Next time you are paying for your big gulp at 7-11, the cashier will probably be asking you to sign a petition. From coast to coast, this chain of convenience stores is protesting what’s known as credit card interchange fees a.k.a. the transaction fee when a credit card is processed. These amounts include a flat fee, plus a percentage fee. For most purchases, these aren’t a problem because they only work out to be 2-3%. However with small purchases (such as those at 7-11) the fees ends up being higher on a percentage basis, since the flat fee portion of it skews it higher. For example, if the flat fee was 10 cents, and the percentage fee was 2%, that would equal 13 cents on a $1.50 coffee…. or around 8 to 9% of the purchase price. So as you can see, it’s understandable why this could be a problem when it comes to tiny purchases.
Indeed, there should probably be an alternate payment structure when it comes to smaller purchases. But there are a few important advantages businesses have when they’re accepting card payments. First of all customers have the ability to spend money they may not otherwise be able to afford with cash, this in turn means more sales for the business. If the customer doesn’t pay their charge card bill, the store owner is not responsible and still gets the money no matter what. It’s the credit card company that takes the hit, and with most of them seeing a 10% default rate right now by cardholders, it’s definitely a big hit to take. The same applies to fraud, and criminals are notorious for using stolen cards at places like convenience stores because they know they’re not likely to be asked for ID. In addition, card payments simplify payment processing because it’s all done electronically. Otherwise, someone has to manage and account for all the coins and cash that comes in and goes out. This is a tedious and time consuming process to say the least – meaning an employee on the clock would be doing this.
So there are a number of benefits that debit and credit cards bring business owners, but it’s true, the fees can definitely be a pain in the butt when it comes to smaller purchases… like a big gulp at 7-11. Hopefully, the banks and businesses can work out this problem and find a happy medium.
Written July 2009