Merchant costs on 2% cash back cards

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Re: Merchant costs on 2% cash back cards

Postby archbish99 » Fri Jul 05, 2013 12:01 pm

allenneal99 wrote:...and your reward incentives start inching lower and lower.


Yes, there's definitely been a trend of this over the last several years. We originally had two Discover cards -- one 2% on everything, one 5% on gas. They dropped the gas card to being 2% on gas, and we cancelled it immediately. (When the rep asked why, presumably as part of their customer-retention script, she said she couldn't argue with there no longer being an advantage to having a second card.)

I have since seen some other 5% gas cards (PenFed, most notably), but we've added a couple other cards since then and my wife is resistant to adding another credit card to our wallets.
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Re: Merchant costs on 2% cash back cards

Postby scrabbler1 » Fri Jul 05, 2013 12:56 pm

I have found this to be a very interesting and informative thread. Let's keep it polite and civil.

I finally joined the 21st century and got a cash-back CC through the local bank which handle my checking account. I don't buy lots of stuff so even if I try to maximize my CC usage (mostly by buying groceries on the card instead of cash) it will take me close to one year just to get my first cash-back payment of $25. My local gas station has a cash discount price of 20 cents per gallon (~5%) so even with my 3% cash-back on gas it doesn't pay to use it for that, not that I buy gas very often.

Even without the cash-back feature it is still slightly worthwhile to use that card becasue I can pay the CC bill using my bank's online banking feature so there is no check involved whatsoever.
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Re: Merchant costs on 2% cash back cards

Postby fareastwarriors » Fri Jul 05, 2013 1:19 pm

That is why I use cash for small businesses/small nonprofits that I support...to help them save a few %.
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Re: Merchant costs on 2% cash back cards

Postby Atilla » Fri Jul 05, 2013 1:25 pm

There are establishments I like very much, but don't frequent because they don't take credit cards. Their loss.

Our regular grocery store takes debit but not credit. They get a pass on the no-credit card policy because they are by far the cheapest in town.

One of our favorite bistros has little signs on the bar about paying cash to keep the money "local". No discount offered for cash however so the owner can stick it when I happily throw down my Amex rewards card. :sharebeer Apparently keeping the cash local means in his pocket and not ours.
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Re: Merchant costs on 2% cash back cards

Postby telemark » Fri Jul 05, 2013 1:33 pm

allenneal99 wrote:Consumers should be informed about the c/c fees charged to merchants, because no one consumer is subsidizing these costs. We are all over paying.


Indeed. It continues to surprise me that we complain about hidden fees in retirement plans, but seem perfectly content with them at the checkout counter. I've stayed out of this thread because I have no hard information about merchant fees, but my guess is that the credit card companies aren't in business to give money away.
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Re: Merchant costs on 2% cash back cards

Postby marbat » Fri Jul 05, 2013 3:37 pm

I always try to post in these threads to clear up misconceptions. I work for one of V/MA/AXP.

Jack was correct about the three components of the Merchant Discount Rate (MDR - the price merchants pay for acceptance):

1. Interchange (paid by acquiring banks to issuing banks)
2. Network pricing (paid by acquiring banks to V/MA/AXP)
3. Acquirer markup (paid by merchants to acquiring banks)

If you are a merchant, and are paying more than Square's 2.75%, you are getting ripped off by your acquiring bank. Square's rate is actually rather high in the majority of cases, especially for large ticket sizes. Consider the following:

Debit is about 50% of card transactions in the US. Debit acceptance costs are regulated to 0.05% + $0.21 in most situations. Even if, as a merchant, the non-Debit half of your transactions are all high-end rewards cards, let's say Visa Signature Preferred at the worst possible rate of 2.95% + $0.10, your blended average would be 1.5% + $0.155 per transactions. Note that this is an extremely unlikely scenario. Add another 50 basis points (rather high) for acquirer markup and network pricing, and you've got a rate of 2.155% on a $100 ticket, or 2.31% on a $50 ticket. For a $10 ticket, the effective rate is 3.55%, so you can see that where Square shines is when there a lot of a low ticket size Debit transactions (because Debit has a higher fixed component than Credit). Keep in mind this is an oversimplification - there are actually separate rates for small ticket merchants - that same Visa Signature Preferred becomes 2.1% + $0.10, for example.

Here are some examples of Interchange rates:

http://usa.visa.com/download/merchants/ ... il2013.pdf
http://www.mastercard.com/us/wce/PDF/Ma ... 202008.pdf

The reality is that a lot of issuing banks with rewards-heavy credit portfolios fund the reward programs through cardholders that revolve balances, or through other parts of their business. For something like the Fidelity (FIA, really) 1.5-2% Visa, FIA is likely not making a ton of money from Interchange. American Express tends to have higher Interchange, which is justified by their affluent demographic that tends to spend more money at merchant locations, so they can typically be a bit more flexible with rewards programs.

So the key takeaway here is as follows: if you are a merchant, ask your acquirer for an "Interchange Plus" plan, and you will be getting the best pricing available - almost certainly better than Square.

More than happy to answer any other questions on this topic!
Last edited by marbat on Fri Jul 05, 2013 4:18 pm, edited 1 time in total.
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Re: Merchant costs on 2% cash back cards

Postby marbat » Fri Jul 05, 2013 3:46 pm

mediahound wrote:
Jack wrote:Its worth noting that those of you who proudly pull out your Platinum Whatever card and present it to the merchant thinking it signals that you are an elite customer, that to the contrary, the merchant hates you. Those cards cost them an extra half to one percent for the transaction. They feel like they are being gouged to support your perks.


Not really. AMEX card holders on average spend more so many merchants like them.


Just wanted to respond to this: users of high-end cards (whether American Express, Visa Signature, MasterCard World, etc.) spend considerably more per transaction, and more in general. Whether merchants realize this or not, the increase in perceived purchasing power is real.
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Re: Merchant costs on 2% cash back cards

Postby lhl12 » Fri Jul 05, 2013 3:46 pm

Thanks for the clear explanation, Marbat.

Your explanation prompts another question from me. Am I right in understanding that debit card fees are close enough to zero, and pay quickly enough, that as a consumer I would be within my rights to request a "cash discount" (let's say 3%, since I could use a 2% cash back credit card instead) when offering to pay via debit card?
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Re: Merchant costs on 2% cash back cards

Postby marbat » Fri Jul 05, 2013 3:56 pm

lhl12 wrote:Thanks for the clear explanation, Marbat.

Your explanation prompts another question from me. Am I right in understanding that debit card fees are close enough to zero, and pay quickly enough, that as a consumer I would be within my rights to request a "cash discount" (let's say 3%, since I could use a 2% cash back credit card instead) when offering to pay via debit card?


You can request all the cash discounts you want, but that doesn't mean the merchant will give them to you :P. A cash discount of 3% is somewhat excessive. The average blended MDR is closer to 2% (in fact, likely lower than that), but anything goes in negotiation, so go for it! :twisted:

To be clear, I didn't mean to imply that Debit fees are close to zero - they certainly are not, especially not for small ticket sizes. Let's look at another example.

Debit card: 0.05% + $0.21
Most expensive rewards Credit card with terrible non-qualified rate: 2.95% + $0.10

Let's say you decide to pay with each of these for a $2 transaction. All of sudden, the effective rates are as follows:

Debit: 10.55%
Credit: 7.95%

Yikes! All of a sudden, Square looks more attractive... Essentially, the smaller the ticket size, the worse payment methods with high fixed components look (Debit). The larger the ticket size, the worse payment methods with high variable components look (Credit).

edit: Misunderstood your question. You can ask for a discount for paying with Debit, there are no V/MA rules against that (AXP doesn't have a true Debit product). Your margin for reasonable discount pricing here would likely be closer to 1% than 3%.
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Re: Merchant costs on 2% cash back cards

Postby lhl12 » Fri Jul 05, 2013 4:04 pm

marbat wrote:You can request all the cash discounts you want, but that doesn't mean the merchant will give them to you :P. A cash discount of 3% is somewhat excessive. The average blended MDR is closer to 2% (in fact, likely lower than that), but anything goes in negotiation, so go for it! :twisted:

To be clear, I didn't mean to imply that Debit fees are close to zero - they certainly are not, especially not for small ticket sizes. Let's look at another example.

Debit card: 0.05% + $0.21
Most expensive rewards card with terrible non-qualified rate: 2.95% + $0.10

Let's say you decide to pay with each of these for a $2 transaction. All of sudden, the effective rates are as follows:

Debit: 10.55%
Credit: 7.95%

Yikes! All of a sudden, Square looks more attractive... Essentially, the smaller the ticket size, the worse payment methods with high fixed components look (Debit). The larger the ticket size, the worse payment methods with high variable components look (Credit).


From my perspective as a consumer, I can always get 2% cash back by using my cash back credit card. So, for smaller transactions (less than $100, let's say) I would just use that card. For transactions over $100, though, my plan would be to offer the merchant the choice of taking my 2% cash back credit card (at full retail pricing, in which case I am really only paying 98%) or giving me a 3% discount if I use my debit card instead (in which case I am really paying only 97%). If he declines to give me the 3% discount, that's fine. I just wanted to be sure that if I am asking for a 3% cash discount for a debit card transaction, the effective cost to him wouldn't be significantly more than 3% because of debit card fees.
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Re: Merchant costs on 2% cash back cards

Postby marbat » Fri Jul 05, 2013 4:13 pm

lhl12 wrote:
marbat wrote:You can request all the cash discounts you want, but that doesn't mean the merchant will give them to you :P. A cash discount of 3% is somewhat excessive. The average blended MDR is closer to 2% (in fact, likely lower than that), but anything goes in negotiation, so go for it! :twisted:

To be clear, I didn't mean to imply that Debit fees are close to zero - they certainly are not, especially not for small ticket sizes. Let's look at another example.

Debit card: 0.05% + $0.21
Most expensive rewards card with terrible non-qualified rate: 2.95% + $0.10

Let's say you decide to pay with each of these for a $2 transaction. All of sudden, the effective rates are as follows:

Debit: 10.55%
Credit: 7.95%

Yikes! All of a sudden, Square looks more attractive... Essentially, the smaller the ticket size, the worse payment methods with high fixed components look (Debit). The larger the ticket size, the worse payment methods with high variable components look (Credit).


From my perspective as a consumer, I can always get 2% cash back by using my cash back credit card. So, for smaller transactions (less than $100, let's say) I would just use that card. For transactions over $100, though, my plan would be to offer the merchant the choice of taking my 2% cash back credit card (at full retail pricing, in which case I am really only paying 98%) or giving me a 3% discount if I use my debit card instead (in which case I am really paying only 97%). If he declines to give me the 3% discount, that's fine. I just wanted to be sure that if I am asking for a 3% cash discount for a debit card transaction, the effective cost to him wouldn't be significantly more than 3% because of debit card fees.


For the sake of discussion, let's assume 3% MDR on Credit for your Credit rewards card, and 1% MDR on Debit for your Debit card.

Merchant view:

Credit: he gets 97%
Debit: he gets 99%
Debit with a 3% discount: he gets ~96% (yeah, I know this isn't exact)
Debit with a 2% discount: he gets ~97% (close enough)
Debit with a 1% discount: he gets ~98%

Your view:

Credit: you pay 98%
Debit: you pay 100%
Debit with a 3% discount: you pay 97%
Debit with a 2% discount: you pay 98%
Debit with a 1% discount: you pay 99%

I don't think the merchant would agree to a 3% Debit discount. They might bite at 2%, but at that point, personally, I think I'd rather have the additional consumer protection that Credit offers over Debit on such a large purchase. A smart merchant should bite at 1%, but then you're better off using your rewards card to get 2% back.
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Re: Merchant costs on 2% cash back cards

Postby lhl12 » Fri Jul 05, 2013 4:17 pm

I follow all your math, but I thought you said earlier that the rate a merchant pays on debit purchases is 0.05% + $0.21. How do you get to a base level debit card discount rate of 1% on a $1000 purchase with that formula?
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Re: Merchant costs on 2% cash back cards

Postby marbat » Fri Jul 05, 2013 4:21 pm

lhl12 wrote:I follow all your math, but I thought you said earlier that the rate a merchant pays on debit purchases is 0.05% + $0.21. How do you get to a base level debit card discount rate of 1% on a $1000 purchase with that formula?


Just trying to keep the numbers simple. We could have used the real rates. The point I was trying to make is that I don't think any merchant will give you a 3% Debit discount. You might have some luck with 2%, and you almost certainly will have luck with 1%, but then you're better off not using Debit and you might as well use your 2% cash back card.

edit for real rates, since I'm bored enough to run the numbers:

Debit: 0.55% + $0.21 (assuming a very high 50 basis point acquirer markup on top of the 0.05%)
Credit 3.45% + 0.10 (assuming the same markup)

Debit: Merchant gets $994.29, you pay $1,000.00
Credit: Merchant gets $965.40, you pay $980.00
Debit with 3% discount: Merchant gets $964.46, you pay $970.00
Debit with 2% discount: Merchant gets $974.40, you pay $980.00

In this case with exact numbers, it looks like the merchant would be wise to accept your offer for a 2% Debit discount, but would be foolish to accept a 3% discount! For this particular set of numbers, the break-even discount for the merchant appears to be 2.9% :sharebeer.

Keep in mind, we've used a ridiculously high rate for Credit that very few merchants actually pay, even for the best rewards cards, so in reality, I don't think the 2% discount would be very feasible.

You might have better luck asking for a cash discount, as many business like to keep their revenue "off the books," so to speak ;)
Last edited by marbat on Fri Jul 05, 2013 4:50 pm, edited 5 times in total.
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Re: Merchant costs on 2% cash back cards

Postby lhl12 » Fri Jul 05, 2013 4:28 pm

OK, thanks. I am going to try asking for a 3% debit card discount on some larger purchases (falling back to the 2% credit card discount if they don't agree.) If no merchant ever bites, then eventually I'll give up and just stick with the 2% cash back card. If I'm ever successful getting a 3% debit card discount, I'll report back to this thread with the details. I'll be curious to see if anyone else has any luck getting a 3% discount on debit card purchases as well.
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Re: Merchant costs on 2% cash back cards

Postby Alex Frakt » Fri Jul 05, 2013 4:57 pm

marbat wrote:Debit is about 50% of card transactions in the US. Debit acceptance costs are regulated to 0.05% + $0.21 in most situations. Even if, as a merchant, the non-Debit half of your transactions are all high-end rewards cards, let's say Visa Signature Preferred at the worst possible rate of 2.95% + $0.10, your blended average would be 1.5% + $0.155 per transactions.

We don't take debit cards. The processor (Elevon) required the purchase of a standalone $1200 terminal (x2 because we see clients in two places) in order to accept them and the person has to be standing there with the card in order to use it. OTOH, we can process credit cards anywhere we have a web browser and an internet connection, which is helpful for our European clients.

FWIW, we do have a 3% surcharge for using credit cards. This keeps the cost down for the majority of our clients. We try to make it easy for those who want to avoid the surcharge by accepting checks, including those given out by the credit card companies, and working out payment plans when necessary. The way I see it, credit cards are a convenience and those using it should bear the cost. It's just like mutual fund supermarket fees. Most fund families jack up the price of their mutual funds so they can cover the cost of being included as a "No Transaction Fee" fund in brokerage supermarkets. Vanguard refuses to play that game to the benefit of everyone who purchases directly from them.
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Re: Merchant costs on 2% cash back cards

Postby marbat » Fri Jul 05, 2013 5:18 pm

Alex Frakt wrote:
marbat wrote:Debit is about 50% of card transactions in the US. Debit acceptance costs are regulated to 0.05% + $0.21 in most situations. Even if, as a merchant, the non-Debit half of your transactions are all high-end rewards cards, let's say Visa Signature Preferred at the worst possible rate of 2.95% + $0.10, your blended average would be 1.5% + $0.155 per transactions.

We don't take debit cards. The processor (Elevon) required the purchase of a standalone $1200 terminal (x2 because we see clients in two places) in order to accept them and the person has to be standing there with the card in order to use it. OTOH, we can process credit cards anywhere we have a web browser and an internet connection, which is helpful for our European clients.

FWIW, we do have a 3% surcharge for using credit cards. This keeps the cost down for the majority of our clients. We try to make it easy for those who want to avoid the surcharge by accepting checks, including those given out by the credit card companies, and working out payment plans when necessary. The way I see it, credit cards are a convenience and those using it should bear the cost. It's just like mutual fund supermarket fees. Most fund families jack up the price of their mutual funds so they can cover the cost of being included as a "No Transaction Fee" fund in brokerage supermarkets. Vanguard refuses to play that game to the benefit of everyone who purchases directly from them.


That sounds like a pretty bad deal on the terminals/acquiring services. Why not just use something like PayPal for internet payments, and PayPal here for in-person? 2.7% for in-person, 2.2% + $0.30 for online (assuming you push $10K+ monthly).

Also, I feel compelled to tell you (because I see you're a site founder and I love this site) that Visa, MasterCard, and acquiring banks are going to be cracking down very hard on non-compliant surcharging as a result of the recent Credit surcharging lawsuit. If you do surcharge, make sure you are following all the rules correctly, or expect massive 5-figure fines. Note: I'm not saying that I agree with this approach (personally, I don't); just trying to give you a heads up. I felt like I should mention, since it doesn't appear that you are following the rules correctly - if you accept American Express and your MDR for American Express is higher than that for V/MA, you cannot compliantly surcharge V/MA products because American Express has an anti-surcharging rule. Feel free to PM me if you want to chat about this - again, I don't like the policy, just trying to help because I know the rules are extremely convoluted.

I see the cost of electronic payments from both sides. On one hand, plastics are a convenience for consumers. On the other hand, plastics enable more payment volume and lower operational costs for merchants. It's not really analogous to mutual funds with loads/high expense ratios because we Bogleheads like to argue that you aren't gaining any value in exchange for loads/high expense ratios, while merchants very clearly stand to benefit from accepting plastics (again, whether they choose to acknowledge this or not).
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Re: Merchant costs on 2% cash back cards

Postby archbish99 » Fri Jul 05, 2013 5:35 pm

A question, marbat.... Is the practice of having a "minimum charge" compliant? There are also a few places around here that have a surcharge if you're below a certain minimum, which I'm pretty sure isn't compliant.

marbat wrote:I see the cost of electronic payments from both sides. On one hand, plastics are a convenience for consumers. On the other hand, plastics enable more payment volume and lower operational costs for merchants. It's not really analogous to mutual funds with loads/high expense ratios because we Bogleheads like to argue that you aren't gaining any value in exchange for loads/high expense ratios, while merchants very clearly stand to benefit from accepting plastics (again, whether they choose to acknowledge this or not).


I'd agree with that, though what advantage vastly depends on the business. Insulation from credit risk with customers who can't pay all at once is a big one. Firms that are willing to take on payment plans with customers for large expenses are obviously willing to waive that advantage, but they also benefit from assured payment for those customers who do choose to pay up-front. For smaller shops, the advantage is more likely to be the impulse purchase -- someone who doesn't have that much cash on them might purchase less or not buy at all; with a credit card they can go ahead and make their purchase. That's not typically an issue when dealing with a lawyer -- you either need a lawyer or you don't, and cash in your wallet doesn't typically change that situation.
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Re: Merchant costs on 2% cash back cards

Postby marbat » Fri Jul 05, 2013 5:43 pm

archbish99 wrote:A question, marbat.... Is the practice of having a "minimum charge" compliant? There are also a few places around here that have a surcharge if you're below a certain minimum, which I'm pretty sure isn't compliant.


Sometimes.

Generally speaking, minimums can only be applied to Credit transactions, and they cannot exceed $10. Also generally speaking, surcharging can only be applied to Credit transactions, and a surcharge cannot exceed cost of acceptance, or 4%, whichever is lower. Also, there are 11 states in which surcharging is against state law. Furthermore, if you accept American Express, you generally cannot compliantly surcharge V/MA (oversimplification, but the details are complicated). You can never compliantly surcharge American Express, as they weren't part of the recent surcharging lawsuit.

So the answer to your question is that if the minimum is less than or equal to $10 and it is only on Credit, and if the merchant has made sure they are surcharging correctly, it could be compliant. Rules suck - they're my least favorite thing about working in this industry.
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Re: Merchant costs on 2% cash back cards

Postby Alex Frakt » Fri Jul 05, 2013 6:22 pm

marbat wrote:
Alex Frakt wrote:
marbat wrote:Debit is about 50% of card transactions in the US. Debit acceptance costs are regulated to 0.05% + $0.21 in most situations. Even if, as a merchant, the non-Debit half of your transactions are all high-end rewards cards, let's say Visa Signature Preferred at the worst possible rate of 2.95% + $0.10, your blended average would be 1.5% + $0.155 per transactions.

We don't take debit cards. The processor (Elevon) required the purchase of a standalone $1200 terminal (x2 because we see clients in two places) in order to accept them and the person has to be standing there with the card in order to use it. OTOH, we can process credit cards anywhere we have a web browser and an internet connection, which is helpful for our European clients.

FWIW, we do have a 3% surcharge for using credit cards. This keeps the cost down for the majority of our clients. We try to make it easy for those who want to avoid the surcharge by accepting checks, including those given out by the credit card companies, and working out payment plans when necessary. The way I see it, credit cards are a convenience and those using it should bear the cost. It's just like mutual fund supermarket fees. Most fund families jack up the price of their mutual funds so they can cover the cost of being included as a "No Transaction Fee" fund in brokerage supermarkets. Vanguard refuses to play that game to the benefit of everyone who purchases directly from them.


That sounds like a pretty bad deal on the terminals/acquiring services. Why not just use something like PayPal for internet payments, and PayPal here for in-person? 2.7% for in-person, 2.2% + $0.30 for online (assuming you push $10K+ monthly).

Let me clarify, all debit cards (at least all the ones we've been presented) can be processed as credit cards. So that's what we do with them.

marbat wrote:Also, I feel compelled to tell you (because I see you're a site founder and I love this site) that Visa, MasterCard, and acquiring banks are going to be cracking down very hard on non-compliant surcharging as a result of the recent Credit surcharging lawsuit. If you do surcharge, make sure you are following all the rules correctly, or expect massive 5-figure fines. Note: I'm not saying that I agree with this approach (personally, I don't); just trying to give you a heads up. I felt like I should mention, since it doesn't appear that you are following the rules correctly - if you accept American Express and your MDR for American Express is higher than that for V/MA, you cannot compliantly surcharge V/MA products because American Express has an anti-surcharging rule. Feel free to PM me if you want to chat about this - again, I don't like the policy, just trying to help because I know the rules are extremely convoluted.

I use the term surcharge for the sake of brevity. We are a law firm. We do not have set prices and do not use the term "surcharge" when discussing prices. Most of our work is on a fixed fee basis and the fee is individually determined between the lawyer and the client based on many factors, including our direct costs for servicing that client.

The exception is for US government filing fees that are included with the applications we produce. The US government will not take personal checks from petitioners or applicants, but will take checks from lawyers. If the client want to charge the filing fee and have us use our check rather than giving us cash or a check (or providing their own bank check or money order made out to the appropriate agency), we will include a 3% surcharge to cover our costs. I believe this is allowed by our agreement. If not, we will discontinue accepting credit cards for filing fees.
marbat wrote:I see the cost of electronic payments from both sides. On one hand, plastics are a convenience for consumers. On the other hand, plastics enable more payment volume and lower operational costs for merchants. It's not really analogous to mutual funds with loads/high expense ratios because we Bogleheads like to argue that you aren't gaining any value in exchange for loads/high expense ratios, while merchants very clearly stand to benefit from accepting plastics (again, whether they choose to acknowledge this or not).

What may be generally true does not necessarily apply to everyone. Accepting plastic actually increases our operational costs. We have a limited number of payments each week and around 75% of those are via cash or check. The incremental dollar cost if it went to 100% would be $0 and the time cost would amount to maybe 2 minutes per week. As it is, the dollar cost of that 25% amounts to a couple of thousand per year (primarily merchant service fees in situations where we can't charge enough to recover the fee) and the time cost is maybe 20 minutes per week in extra bookkeeping.

I'd be happy to get rid of credit cards, we did fine without them for the first 6 years we were in business. We never had a client back out because we did not accept credit cards. We added them only because we hired a lawyer who insisted it was necessary for her clients. She left after a few months, but the merchant services stayed on because this is my wife's law firm and the ability to accept credit cards is a apparently prestige issue for her.
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Re: Merchant costs on 2% cash back cards

Postby marbat » Fri Jul 05, 2013 6:57 pm

Alex Frakt wrote:
marbat wrote:That sounds like a pretty bad deal on the terminals/acquiring services. Why not just use something like PayPal for internet payments, and PayPal here for in-person? 2.7% for in-person, 2.2% + $0.30 for online (assuming you push $10K+ monthly).


Let me clarify, all debit cards (at least all the ones we've been presented) can be processed as credit cards. So that's what we do with them.

Not sure how this is relevant. Still would be cheaper to ditch Elavon. Since it appears you have a blended rate agreement, what I'm about to say doesn't apply to you, but I'll say it for the benefit of others: processing Debit as Credit ("Signature"-verified Debit) is actually more expensive. Interchange is the same, but pricing is a few basis points higher. PIN Debit is cheaper for those on Interchange Plus plans, which is why you see cost-conscious merchants like Walmart automatically routing transactions to PIN Debit, or merchants like Costco only accepting PIN Debit, and not Signature Debit.

Also, processing a Debit card as Signature Debit (pushing the "Credit" button on a terminal) still invokes Debit Interchange: 0.05% + $0.21, nowhere near the Interchange rates for actual Credit products. So plenty of your transactions are likely only being charged at 0.05% + $0.21 to Elavon, while they are pocketing the difference between that and your 2.75% blended rate. What I'm trying to say is you can almost certainly get a better deal on your acquiring and processing - shop around, and I'm more than happy to suggest some cheap alternatives if you're interested :beer. Note that I obviously get absolutely no kickback and I have no vested interests or anything (I'm not a sales guy, my salary is not tied to the success of my company to any meaningful extent, and I'm very objective about electronic payments in general). My views don't necessarily reflect the views of my employer, etc.

Alex Frakt wrote:I use the term surcharge for the sake of brevity. We are a law firm. We do not have set prices and do not use the term "surcharge" when discussing prices. Most of our work is on a fixed fee basis and the fee is individually determined between the lawyer and the client based on many factors, including our direct costs for servicing that client.

The exception is for US government filing fees that are included with the applications we produce. The US government will not take personal checks from petitioners or applicants, but will take checks from lawyers. If the client want to charge the filing fee and have us use our check rather than giving us cash or a check (or providing their own bank check or money order made out to the appropriate agency), we will include a 3% surcharge to cover our costs. I believe this is allowed by our agreement. If not, we will discontinue accepting credit cards for filing fees.

Gotcha, just wanted to to throw in a word of caution in case! Sounds like you're safe.

Alex Frakt wrote:
marbat wrote:I see the cost of electronic payments from both sides. On one hand, plastics are a convenience for consumers. On the other hand, plastics enable more payment volume and lower operational costs for merchants. It's not really analogous to mutual funds with loads/high expense ratios because we Bogleheads like to argue that you aren't gaining any value in exchange for loads/high expense ratios, while merchants very clearly stand to benefit from accepting plastics (again, whether they choose to acknowledge this or not).

What may be generally true does not necessarily apply to everyone. Accepting plastic actually increases our operational costs. We have a limited number of payments each week and around 75% of those are via cash or check. The incremental dollar cost if it went to 100% would be $0 and the time cost would amount to maybe 2 minutes per week. As it is, the dollar cost of that 25% amounts to a couple of thousand per year (primarily merchant service fees in situations where we can't charge enough to recover the fee) and the time cost is maybe 20 minutes per week in extra bookkeeping.

I'd be happy to get rid of credit cards, we did fine without them for the first 6 years we were in business. We never had a client back out because we did not accept credit cards. We added them only because we hired a lawyer who insisted it was necessary for her clients. She left after a few months, but the merchant services stayed on because this is my wife's law firm and the ability to accept credit cards is a apparently prestige issue for her.

Fair point, you're absolutely right. No system is going to work in 100% of situations, and I agree that in smaller professional services-based businesses, it can be difficult to justify accepting cards. But, just to raise a quick subtlety: keep in mind that even if you never had a client back out, that doesn't mean that they didn't appreciate the ease-of-use you offered.
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Re: Merchant costs on 2% cash back cards

Postby Jack » Fri Jul 05, 2013 7:15 pm

The credit card industry is the epitome of a massive market failure.

1. Credit card companies spend millions of dollars on lobbyists to get laws written to extract rents. They can then use government power to prevent merchants from charging customers for credit card fees. This maintains the illusion for the customer that credit cards are free. Hiding information from customers is a classic example of a market failure. Using government power to extract rents is another market failure.

2. Banks compete for valuable high credit card users by issuing rewards. All of the profits from these customers -- high swipe fees, high balance interest -- accrue to the card issuing banks. Yet all of the costs of the rewards are paid for by the merchants who get none of the profits. In fact, banks have an incentive to give ever higher rewards because the cost is passed on to the merchant. The banks pay for none of it. Profits accrue to one party but the costs are borne by a different party. This is another textbook example of a market failure.

3. Merchant and customer come to agreement on the price for an item. Then, after the fact, the amount paid to the merchant differs by an amount ranging from 1% to 3%, depending on which card the customer happens to pull out of their pocket. There is no possibility of negotiation on that fee because the credit card company hides the cost. The customer does not know what the swipe fee will be so cannot negotiate for a discount and the merchant does not know what the swipe fee will be so cannot apply a surcharge, even if they were permitted by law. Only the credit card company knows the actual fee and only discloses that fact weeks after the transaction takes place. This is a classic case of information asymmetry and yet another market failure.
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Re: Merchant costs on 2% cash back cards

Postby Kalo » Fri Jul 05, 2013 7:32 pm

As a consumer (not a business owner), I use my credit card almost all the time, mostly for the cash back rewards. However, I can't think of a single instance, ever, where I have seen a sign in an establishment, that said, X% discount for using cash. Maybe I'm not very observant, although I love a deal and would definitely pay cash if I could do better than my cash back rewards, which are:
4% on gasoline
3% on movies
2% on groceries, restaurants, fast food
1% on almost everything else (the "almost" is making me wonder, as I've never thought about that before, but really the food and gasoline are the biggies for me anyway most months).

So to business owners, I say, incentivize me! I promise I'll take the cash deal if it's better than what my card gives me. Heck, I'll take it if it's a break even probably, just because I like to support my local business community.

But don't expect me to start asking if a cash discount is available. That's not going to happen. You got to put a sign out. I'm not going to negotiate over a breakfast sandwich. Ain't nobody got time for that.

:greedy

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Re: Merchant costs on 2% cash back cards

Postby madbrain » Fri Jul 05, 2013 7:50 pm

Kalo wrote:As a consumer (not a business owner), I use my credit card almost all the time, mostly for the cash back rewards. However, I can't think of a single instance, ever, where I have seen a sign in an establishment, that said, X% discount for using cash.


Most gas stations in my area (Santa Clara county, California) have signs with two prices, one for credit cards, and one for cash. It's not a fixed percentage discount.
I don't know what the discount is now, because I have been driving an electric car since last fall and my last fillup was in october.
Back when I did burn gasoline, I remember that the cash discount was less than the 5% that some reward cards give on gasoline.
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Re: Merchant costs on 2% cash back cards

Postby gkaplan » Fri Jul 05, 2013 7:56 pm

madbrain wrote:
Kalo wrote:As a consumer (not a business owner), I use my credit card almost all the time, mostly for the cash back rewards. However, I can't think of a single instance, ever, where I have seen a sign in an establishment, that said, X% discount for using cash.


Most gas stations in my area (Santa Clara county, California) have signs with two prices, one for credit cards, and one for cash. It's not a fixed percentage discount.
I don't know what the discount is now, because I have been driving an electric car since last fall and my last fillup was in october.
Back when I did burn gasoline, I remember that the cash discount was less than the 5% that some reward cards give on gasoline.


I live in Southern California, and I can't ever remember seeing a sign informing customers of a discount for paying with cash. Maybe I live in the wrong neighborhoods.
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Re: Merchant costs on 2% cash back cards

Postby FedGuy » Fri Jul 05, 2013 9:51 pm

Kalo wrote:However, I can't think of a single instance, ever, where I have seen a sign in an establishment, that said, X% discount for using cash.


I went to a corner pizza by the slice place in my neighborhood (New York City) just last night. They have a sign up informing patrons that their credit card minimum is $8.00. I never spend that much there, so I've always paid cash. Yesterday, though, I got a few extras, and ended up getting a bill for $8.75. I triumphantly produced my cash back credit card. The cashier looked at me, confused, and finally said, "Uh...you know it's an extra charge to pay with a credit card, right?"

I paid in cash.
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Re: Merchant costs on 2% cash back cards

Postby Kalo » Fri Jul 05, 2013 10:13 pm

FedGuy wrote:
Kalo wrote:However, I can't think of a single instance, ever, where I have seen a sign in an establishment, that said, X% discount for using cash.


I went to a corner pizza by the slice place in my neighborhood (New York City) just last night. They have a sign up informing patrons that their credit card minimum is $8.00. I never spend that much there, so I've always paid cash. Yesterday, though, I got a few extras, and ended up getting a bill for $8.75. I triumphantly produced my cash back credit card. The cashier looked at me, confused, and finally said, "Uh...you know it's an extra charge to pay with a credit card, right?"

I paid in cash.


That's brings up a good point. Even though there's arguably no mathematical difference between a discount for paying cash and an extra charge for using a credit card, apparently (based on earlier posts) the latter is sometimes forbidden by law or contract? Does anyone know if it's ever forbidden to offer a cash discount?

I did once have a contractor insist on cash or check for duct work cleaning, or there would be a 5% additional charge for using visa. I paid him in cash.

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Re: Merchant costs on 2% cash back cards

Postby Buysider » Sat Jul 06, 2013 12:01 am

at the risk of a locked thread, the cash discount for small merchants in my experience is driven more by the 20%+ tax savings more than the 2% interchange costs...
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Re: Merchant costs on 2% cash back cards

Postby Jack » Sat Jul 06, 2013 12:31 pm

Buysider wrote:at the risk of a locked thread, the cash discount for small merchants in my experience is driven more by the 20%+ tax savings more than the 2% interchange costs...

As you state, you are speaking from your experience, so you would certainly be one to know.
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Re: Merchant costs on 2% cash back cards

Postby mike143 » Sun Jul 07, 2013 11:13 am

There is a cost to cash, those armored trucks don't pickup for free and there is a cost to the handling of the cash. There is a reason that stores are pushing cash back hard, to get rid of their cash. Taking credit cards yields a larger per transaction total. My understanding is that armored truck pickup is 1% for large businesses like a Wal-Mart.
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Re: Merchant costs on 2% cash back cards

Postby Buysider » Tue Jul 09, 2013 4:05 pm

As you state, you are speaking from your experience, so you would certainly be one to know.


Whatever that is supposed to mean. But considering you think there is a big conspiracy to keep costs "secret" despite being a large amount of data on the web, on this blog, and in the DoJ's rent-seeking anti-trust lawsuit that was instigated by the big national merchant associations, I can only assume you have no idea what you are talking about. Have you asked a merchant why they accept credit cards? Or why some give discounts for cash? Or do you just assume they are ignorant of the costs? Better yet, have you asked who pays for the rewards given to high-spending consumers? Hint, it isn't the merchants, Amex isn't a cooperative trying to extract rents from merchants to give funny-money points to Centurion card holders ...
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Re: Merchant costs on 2% cash back cards

Postby MnD » Tue Jul 09, 2013 9:52 pm

Jack wrote:Its worth noting that those of you who proudly pull out your Platinum Whatever card and present it to the merchant thinking it signals that you are an elite customer, that to the contrary, the merchant hates you. Those cards cost them an extra half to one percent for the transaction. They feel like they are being gouged to support your perks.


The wealthy people I am acquainted with pay for everything with high-end cards (Amex Gold/Platinum, Visa Signature/MC World).
My observation is that their spending is more in dollars and also far more profitable to the retailers as far as spending composition.
At a restaurant they get cocktails, appetizers/salads, wine, don't worry about the price on the entrees, coffee and/or some after dinner drinks.
A vastly more profitable table than the one next to them where the people get ice tea and an entree and pull out cash or a debit card with a pained expression on their face.

I've never had a merchant thank me or offer me a discount for paying cash/debit but I will say I've seen merchants that seemed absolutely thrilled with the spending that we and our friends have done at their establishments using high-end, high cost rewards cards. If they hated us for doing so - they sure did a good cover-up job. :mrgreen:
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Re: Merchant costs on 2% cash back cards

Postby Jack » Wed Jul 10, 2013 11:54 am

MnD wrote:I will say I've seen merchants that seemed absolutely thrilled with the spending that we and our friends have done at their establishments using high-end, high cost rewards cards.

Absolutely thrilled!
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Re: Merchant costs on 2% cash back cards

Postby 168gr » Thu Jul 11, 2013 10:28 am

Jack wrote:Its worth noting that those of you who proudly pull out your Platinum Whatever card and present it to the merchant thinking it signals that you are an elite customer, that to the contrary, the merchant hates you. Those cards cost them an extra half to one percent for the transaction. They feel like they are being gouged to support your perks.


Well then, that merchant is free to tell me he doesn't want my business, and I'll go elsewhere. His opinion of my credit card means nothing to me.
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Re: Merchant costs on 2% cash back cards

Postby MnD » Thu Jul 11, 2013 11:03 am

168gr wrote:Well then, that merchant is free to tell me he doesn't want my business, and I'll go elsewhere. His opinion of my credit card means nothing to me.


Exactly. Merchants in droves didn't hesitate to stop accepting paper checks when it apparently was in their best interest to do so. Few if any offer discounts for cash or pin debit.
My pin debit transactions used to carry a small bank fee - did merchants offer to reimburse me for that fee since they were getting a much more favorable transaction cost? Not a chance.
The idea that higher end consumers, that qualify for the very best reward cards, should downgrade their method of purchase in order to provide a more profitable transaction for the merchant is ludicrous. Commerce works best when all parties approach a transaction from a perspective of enlightened self-interest.
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Re: Merchant costs on 2% cash back cards

Postby slug » Thu Jul 11, 2013 12:08 pm

Really enjoyed this thread as a credit card rewards maximizer. Solid, civil discussion of players and incentives.
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Re: Merchant costs on 2% cash back cards

Postby Faith20879 » Thu Jul 11, 2013 12:44 pm

Hi marbat,

I have a slightly OT question. I give to my favorite charity by giving them a CC # online and they charge it at the frequency that I designate. Does my charity pay Square a percentage or a flat fee? I am asking because, if it is former then I am not giving them the full amount as I have intended. I know I know either way I am not but if latter I don't feel as guilty.

Thanks,
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Re: Merchant costs on 2% cash back cards

Postby allenneal99 » Thu Jul 11, 2013 1:07 pm

Faith20879 wrote:Hi marbat,

I have a slightly OT question. I give to my favorite charity by giving them a CC # online and they charge it at the frequency that I designate. Does my charity pay Square a percentage or a flat fee? I am asking because, if it is former then I am not giving them the full amount as I have intended. I know I know either way I am not but if latter I don't feel as guilty.

Thanks,
Faith



I've been a Board member of several charities and it depends on the charity. It usually is a percentage fee. One charity I was Board on had a flat fee for c/c processing a long time ago (I think from Intuit or eTapestry, I can't remember).

Don't feel guilty at all. Charities are more than happy to receive the money in any form especially credit card, even with small donations in the tens of dollars.

I've reviewed quarterly expense reports during meetings for charities and there's always a side-ways look from other Board members when they see the c/c processing fees in the thousands of dollars. But then we are all delighted when we see the related income statement of all the money received from c/c transactions.

So, even with the processing fee lobbed off, it's still income. There are no worries when $100 donation is just $96 received. As a donor you still get the tax deduction of the full $100.
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Re: Merchant costs on 2% cash back cards

Postby marbat » Thu Jul 11, 2013 1:10 pm

Faith20879 wrote:Hi marbat,

I have a slightly OT question. I give to my favorite charity by giving them a CC # online and they charge it at the frequency that I designate. Does my charity pay Square a percentage or a flat fee? I am asking because, if it is former then I am not giving them the full amount as I have intended. I know I know either way I am not but if latter I don't feel as guilty.

Thanks,
Faith


Assuming that they are in fact using Square, it sounds like they will be receiving the CNP (card not present) MDR because you are not physically swiping a card: $0.15 + 3.5% per transaction. That's a pretty crappy rate - they can almost certainly do better. Essentially, that means if you donate $100, they will receive $100 - $3.65 = $96.35.

If they are not using Square (it seems strange to use Square for CNP transactions as that is not its strength), they are likely on a completely different and hopefully more reasonable rate plan.

Hope this helps!
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Re: Merchant costs on 2% cash back cards

Postby Faith20879 » Thu Jul 11, 2013 1:26 pm

That is steep. I have been educated.

Thanks,
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Re: Merchant costs on 2% cash back cards

Postby fareastwarriors » Thu Jul 11, 2013 1:27 pm

Faith20879 wrote:Hi marbat,

I have a slightly OT question. I give to my favorite charity by giving them a CC # online and they charge it at the frequency that I designate. Does my charity pay Square a percentage or a flat fee? I am asking because, if it is former then I am not giving them the full amount as I have intended. I know I know either way I am not but if latter I don't feel as guilty.

Thanks,
Faith



I donate with checks to nonprofits to help them save on CC fees.
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Re: Merchant costs on 2% cash back cards

Postby allenneal99 » Thu Jul 11, 2013 1:28 pm

MnD wrote:The idea that higher end consumers, that qualify for the very best reward cards, should downgrade their method of purchase in order to provide a more profitable transaction for the merchant is ludicrous. Commerce works best when all parties approach a transaction from a perspective of enlightened self-interest.


From the merchant perspective credit cards are great. They create much needed CASH FLOW.

It was never my intention to ever suggest anyone should downgrade their cards, so I see your (and others) passionate point about using reward cards. I accept and use them too.

But, I believe (and it's just a theory) -- that merchants do pay the consumer reward/cash back dollars, collectively. It's not a bad thing and it would make sense from a financial perspective. If you think about it, the merchants pay the processing fees from all credit card transactions (those with rewards and those not, and debit transactions too). So, it makes sense for the credit card/bank/processing companies to pool all the fees received and pay out the reward dollars from that. I can't imagine any bank just giving money away from their own coffers. :oops:

If merchants did not have to pay processing fees for accepting credit cards, I know that reward/cash back programs would not exist. Period.

It's a nice synergy all around.
Last edited by allenneal99 on Thu Jul 11, 2013 2:52 pm, edited 1 time in total.
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Re: Merchant costs on 2% cash back cards

Postby lhl12 » Thu Jul 11, 2013 2:41 pm

fareastwarriors wrote:
I donate with checks to nonprofits to help them save on CC fees.


+1

I also use checks for political contributions, for the same reason.
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Re: Merchant costs on 2% cash back cards

Postby serbeer » Thu Jul 11, 2013 2:58 pm

gnphiker wrote:...Note that I can also accept Diners Club, but have never even seen or processed one before.


You might have, but you would not realize it. Per Wikipedia:
"In 2004, Diners Club announced an agreement with MasterCard. Diners Club cards issued in the United States and Canada then featured a MasterCard logo and 16-digit account number on the front, and could be used wherever MasterCards were accepted. Cards from other countries continued to bear a 14-digit account number on the front, with the MasterCard logo on the back. However, since the takeover of Diners Club International by Discover Financial Services, these cards have had the Discover logo on the back."

So, nowadays, Diner Club card in US is simply a Master Card-logo card with Diners Club name displayed at the top.
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Re: Merchant costs on 2% cash back cards

Postby Mister Whale » Thu Jul 25, 2013 9:06 pm

Hope it's OK to bump the old thread in order to answer it (I was out of town for a few days while this thread developed, and then forgot about it). I have enjoyed reading the responses.

mike143 wrote:There is a cost to cash, those armored trucks don't pickup for free and there is a cost to the handling of the cash. There is a reason that stores are pushing cash back hard, to get rid of their cash. Taking credit cards yields a larger per transaction total. My understanding is that armored truck pickup is 1% for large businesses like a Wal-Mart.


My business uses a bonded courier service. Cost for three locations is around $9k/year. They drop off our change orders and pick up our deposits. Incidentally, our bank charges virtually zero for coins & bills.

bungalow10 wrote:You claim to do over $10,000,000 in business annually. Don't you think that if you handled that much cash or checks each year you would have $250,000 (or more!) in employee theft or bad checks?


I absolutely do not think that, and here's why: we were a cash-only operation (checks for large orders accepted) for twenty years, and I'd estimate an average total annual loss from that cash-only period to be around $500. That's my actual experience. Incidentally, cash still accounts for around 35% of sales, and losses continue to be negligible. (We currently do around $8M annually.)

telemark wrote:Indeed. It continues to surprise me that we complain about hidden fees in retirement plans, but seem perfectly content with them at the checkout counter.


THIS. Thank You! :beer
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Re: Merchant costs on 2% cash back cards

Postby MnD » Thu Jul 25, 2013 10:53 pm

You were a cash only business for 20 years and didn't take checks despite many customers that no doubt would have preferred that.
Now you also won't take low transaction cost "pin debits" despite many customers that would prefer that because it will "slow your lines down".
Seems like you want terms that will only benefit you, and now that your customers demand change, you are upset.

Your competitors no doubt take cards so taking cards does not put you at any competitive disadvantage. Simply build the cost into your business model.
You mentioned cash is still 30% of your business , the rest is cards that go through the exchange since you have opted to not accept checks or pin debit.

So what's your beef here? Have you ever analyzed the profitability of the sales from your cash customers, versus those that use basic cards versus those using gold/platinum amex, chase sapphire, Fidelity Amex and other higher cost cards? You might be surprised at what financially secure customers order versus those that are just scraping by, and how that affects your profit margin per sale. Perhaps premium card customers place orders with way more upside than the 50 or 100 basis points the premium cards are costing you.

You have the option to stop accepting cards and see how that works out for you. Or analyze, adapt and make it work.
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Re: Merchant costs on 2% cash back cards

Postby Mister Whale » Sat Jul 27, 2013 3:47 pm

MnD wrote:You were a cash only business for 20 years and didn't take checks despite many customers that no doubt would have preferred that.
Now you also won't take low transaction cost "pin debits" despite many customers that would prefer that because it will "slow your lines down".
Seems like you want terms that will only benefit you, and now that your customers demand change, you are upset.

Your competitors no doubt take cards so taking cards does not put you at any competitive disadvantage. Simply build the cost into your business model.
You mentioned cash is still 30% of your business , the rest is cards that go through the exchange since you have opted to not accept checks or pin debit.

So what's your beef here? Have you ever analyzed the profitability of the sales from your cash customers, versus those that use basic cards versus those using gold/platinum amex, chase sapphire, Fidelity Amex and other higher cost cards? You might be surprised at what financially secure customers order versus those that are just scraping by, and how that affects your profit margin per sale. Perhaps premium card customers place orders with way more upside than the 50 or 100 basis points the premium cards are costing you.

You have the option to stop accepting cards and see how that works out for you. Or analyze, adapt and make it work.


I'm simply posting about my actual experiences as a merchant, which was the original point of the thread.
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Re: Merchant costs on 2% cash back cards

Postby lhl12 » Sun Jul 28, 2013 8:12 am

I was traveling this week in an unfamiliar city (Hartford, CT). I needed to get gas and stopped at an "Irving" station, which is a brand I'd never heard of before. There was also a Mobil station almost right next door, and a Valero station a block away.

I started filling up at the Irving station (the one I first turned into) and swiped my credit card. The machine then asked me "Rewards?", which made me nervous. I hadn't seen that before. I then looked at the prices, which I hadn't til then, and noticed that they had two posted prices for each grade of gas - one for cash and one for credit, each $0.03 apart. I cancelled the transaction and went next door to the Mobil station. Same thing, except each of their cash and credit prices were $0.01 higher than the corresponding Irving price.

I drove down the block to the Valero station, which turned out to have only a single price for cash and credit. Their price was $0.02 cheaper than Irvng's credit price, and therefore $0.01 more expensive than Irving's cash price.

I filled up at the Valero station, using my Fidelity 2% cash back Visa. While doing so I noticed a sticker on the Valero pump that said "Credit card transaction limits". The limit for Visa was $125, but was $100 for each of MC and Amex.

I hadn't seen different prices for cash and credit at gas stations like this before, but perhaps I haven't been paying attention. Either way, at least one class of merchant is starting to distinguish between cash and credit.

Separately, does anyone know what would have happened if I had pressed "yes" when asked "Rewards?" at the Irving station? Would I have been charged an additional premium for using a cash back (I.e. Rewards) credit card?

Also, what is going on with the transaction limits at the Valero station?
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Re: Merchant costs on 2% cash back cards

Postby archbish99 » Sun Jul 28, 2013 3:28 pm

Sounds typical to me. While most chains around us have a single across-the-board price, there's one place that does have lower cash/debit prices and higher credit prices. If I have cash on me, I'll occasionally stop there, but more often it's not worth the hassle of getting cash to save a few cents.

And I rarely see places these days that don't post limit for pay-at-the-pump. It's a higher-risk transaction, since there's no human involved, and the credit card companies would like to limit their potential liability. These notices usually also note you can go inside if you need to go past the limit.
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Re: Merchant costs on 2% cash back cards

Postby lhl12 » Sun Jul 28, 2013 6:12 pm

Yes, but why would the cc limit on Visa be higher than on MC or Amex?
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Re: Merchant costs on 2% cash back cards

Postby aaronl » Sun Jul 28, 2013 7:18 pm

Interesting dynamic in this thread. The merchants understandably aren't happy about swipe fees, and many rewards credit card users claim to actively avoid merchants that don't accept cards.

I'm somewhere in between. I'm an avid rewards credit card user, but try to use cash for transactions under $10-$20, especially at small businesses. And I certainly won't avoid a business that doesn't take cards, assuming small purchases where credit card rewards aren't a big motivator and I have enough cash in my wallet.

While I see the unfairness in the current credit card system, it would be in my best interest for swipe fees to remain high. I get a lot of value out of credit card bonus categories and generous sign-up bonus offers, and I imagine these would go away in a hypothetical world with low swipe fees. I've only charged a few purchases to my flat 2% cash back card in the last year or so, since I've been working on one sign-up bonus spend target after the next.

I admit that I'm an unusual case. Most people would be much better served by a system with lower swipe fees, even if it leads to less generous rewards programs.
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