer incentive toward using rewards cards that cost merchants more in processing fees, now’s as good a time as any to stop on over and fill out a simple form to start saving on credit card processing fees.
The Damage of Card Rewards
January 9th, 2010The New York Times looks at some of the social and economic implications of the trend towards using credit cards with reward programs.
On the social implications:
After all, the 1 to 3 percent or more of every transaction that merchants pay to accept the cards is a significant cost, and the small local retailers that make neighborhoods vibrant often pay a higher percentage.
Stores then build those fees into higher prices, so people who aren’t earning any rewards can end up subsidizing those who do. Many of these people have no credit cards because they’re financially troubled.
So the risk is that we perpetuate a sort of reverse Robin Hood problem, as Prof. Steven Semeraro of Thomas Jefferson School of Law in San Diego puts it. It’s possible that the poor pay subsidies to finance the rewards of the affluent.
And of course, as many merchants know, while the simple act of accepting credit cards tends to lead to higher sales (both per-transaction and gross), the costs of accepting credit cards have been increasing dramatically over the past few years.
Here’s one finding: Rewards-earning credit cards with the Visa and MasterCard logo often cost merchants more than plain-vanilla ones, which hints at the card companies’ laserlike focus on subsidizing rewards for the affluent customers who are still spending, even if they are paying their bills off each month and thus paying no interest.
But cards undoubtedly also benefit retailers. People can use credit to spend more than they have in the bank at the moment, and some may spend more on a card than they would if they had to lay out a pile of money. Merchants who handle less cash, meanwhile, bear fewer costs for counting it, calling the armored car, and theft by employees or armed bandits.
As for the cost to consumers of all the card use, the National Retail Federation figures that the so-called interchange fees that their members pay to accept Visa and MasterCard alone cost an average of $427 an American household in 2008. Add in other fees the stores pay, plus costs for American Express and Discover, and that number could approach $600.
Head on over to the nytimes website and read the full article.
Happy Holidays
December 24th, 2009Just a quick post to wish all you merchants a great and profitable holiday season from Prestige Payment Systems.
The Risks of Using Paypal
December 21st, 2009Apparent Software has an interesting horror story that demonstrates some of the pitfalls in using services such as PayPal for accepting payments.
We chose PayPal as our payment processor for several reasons but the main were low fees, the fact that we already knew how to integrate it to the sales backend and that it should be easy to pay them and to affiliates. We used our regular PayPal account, which we used for regular sales. We didn’t expect what happened next.
The launch was successful and we were pleased with how the sales progressed in the first days. Three days into the sale I’ve got a phone call from PayPal and the person on the other side asked me about nature of the spike in account activity. I explained that we had a 2 week sale, a special promotion and it looked like the call went fine.
…
I log into my PayPal account and what do I see? “For my protection” they have limited the ability of my account to withdraw or send money but most severely, they also disallowed the account to receive payments!
The increased activity from their successful marketing campaign was enough for Paypal to suspend their account and even prevent accepting payments. Ouch.
The post includes a later update from a Paypal service rep (no doubt in response to the reaction their story has received) – but it still goes to show you just how important a reliable payment system is. Apparent Software and their partners were not only immediately cut off from further sales from prospective customers, but were done so in such a way that made them look unprofessional to their customers.
At Prestige Payment Systems, we work with multiple credit card processors to ensure that even if your business is too high risk for one processor, we have a partner that is always ready keep your business in business. We also have a trained staff of client managers ready and able to help get you up and running – saving you the cost and frustration of the ‘runaround’ emails and uninformed service reps like those mentioned in their blog post.
U.S. Looks to Australia on Credit Card Fees
November 25th, 2009The New York Times has a piece on some of the unintended consequences of Australia’s recent changes limiting interchange fees on credit card transactions. In response to merchants’ complaints of excessively high interchange rates, regulators in the US may soon be set to tackle a similar problem here in the states.
First, check out this interesting graphic from the article demonstrating the trend in Australia away from credit cards towards debit cards as a result of the legislation (source)
Credit Card Use in Australia Post-Regulation
The unintended consequences the article describes typically results in higher fees or fewer incentives for the consumers:
Since the government policies went into effect, Australian banks have cut credit card perks and shrunk rewards programs, like frequent-flier miles. While it used to take 12,400 Australian dollars of spending on Visa or MasterCard from one of the country’s four biggest banks to earn a 100 dollar shopping voucher, for instance, now it takes 17,000 dollars.
Banks now also require customers to pay their bills faster. Interest starts accumulating on many cards 33 or 44 days after the start of a billing period, instead of the previous 55 days.
Annual fees have also climbed for credit cards with reward programs, to 140 Australian dollars a year for gold cards that carry rewards, up from 98 dollars before regulation of interchange fees.
More disconcerting is that the new regulations allowed merchants to add credit card processing fee surcharges to credit card users – something that’s prohibited by nearly all processors here in the US. (While charging a surcharge on credit card processing fees is forbidden by merchant account agreements here, providing discounts on purchases made with cash or debit cards is legally protected by the Federal Truth in Lending Act.
Indeed, after the Australian central bank allowed companies to start levying surcharges, many began to impose large and rising ones on credit card use. Some companies have even figured out a way to make a profit. For instance, Accor, a global hotel giant with 11 brands ranging from the luxurious Sofitel chain to Motel 6, introduced a 1.5 percent fee here last February for credit card users.
“It has aided our profit margins,” said Michael Issenberg, Accor’s chairman of the Asia and Pacific region, who added that the hotel chain had seen little consumer resistance.
It’s too early to say what sort of reforms US legislators are planning on taking, but the Australian experience certainly provides a lot of insight into what some of the consequences could be of any interchange fee reform.
Psychological Benefits of Accepting Credit Cards
November 13th, 2009The SmartMoney.com has a great article on the psychological pitfalls New York taxi cabs succumbed to when forced to start accepting credit cards. The author describes the anger over the ‘5% heist’ – referring to the credit card processing fees deducted from the cab fare – and even relays stories of how some taxi cabs would initially claim the processing terminals ‘weren’t working’ yet in an effort to avoid having to accept credit cards.
But as most companies beginning to accept credit cards usually find out – the mere act of accepting credit cards often have a far bigger impact on the bottom line than the credit card processing fees they lose in the trade off.
… one thing is clear two years later: The drivers who complained so vehemently about the credit-card machines are now making more money because of them. New York City’s Taxi and Limousine Commission reports that revenues are up 13% from the end of last year, despite a recession which is hitting the taxi industry hard in other cities. Tips, meanwhile, have risen to an average of 22% on credit-card transactions, up from around 10% under the old, cash-only system.
The author then goes on to describe some of the psychological effects in play here – with our natural inclination to be loss averse while minimizing potential upsides. In simpler terms, taxis focused on the 5% processing fees while ignoring the added benefits that accepting credit cards bring.
So, the drivers — like lab subjects or stock traders — were focused on what they’d be losing. But could they have seen the potential upside? If you assume that an all-cash system and a cash-and-credit-card system are identical (aside from that pesky 5% fee), you’d be right to see no upside. But does anyone still think that people treat paper and plastic the same, when it comes to money?
Aside from practical considerations, such as that people who don’t carry much cash are now more likely to take cabs in New York City, there’s the well-established fact that credit cards encourage people to be looser with their money than when they pay with tactile, sticky bills. In just one study out of MIT, in which NBA tickets were auctioned off to MBA students, researchers found that the students were willing to pay more than twice as much when able to pay with credit card instead of cash.
If you’re currently operating a cash-based business – give head on over to Prestige Payment Systems for great rates on credit card processing and merchant account services.
Credit Card Minimum Purchase and Cash Discounts
November 12th, 2009Have you ever walked into a smaller grocery store or neighborhood restaurant and noticed a sign indicating a minimum purchase to be ‘eligible’ for using your credit card?
What many merchants know is that this ‘minimum purchase’ practice is strictly forbidden by the contracts they agreed to and enforced by all credit card issuers — Visa, MasterCard, and American Express. Yet some merchants choose to risk the possible fine and, in extreme situations, even banning in order to minimize some of the costs associated with accepting credit cards.
So what options do merchants looking to cut processing fees have?
Cash Discount
While credit card issuers forbid the use of a surcharge on credit card transactions, federal law offers an alternative that can’t be contractually signed away – the option to offer discounts for cash payments.
Section 226.12 of the Federal Truth in Lending Act states:
No card issuer may, by contract or otherwise:
(1) Prohibit any person who honors a credit card from offering a discount to a consumer to induce the consumer to pay by cash, check, or similar means rather than by use of a credit card or its underlying account for the purchase of property or services;
The only caveat is that the cash price must be presented as a discount to the standard price. Advertised prices would need to indicate the credit card price first and then display the lower “cash discount” price as a discount.
Convenience Fee vs Surcharge
In short, credit card issuers don’t want merchants charging higher fees to consumers simply because they chose to pay with a credit card – but they do offer the ability to charge ‘convenience fees.’
Basically convenience fees are charges in excess of the basic transaction amount for the privilege of using an alternate payment method. While this might sound confusingly similar to a surcharge, the basic difference is that it is not tied to a payment method (ie, credit card vs cash) and instead tied to an added convenience (like accepting payment online or over the phone instead of in person).
If you have any questions about what is and isn’t kosher, feel free to contact us at Prestige Payment Systems and our agents will be happy to assist you with any of your merchant account needs.
