Credit Card Fees

[Robert2181]

Now that merchants can charge for cc fee's, How is everyone going to handle the (cost of doing business) fee that will start showing up in all of our everyday world like it has been in other parts of the market ?

 

[robert roman]

View credit fees in terms of cost of goods and opportunity cost. Before the advent of credit cards;

Net operating income (NOI) = (gross sales) – (COG) – (operating expense)

NOI = (150,000) – (150,000 * 0.10) – (150,000 * 0.40)
NOI = $75,000

With advent of plastic, people have increasingly gone cashless. This is very true for young adults (20 to 30 year old) where 80 percent or more pay with plastic. Today, it is not uncommon to find credit representing 50 percent or more of a retailer’s total sales volume.

If 25 percent of a market uses credit cards, this implies 25 percent may defect or may not be attracted. For sake of argument, assume plastic payment leads to a 25 percent increase in business. So, $150,000 becomes $187,500 (150,000 * 1.25)

NOI = (187,500) - (187,500 * 0.10) – (187,500 * 0.40)
NOI = $93,750

Now subtract out credit card fees, 25 percent of sales times 2.5%.

NOI = (187,500) – ((187,500 * 0.10) + (187,500 * 0.25 * 0.025)) – (187,500 * 0.40)
NOI = $92,578

Here, the credit card fees amount to $1,172.

Opportunity cost = new NOI – old NOI

Opportunity cost = $92,578 - $75,000
Opportunity cost = $17,578

In other words, $17,578 is the NOI you would forgo by not having credit card acceptance.

Assume it cost $10,000 to add credit payment system.

ROI = Gain – investment / investment

ROI = $17,578 - $10,000 / $10,000

ROI = 76 percent

 

[Earl Weiss]

Now that merchants can charge for cc fee's, How is everyone going to handle the (cost of doing business) fee that will start showing up in all of our everyday world like it has been in other parts of the market ?

Not sure if I get your point, but if I do, here is the answer.
Whatever $ you take in is "Income" irrespective if it is a credit card fee or something else. Then you show the "Expense" of what you actualy pay to the credit card companies. It's just an expense like you would show forbuying products for resale at wholesale, or supplies to clean the floor.

 

[PaulLovesJamie]

Robert2181, at the moment I intend to be a follower on this. If the majority of my local market starts to charge it, I will too. But for now I'm not changing.

 

[mac]

For a wash operator I don't think it makes sense to put a fee on it. In some cases like credit card in a self serve bay, you really can't. In my business as a distributor it does make sense. Due to the relatively low number of card sales we get, the fees can be 7% on a transaction. That sucks. In FL they just passed a law making it illegal to add a fee to a charge sale.

 

[cantbreak80]

40% of my total income comes via CC transactions…automatically deposited into the bank account. 6% CC fees represent only 2.5% of my total income.

CC customers save me time and bill changer/coin acceptor maintenance expense due to less cash exposure…for a small fee.

At minimum, my CC customers purchase twice what my cash customers purchase.

I feel I’m money ahead by paying a processor to reduce my workload and maintenance expense. I want to encourage CC usage...I currently have no intentions to “collect a processing fee” from what I consider to be my best income stream.

Now, if every business collects the fee, I'll do a rethink.

 

[bigleo48]

I second cantbreak80's comments. Further to that point is that the Banks here charge for cash deposits. I believe they are .02% for bills and 2.1% for coin (coin has to be wrapped). So in the end, I wish my wash was CC only. It would end all the coinage, bill & security issues.

 

[mjwalsh]

(cost of doing business) fee that will start showing up in all of our everyday world like it has been in other parts of the market ?

Robert2181 & others,

My concern is that ... & I believe is valid ... is that if there becomes not enough of us willing to make an effort to have cash as our dominant payment method we are eliminating a lever for keeping those merchant fees within the proper range without begging for "usually less desirable" government & court intervention. Maybe some in the government will make a deal with some of you ... that they will intervene for you ... as long as you go along with their brilliant ideas & manuevers to extract the maximum amounts from you via gross receipts taxes I know when I & others stood up against the gross receipts tax here in our state ... a proponent for it screamed at me ... $i@*&!x! what do you care ... you do not have to pay it!!!! ... the customer pays it!

The truth of the matter is that much lesser amounts of money than going to merchant fees can be spent on improving the audit capabilities of our cash transactions etc. For some of us the cost of the merchant fees can also amount to many other improvements such as better employee & on call coverage etc along with other improved security measures & other forms of customer service. Most of us I think .... have an unhealthy too few of employees & proper backup etc. ... in my opinion.

It is just a thought ... but are we really sure that the banks don't have a conflict of interest when they go in the direction of making it more expensive for cash exchanges vs cyberspace exchanges??? Could it be a bit too cozy for the central banking system to go in that direction? Do we really have to be that careful ... to be sure & not create any healthy tension for them ... because they are all really just automatically "nice" people.

mike walsh king koin responsible & concerned youtube person

 

[Mr. Clean]

CC fees should be considered a cost of doing business. I avoid a local gas station since they started tacking on $.04-.06/gal. for the privilege of using a cc which I find important for keeping track of deductible expenses.

Regardless of volume, I would recommend internet processors such as Intuit GoPayment or Square. Both charge fees of 2.75% or less. Most smart phones are capable of running the software that these run on thus providing a remote processor that can be used out in the line on busy days. They offer faster transaction speed and no wasted paper as receipts can be sent via text or email.

Our processing fees were over 5.5% until we switched to Intuit GoPayment. Customers routinely comment on how progressive we are for utilizing this format.

 

[mjwalsh]

Regardless of volume, I would recommend internet processors such as Intuit GoPayment or Square. Both charge fees of 2.75% or less. Most smart phones are capable of running the software ...

Mr. Clean & others,

We are now set up with PayPal "Here" for when we sell our paper tokens for the self service car & dog wash portions of our business. We have already tested the app for our 3 cell phones. We are leaning towards passing the 2.7% on to the customers who insist on paying with credit card. We plan on being very polite & diplomatic about the additional charge & make sure we give them the info tactfully in advance. We honestly think that the customers that we would most want to attract will understand the arithmetic involved.

The thought of the customers requiring us to accommodate their credit cards .... showing up at our busiest perfect weather times & displacing our cash paying customers makes us squirm & I believe our bottom line will be actually be slightly worse. I am sure there are exceptions for some operators. Actually, you operators may want to keep it a secret since if it is actually giving you an edge over your competition. If every self service car wash in town goes with CC & cash treated identical to cost to the customer then it seems there will no longer be that edge for you guys.

It would be nice if Dixmor &/or other timer companies could come out with the ability to program a slight extra charge with their LED 7s ... now that it is legal to charge in proportion to the extra merchant fees. I think it would be less annoying than the gasoline surcharges that the garbage collectors & delivery trucks work in on their bills to us & others .... again my personal opinion.

mike walsh king koin responsible & concerned youtube person

 

[Ric]

CC fees should be considered a cost of doing business. I avoid a local gas station since they started tacking on $.04-.06/gal. for the privilege of using a cc which I find important for keeping track of deductible expenses.

Regardless of volume, I would recommend internet processors such as Intuit GoPayment or Square. Both charge fees of 2.75% or less. Most smart phones are capable of running the software that these run on thus providing a remote processor that can be used out in the line on busy days. They offer faster transaction speed and no wasted paper as receipts can be sent via text or email.

Our processing fees were over 5.5% until we switched to Intuit GoPayment. Customers routinely comment on how progressive we are for utilizing this format.

Agree...Square and Intuit work well on a smart phone, plus the fee's are unbeatable. I hope someday their technology can be linked to in bay card readers and auto cashiers.

 

[Earl Weiss]

If the world were fair, there would be a mandatory pass thru of CC Fees to CC users.

The higher cost customer shou,d pay the higher cost.

Sadly, as far as I know, when I was born the Dr. didn't slap my butt and tell me life would be fair.

 

[bigleo48]

Mike,

I have read your posts and watched your youtube videos and I still don't get it?

CC Merchants are in competition vs each other and that's how you keep fees low (I have already switched once). I pay to handle cash and in the end I believe its a wash when you consider the true cost of handling cash (everything from machines, upgrades, sorting, maintenance, cash handling fees from Banks, security, etc, etc). Add to that the fact that CC users spend more...way more!

What I think we need to understand is that we are selling convenience. CC cards are very convenient...just swipe & wash.

 

[pitzerwm]

All but 10 states passed a law allowing a business the right to add a 1-4% transaction fee on CC sales. They have to have it clearly posted and its a new line on your receipt.

That started Feb. 1 I think, and so far I have not seen it being done at any of the major chains.

I agree that it should be added into your price structure. Its no different than the cost of insurance, licenses etc.

I personally feel "ripped off" if I were charged a fee for using my CC. In other parts of the world they have started the CC extra fees. It was strange to see 2 prices in Costco and Sams in Mexico for an item, a higher one if you were using your CC.

 

[Earl Weiss]

I agree that it should be added into your price structure. Its no different than the cost of insurance, licenses etc.

I personally feel "ripped off" if I were charged a fee for using my CC. .

Beg to differ. No specificaly indentifieable consumer class costs you extra in the way of a specific insurance or license surcharge.

I submit that if it is built into the overall price charged to everyone it is the cash customer who is being ripped of. The cash customer should not have to subsidize the credit card purchaser which is what happens when 96% of the CC purchase goes to the merchant and 100% of the cash purchase goes to the Merchant. Assume for the moment 4% CC cost to the merchant (No one mentiooned chargebacks yet) 50/50 split on cash and credit. If the mechant wanted to average $100.00 gross purchase revenue he would have to charge everyone $102.00 (I know it's not exact). He gets $102.00 gross from the cash sale but $98.00 from the CC sale. The cash customer is in fact paying 2% more to subsidize the CC Customer. It's even more out of wack when the CC % is higher.

Further, most CC Customers likely have access to ATMs at no cost, so they could esily get the cash price if they wanted.

 

[Robert2181]

Bill makes a good point. All it is going to take is a couple big merchants to start charging for it and the rest is history. If we all can re-coup that cost of doing business we will. Not that I am for it, but when you see gas for cash & CC price you know it will happen. The states that have not changed their laws will with in time. Just my take on it.

 

[mjwalsh]

Out of curiosity, I wonder if you guys who are extra deep into credit card sales have customers with prepaid &/or rewards cards who don't always know what the balance is? Is there some delays at the pump or at the gas station pay counters because of it? I would think it could even affect the self service with delays to some extent. Maybe it is not significant ... I really am not sure.

The reason why I am asking is that I had a choice of some merchandise from one of my bank's reward credit cards but chose a $250 prepaid card. Not one of the 4 chain grocery stores I went to could help me out with the balance so it is hard to pay towards the end of its amount unless I go through a telephoning or an online process to find out the balance left. The same problem is now occurring with 2 Staples Rebate credit cards. If I remember right on the fine print if I called them ... would be a charge just for the inquiry. I know we do not charge for a balance inquiry on our ATM but I am not sure what the bank charges some of those people for certain specific prepaid cards' balance inquiry ... that would be something out of my control at the ATM but it is something I would squirm about to some extend from a good will standpoint.

A percentage of my laundry customers rely on prepaid cards like Suze Orman recommends it appears ... based on my recent balance guessing experience ... I do not envy those people who actually kind of need to use those cards at least part of their life. http://www.csmonitor.com/Business/n...Does-Suze-Orman-s-prepaid-card-solve-anything

mike

 

[Happycarz]

Mac, as FL doesn't allow a fee for a CC purchase, does the law also preclude you from giving a discount for cash? 30 years ago in the gasoline business, discount for cash was the work around on the law like you now have in FL.

Robert3181, if the big merchants have stores in more than one state, they cannot charge a fee for credit. So, you won't be seeing Best Buy, Walmart, Amazon charging for credit.

 

[Reds]

I would love to charge extra for CC usage. Cash customers, IMO, should not subsidize credit customers. My average cash purchase (IBA) is $7.85 and my average credit purchase is $7.96 . That does not take into account customers who wouldn't come in if it were cash only. Or visa versa. Obviously my CC customers (IBA) do not spend much more than cash customers. Deduct the merchant bank fees from the credit purchases and my CC purchases average $7.62. Perhaps I need to switch merchant bank. Right now I am with Bank of America. I do not accept CC in SS. And my Unitec WS2 does not have the ability to add a surcharge to a credit purchase. Or discount a cash purchase, however you want to look at it. My bank does not charge for cash deposits and my credit purchases are 47% of gross sales.

 

[MEP001]

The reason why I am asking is that I had a choice of some merchandise from one of my bank's reward credit cards but chose a $250 prepaid card. Not one of the 4 chain grocery stores I went to could help me out with the balance so it is hard to pay towards the end of its amount unless I go through a telephoning or an online process to find out the balance left. The same problem is now occurring with 2 Staples Rebate credit cards. If I remember right on the fine print if I called them ... would be a charge just for the inquiry. I know we do not charge for a balance inquiry on our ATM but I am not sure what the bank charges some of those people for certain specific prepaid cards' balance inquiry ... that would be something out of my control at the ATM but it is something I would squirm about to some extend from a good will standpoint.

Correct me if I'm wrong, but does this paragraph have anything at all to do with the subject at hand (merchants passing along CC processing fees), or is it another promotion for installing an ATM at a self-serve car wash?