Credit Card Processing | Prestige Merchant Account Blog

Posts Tagged ‘Credit Card Processing’

The Damage of Card Rewards

Saturday, January 9th, 2010

The 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.

Tags: Credit Card Processing, Fees, Legislation, Psychology
Posted in Credit Card Processing, Fees, Legislation, Psychology | 1 Comment »

U.S. Looks to Australia on Credit Card Fees

Wednesday, November 25th, 2009

The 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.

Tags: Credit Card Processing, Legislation, Merchant Account
Posted in Credit Card Processing, Fees, Legislation | 2 Comments »

Credit Card Minimum Purchase and Cash Discounts

Thursday, November 12th, 2009

Have 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.

Tags: Credit Card Processing, Legislation, Merchant Account, Merchant Account Rules
Posted in Merchant Account Rules | 2 Comments »

Interchange Fees

Saturday, October 31st, 2009

For this Halloween weekend, I figured I’d bring up that which strikes fear into the hearts of all credit card accepting merchants big and small – the dreaded, non-negotiable interchange fees taken out of every credit card transaction.

Interchange fees are the fees that a merchant’s bank (the “acquiring bank”) pays a customer’s bank (the “issuing bank”) when merchants accept cards using card networks such as Visa, Mastercard, Discover, and American Express.

Wikipedia has more:

These fees are set by the credit card associations, and are by far the largest component of the various fees that banks deduct from merchants’ credit card sales, representing 70% to 90% of these fees. Interchange fees have a complex pricing structure, which is based on the card brand, the type of credit or debit card, the type and size of the accepting merchant, and the type of transaction (e.g. online, in-store, phone order). Further complicating the rates schedules, interchange fees are typically a flat fee plus a percentage of the total purchase price (including taxes). In the United States, the fee averages approximately 2% of transaction value.

In recent years, interchange fees have become a controversial issue, the subject of regulatory and antitrust investigations. Only very large merchants such as Wal-Mart might have the leverage to negotiate fee prices, and while many merchants prefer cash or PIN-based debit cards, most cannot realistically refuse to accept the major bankcard association-branded cards. This holds true even when their interchange-driven fees exceed their profit margins. Some countries have established significantly lower interchange fees. The fees are also the subject of several ongoing lawsuits in the United States.

http://en.wikipedia.org/wiki/Interchange_fee

You can view PDFs of both the latest MasterCard and Visa Interchange Fee structure at our merchant support page, or visit the pdf links directly below:

Tags: Credit Card Processing, Fees
Posted in Credit Card Processing, Fees | 4 Comments »

No Merchant Credit Card Fee Reform, Yet

Wednesday, October 28th, 2009

BusinessWeek explores the current battle raging on capital hill between lobbying efforts of retailers and merchants versus those of the banks charging the baseline ‘interchange rates’ required of all credit card transactions.

Interchange rates are the non-negotiable baseline fees charged by banks that vary depending on a wide assortment of factors – from the type of credit card used in the transaction (rewards and corporate cards incur higher fees) to the type of transaction (whether the card is present or not, for example). By way of example, the current interchange rate for a CPS retail category Visa card is 1.54% + $.10 per item charge – before any of the other processing fees are taken into account. For merchants processing small ticket items, this charge can be quite onerous:

Kathy Miller, owner of a grocery store in the 961-person town of Elmore, Vt., told the committee she may as well give small-ticket items away free because selling them costs her money after the interchange fees are accounted for. Currently, merchants are barred from demanding a minimum price for credit-card purchases. “We can’t keep absorbing these fees,” Miller said. “Some days I feel like I should just turn my keys in.”

The article then goes on to discuss whether or not consumers would benefit from a reduction in interchange rates – an argument I feel is mostly moot. There’s no question that lower rates would benefit small business owners such as Kathy Miller detailed above – but as BusinessWeek points out as costs drop in a competitive environment, those savings are invariable passed on to consumers:

Some outsiders experts believe, though, that given the nature of retailing, stores would be forced to lower prices. “If merchants are in a competitive industry, when their own costs drop, those costs get passed along to consumers,” says Adam J. Levitin, associate professor of law at Georgetown University. “No one would question that for any other cost of doing business—that if a cost drops, some of it would be passed on.”

Another big issue the article explores is the effect newer rewards cards are having on the fee structure for merchants. Every time a customer of yours uses a rewards card – a credit card that gives a small percentage of a purchase back to the card holder – merchants pay a higher fee.

The larger issue for retailers, especially small-business owners, is that they want more control over what types of cards they accept and when they have to accept them. Now, if merchants opt to accept Visa or MasterCard, they must accept all Visa- or MasterCard-branded cards even though different cards under one brand carry different rates. And they must accept card payment no matter how low the purchase price.

If allowed, smaller merchants probably would be more hesitant to accept rewards cards, which in Visa’s case carry interchange fees as high as 2.4% per transaction, compared with Visa’s roughly 1.6% average interchange rate. While this would keep merchants from having to subsidize the rewards of their customers, it might eliminate free rewards cards altogether, since banks would likely be unwilling to pay the rewards out of pocket.

Tags: Credit Card Processing, Merchant Account
Posted in Credit Card Processing, Fees, Merchant Account | 1 Comment »

BusinessWeek’s How to Cut Credit-Card Fees

Sunday, October 25th, 2009

John Tozzi at BusinessWeek has a great article about cutting credit card fees. Amongst other things, Tozzi highlights one of the more common charges merchants need to be on the lookout for – leasing credit card terminals:

Athanasiades didn’t shop around for merchant processing when she opened her store in 2007. Dollhouse Bettie already had accounts at Wells Fargo (WFC), so she signed up for processing through the bank. She only reviewed the costs when Dollhouse Bettie’s credit-card machine malfunctioned in March—which happened days before her two-year contract ended and fees were set to rise.

She noticed she was paying $50 a month to lease the machine for two years, more than double what it would have cost to buy one outright.

http://www.businessweek.com/smallbiz/content/oct2009/sb20091016_295783.htm

Prestige Payment Systems can help you save on your credit card processing fees. If you’re paying a monthly fee for your credit card terminal or paying more in credit card processing fees than you’d like to, drop us a line at the form above. We guarantee we’ll save you some of your hard earned money.