Small Business Saturday 2013 is scheduled for November 30th this year, the day after the Black Friday shopping frenzy. Although the event’s promotion is supported primarily by the American Express company, keep in mind that merchants pay a premium to give the convenience of credit card payment and that can drive prices up and profits down.
We’ve all done it. You stop for gas and pay at the pump with your debit or credit card, generally a substantial purchase of $20 or more. But then you remember you need a gallon of milk or decide on a candy bar.
You go inside and pay for that with your card as well, spending under $5. Many people just don’t carry as much cash as they used to and, while some stores have minimum restrictions on credit card purchases, most will accept the loss to avoid losing the sale altogether.
When you use a credit card, the retailer loses a percentage of the sale to processing fees. The more prestigious the card is, the higher the fees.
Companies like Master Card and Visa require merchants to accept all versions of the cards they offer to customers. Premium credit cards, like gold and platinum “preferred” cards, have much higher processing fees, resulting in greater losses to the store. Imagine buying a Hershey bar on a Visa Super, Platinum Extra Gold Card (That’s not a real credit card, but sounds like it, doesn’t it?). From a 99-cent chocolate bar, the store will see only around 20-30 cents in profit after wholesale costs and processing fees.
Unfortunately, merchants have virtually no choice in whether or not to accept credit cards as payment, since using actual money has become something from a by-gone era. A class action suit a couple of years back resulted in merchants now being permitted to add a surcharge for the use of certain credit cards. That’s a double-edged sword, though, because it also discourages people from using credit and either prevents the sale completely or drives the buyer to spend less with the retailer.
You might wonder how any of this affects the consumer? When credit card companies take more from the retailer he or she will have to raise prices, across the board, to compensate. So everyone loses here, the retailer, the consumer and the manufacturers of the goods. Well, everyone except – you guessed it – the credit card companies. They’re raking it in by the billions because the general public wants the convenience of swiping a card rather than the risk and trouble of carrying cash around.
Additionally, debit cards have the banks double-dipping on fees. When a customer uses a debit card, two fees are levied – one against the merchant and the other on the customer. Buyers may even be charged one more time by the bank who issued their card, even though it’s their own money, probably in a checking or money market account, and not actually credit.
If you’re not sure which kind of transaction you’re processing, it’s easy to distinguish. Whenever you swipe the card and are prompted to input a PIN (personal identification number), that’s a debit sale. Credit card purchases require no password or PIN, but may ask you to input your billing zip code for security purposes.
Hopefully you are planning on filling some of those holiday gift orders with local small shops and that you’ll keep all of this in mind before you reach for your wallet at the cashier. If you really want to help small businesses this year, park that platinum and fork over some greenbacks. Cash is accepted everywhere and helps keep small business healthy and thriving. With cash, money circulates within a local community faster and more efficiently and it’s available right away.
Gery L. Deer is an independent columnist and business contributor to WDTN-TV2’s Living Dayton program. More at www.deerinheadlines.com.