OT: Business Post (CC payment change is coming...)

[FreeDawg]

Lately I've heard more marketing for cc processors and it's even getting pitched around here and there. It's early but it's coming. In a nutshell, venders get nailed on cc processing fees and the more fraud, the more those fees rise. Especially for manual entries for a card that doesn't read properly (vender gets hammered on those). What these processor companies are doing is adding the processing fee as a tax line item, passing the cost to the consumer. Its not consumer friendly but most consumers are clueless to the cost. What if I told you a small business doing 7 figure sales pays 5 figures yearly just to get paid? Also, gov't entities have already been passing this cost along if you pay with a card for a tax or car tag, whatever...

You can't be the first guys to do this in the private sector but as soon as a Walmart or another powerhouse like that does, it's over. Everyone will. The first correction will likely be consumers carrying cash to avoid the extra charge and that's a win-win for vendors.

To give an example a lot on this board will be familiar with is Lambert's in south Alabama. Not only do they not take cc , they have their own ATMs. Not only do they miss the cc processing fees that which is probably in the cpl hundred thousand range at their sales, they pocket a processing fee which adds to that profit stream. Your talking 6 figure profit swings at a place like that. Some might complain about the ATM fee but I don't care because my bank refunds them. Huge win-win for Lambert's.

Now the question is what the consumer prefers. You as a consumer, would you rather pay $35 for a shirt with an xtra "tax" that is a little loose change on your bill or would you rather that shirt cost $36 to cover the venders cc processing fees? The flip-side of that is you overpay if you pay cash. Is the "xtra" tax worth the convenience to pay with your watch like Samsung pay? So many angles...

Interesting capitalism driven convo I've been having with my business contemporaries lately. What say ye pack?

 

[MadDawg.sixpack]

It is illegal in some states to charge a fee for using a credit card. Mississippi is NOT one of those states.

 

[FreeDawg]

Interesting. I did not know that. Probably why it's getting pitched around here.

 

[MadDawg.sixpack]

Interesting. I did not know that. Probably why it's getting pitched around here.

Another thing to consider even if your state allows "convienience fees" is that the law mandates you treat all CC sales (and in most cases debit cards as well) the same. So if you charge a fee for using VISA, you must also charge for MasterCard, Discover, AMEX, etc. This raises an issue, because Amex expressly prohibits the charging of a fee. So you may be forced to drop Amex if you want to charge a fee.

 

[Cousin Jeffrey]

It is illegal in some states to charge a fee for using a credit card. Mississippi is NOT one of those states.

Is the cost to process credit card transactions not already figured into the cost to the consumer? I would assume that's just a cost of doing business that's passed onto the consumer already. So if a business suddenly starts charging a fee for using a credit card, then they're probably covering it twice.

 

[patdog]

CC fees are a scam, but I'll keep paying them rather than pay cash, and no way in hell am I making an ATM withdrawal to buy something. Part of the CC fees get rebated back to me by my credit card anyway.

 

[jethreauxdawg]

If the company is still in business, they are already passing along the CC charges to the customer. They just build 3% into the cost, and don't say anything.

 

[FreeDawg]

Exactly. So if you're a cash customer, you're already paying the tax. Would you rather it be a line item on the bill or do you not have faith in vendors pricing honestly?

 

[Dawgtini]

Exactly. So if you're a cash customer, you're already paying the tax. Would you rather it be a line item on the bill or do you not have faith in vendors pricing honestly?

Explains why some vendors/establishments offer a "cash price" that is usually about 5%+ discount.

 

[FreeDawg]

You can also attribute some of that to off the books situations but on big purchases, that could be accurate. A certain vendor I have used to take cc's and don't any more. They have several annual million(s) dollar accounts so I get it.

 

[RutherfordBHayes]

You'll pay it one way or the other. In an added line item or increased prices, what's the difference?

 

[horshack.sixpack]

If the company is still in business, they are already passing along the CC charges to the customer. They just build 3% into the cost, and don't say anything.

^^^this. I add 3% on to the cost to cover the fees if someone wants to pay by CC.

 

[sipDawg98]

This whole idea of not accepting credit cards but having an ATM on premise baffles me. The owner of the ATM still has to pay processing fees. Swiping your card at a POS terminal vs an ATM is essentially the same thing back-office wise. Plus the cost of keeping it compliant, as owning an ATM opens you up to some government regulation as well.

 

[Dawgtini]

This whole idea of not accepting credit cards but having an ATM on premise baffles me. The owner of the ATM still has to pay processing fees. Swiping your card at a POS terminal vs an ATM is essentially the same thing back-office wise. Plus the cost of keeping it compliant, as owning an ATM opens you up to some government regulation as well.

But if you own the ATM... You can setup additional fees, or like the casinos do you can charge a fee to "purchase" cash. No cash advance fee and the processor's fees are covered along with additional fees for you. I always amazed that some people will spend so much for the convenience of not carrying cash.

 

[jethreauxdawg]

But having all that cash makes it easier to do your taxes

 

[sipDawg98]

24% of Americans use cash for their primary method of payment. Around 70% carry less than $50 bucks with them. If you drill down to the younger demographic it's even less. So as a business owner you're essentially cutting your customer base right out of the gate if you decide to be cash only. I have just straight up gone elsewhere to eat if I know that they are cash only. Does that make me lazy? Maybe but I'm sure the other restaurants don't care as I hand them my card. Yeah there are fees involved. But instead of allowing customers to just hand you their card, you're going to make them get up, go to the ATM, pay a surcharge, and withdraw cash? Seems a little backwards to me.

 

[johnson86-1]

Lately I've heard more marketing for cc processors and it's even getting pitched around here and there. It's early but it's coming. In a nutshell, venders get nailed on cc processing fees and the more fraud, the more those fees rise. Especially for manual entries for a card that doesn't read properly (vender gets hammered on those). What these processor companies are doing is adding the processing fee as a tax line item, passing the cost to the consumer. Its not consumer friendly but most consumers are clueless to the cost. What if I told you a small business doing 7 figure sales pays 5 figures yearly just to get paid? Also, gov't entities have already been passing this cost along if you pay with a card for a tax or car tag, whatever...

5 figures to collect 7 figures seems..about right? For 1% of the revenue, you get to avoid the risk of dealing in cash, you get somebody else to extend credit to your customers and bear the credit risks, you get increased sales because people spend more when using a credit card, and you make it a little bit harder for your employees to rob you blind. If you were buying a software system off the shelf to do the payment processing, it seems like you'd pay more than $10k per year for the license? Obviously with software it's easy to engage in price discrimination based on the size of the client/customer, so maybe small customers would get it for cheaper and big customers would pay much more, so 1% seems pretty good.

Of course many places only have margins of around 3 to 4%, so when you look at spending 1% of revenue on payment processing, that seems huge.

You can't be the first guys to do this in the private sector but as soon as a Walmart or another powerhouse like that does, it's over. Everyone will. The first correction will likely be consumers carrying cash to avoid the extra charge and that's a win-win for vendors.

To give an example a lot on this board will be familiar with is Lambert's in south Alabama. Not only do they not take cc , they have their own ATMs. Not only do they miss the cc processing fees that which is probably in the cpl hundred thousand range at their sales, they pocket a processing fee which adds to that profit stream. Your talking 6 figure profit swings at a place like that. Some might complain about the ATM fee but I don't care because my bank refunds them. Huge win-win for Lambert's.

Now the question is what the consumer prefers. You as a consumer, would you rather pay $35 for a shirt with an xtra "tax" that is a little loose change on your bill or would you rather that shirt cost $36 to cover the venders cc processing fees? The flip-side of that is you overpay if you pay cash. Is the "xtra" tax worth the convenience to pay with your watch like Samsung pay? So many angles...

Interesting capitalism driven convo I've been having with my business contemporaries lately. What say ye pack?

My preference is that there be one flat fee. But I strongly prefer using a credit card and avoiding the hassle of carrying cash and that system basically requires people who pay in cash to subsidize me.

So far, the only places I've seen a lot of surcharges for using credit cards are gas stations. Usually the surcharge is about the percent I get cash back or maybe a tad over, but easily worth paying the premium to avoid carrying cash. If everybody starts charging for credit card use, then that calculus may change.

 

[FreeDawg]

Great post. A huge factor you bring up is less risk of employee stealing/fraud the less cash you process. As far as my personal preference as a consumer, I'm with you 100% of the convenience of not carrying cash being worth it. Also added security. I can recoup any missing/stolen cards.

 

[MadDawg.sixpack]

5 figures to collect 7 figures seems..about right? For 1% of the revenue

The discount rate varies greatly depending on the type of business, the type of customer, your annual sales, your risk factor, etc., but most discount rates are between 2.0% and 3.5%. Not 1%. And then you typically add other "processing" fees, taxes, equipment, etc. If your profit margin is 3-4%, you just lost it all to the CC processor.

 

[patdog]

It's more like 3% than 1%, but overall your point is right. Transferring risk of counterfeit money, employee fraud, bad checks from customers, and lost revenues from people who prefer the convenience of paying with credit cards (a number that is growing daily), is more than worth that fee. For virtually all businesses, the cost of avoiding that 3% fee is a lot more than what they'd save.

 

[Wizard of bulldogery]

Not to change the topic or anything... but Lambert's isn't very good unless you live in a town of 500 people and your only option is mcdonald's and dollar general to buy groceries and don't have a garden. Now, The Golden Corral that is a fine dining establishment and they do take credit cards and they are lower priced. Love me some Corral. carry on now.

 

[Big Sheep81]

All of that being paid by cash customers doesn't apply to all business. My business is insurance, so I can't build 3% into the cost of what I sell. Cash customers pay the pure premium and it's swept from my account electronically. Checks aren't too much of a problem but if one is, I can recoup those costs with the bad check charges or send it to justice court if they won't make it good. Every once in a while you have somebody who skates but that doesn't happen very often. We are usually able to weed those out before hand. All we can do is add a $2.00 fee to CC charges when they pay directly to our agency. The smaller payments aren't too bad, but once you hit $500 and up it hits us pretty good. And our commission on some type policies isn't great to start with. I'm in the hole $30 a month before ANY discount fees are taken out. That's just for the privilege of having the capability to take CCs. That's why when I trade locally and especially at my buddie's eateries I pay cash. And I ALWAYS tip in cash so that doesn't get popped by the fees.

 

[mcdawg22]

If giving the option you can select debit to minimize the charge to the merchant. As someone that works go a credit union. This idea is something that we are very aware of. Alternative payment channels PayPal etc. can put us in a bind ala Uber vs Taxi.