The “Swipe” Adds Up for Small Businesses

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The “Swipe” Adds Up for Small Businesses

There is a mounting need to educate consumers regarding the fees charged by credit card companies and how that trickles downward for the small business. Oftentimes, consumers feel like they are being punished when they walk into a small business and there is a list of conditions for using their credit cards.

Some of those conditions might be:  You cannot use a credit card unless the purchase is over $10; another is that some merchants no longer accept American Express;  some might require that rewards cards will not be accepted;  or that you will be charged an additional nominal amount if you use your credit card.

Believe it or not, this is transparency at its finest for small business owners. Rather than choosing to imbed the expense of credit cards in the product or service you are purchasing, they choose to simply be upfront with these costs and set forth a list of conditions that will help them better able to manage what goes on with every swipe of a credit card.

In this day and age, it is nearly essential that small businesses accept credit cards. Otherwise, they are stuck with cash, check and store credit as their only payment processing options.  Not to mention credit cards are a necessity for e-commerce.  It is a convenience for consumers to have all payment options available to them. It may even result in a lost transaction if a consumer is not able to choose how they will pay.

In order to bridge the gap between the frustrations that small business owners experience when maneuvering their way around credit card expense and between consumers who want to pay in whatever method they choose, education is essential.

The following is a list of fees the small business will incur, by offering the ease of credit card payment to its customers:

Start Up Fees/Annual Fee

The start-up fee is for approving the merchant account and for the set-up of your equipment. Some credit card processing organizations will leave it as a one-time start-up fee. Others will make it an annual fee. A $25-$50 fee is normally what is charged.

Monthly Statement Fee

Most credit card processing companies charge the merchant a fee for their monthly statement. The fee usually ranges between $5-$10 per month.

Discount Rate Fees

The discount rate that a merchant pays is a transactions fee for using credit card processing. The discount fee is a percentage of each credit card transaction and normally varies between 1% and 3.5%. The discount fee is based on various factors.  The discount fee itself depends on what type of card. A debit card is the cheapest card for merchants.  The American Express card is usually the most expensive card to accept for payment. This is why many small businesses stop accepting this credit card.

Transaction Fee

The transaction fee is the minimum fee that credit card processing companies charge per credit card transaction. It depends on the method of payment and is usually a number of cents, which varies based on the amount of credit card business a merchant generates.  It is a set fee. The lower the amount of credit card business generated by the merchant, the higher the transaction fee per credit card transaction.

Minimum Monthly Fee

In addition to the per transaction fee charged by the credit card processing company, monthly fees are also assessed.  If a business does not do a certain level of credit card business per month, the company will charge a minimum fee, usually around $25-$50 per month.

Credit Card Processing Equipment Lease Charge

Due to the expense involved, some small businesses lease their credit card processing equipment instead of buying it.  A monthly fee is assessed by the leasing agent. This varies on the type of equipment.

Gateway Fee if you have an Internet Merchant Account

If you are purchasing online, the business will also incur a gateway fee for setting up a shopping cart, a web presence, and accepting debit and credit cards online. Depending what is included in the gateway fee, it can range between $10-$50 per month.

Chargeback Fees

In order to be able to return merchandise or refund your credit card, a chargeback fee will be encountered by the merchant. A chargeback is the reversal of a debit or credit charge, otherwise known as the void of a transaction. Some credit card processing operations will allow a few chargebacks per month before they start charging the merchant. Some won’t.

Address Verification Fee

One seldom thought about credit card processing fee is the address verification fee. Some, not all, credit card processing companies, will charge a few cents for each time address verification is requested during a credit or debit card transaction. So, if you are asked your address or zip code, this is why this happens during a transaction.

After examining the above list, a consumer can quickly see how this might add up for a small business. Credit card processing fees have become a large source of income to credit card processing firms and a large expense to the small businesses that accept credit and debit card payments.  A rough example is that a business with 10,000 in monthly sales can often expect to pay nearly $400 in credit card fees. That expense is sometimes more than the business owner is paying in rent.

The necessity of convenience required by consumers and the threat of a loss transaction makes this a benefit too costly to forfeit for most small businesses.  In educating consumers,  it may begin to make more sense  why a business seems to be imposing rules and/or restricting credit card use. It isn’t as a controlling form of punishment but rather a cost effective way for a business to attempt to control an expense that can oftentimes be misunderstood and overwhelming.

Support for small businesses comes not just in the form of a making a local purchase but better understanding how critical decisions are made for our local entrepreneurs. So, as a consumer, if you are frequently visiting a local business, stop by the ATM and retrieve some cash. This helps support that business in two ways: a purchase made and eliminating the escalating cost of swiping your card. As the business world often exclaims, “cash is king” and even more so for your locally owned businesses.

Tracie Yelich

Tracie Yelich is a part time Business Advisor for the West Central ISBDC. She currently owns a small business. Tracie has been owner of Bella Florista, for five years. Her responsibility and daily tasks include that of human resources, management, scheduling, marketing, financial procurement, cash flow management. She is also very active in the hands-on tasks of her business and is accomplished in her trade of floral design. Her professional accomplishments include that of acquiring corporate accounts, developing and implementing successful business plans and perfecting her servant leadership style. Her passion is to assist other women fulfill their dreams of small business ownership through personalized coaching and encouragement. Tracie holds a Bachelors degree in Marketing from Indiana State University.
Tracie Yelich can be reached at tyelich@isbdc.org.
Posted in: Operations, Small Business Owner's Guides, Starting a Business

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