Credit and Debit cards - why doesn't every place accept them?

In 2015 why do places choose not to take debit and credit cards?

Hi- They have to pay a fee to the credit card company, and if somebody walks in a coffee shop to spend $2 on coffee, and then charges it, the store doesn't make much money. Aldi's has never taken credit cards because it keeps costs down. They do take debit cards.

kenji wrote:In 2015 why do places choose not to take debit and credit cards?

Less of a paper trail. While I'm not accusing any specific business, tax evasion is rampant in the restaurant and tavern industry, so much so that the IRS set up a task force to pose as buyers when suspected restaurants went up for sale to see if they could get the seller to open up their "real" books. I don't know if they're still around.

Credit card purchases actually hurt a business bottom line especially if the tickets are small. Some restaurants have $15 or $20 minimums for credit card purchases. There are percentage of sale fees, per transation fees, monthly gateway charges and probably a few more obscure fees barried in the monthly merchant statement.

Credit card purchases actually hurt a business bottom line especially if the tickets are small.

If you have a 300-seat bar with negligible nearby parking, meaning people have to either use iffy bus service or pricey cabs to get to your establishment, you'd darn well better take credit cards. You want to encourage people to run a hefty tab, not have one $6 Miller Lite, leave a fifty-cent tip, and leave. You also want to encourage people to book parties in a place this size, and not taking credit cards probably kneecapped that income stream.

I was refering primarily to fast food restaurants with small tickets. NFriday used a $2 purchase at a coffee shop as an example.
I don't know any 300 seat bar that doesn't take credit cards.

jay2021 wrote:I don't know any 300 seat bar that doesn't take credit cards.

I read somewhere that there used to be one in Rogers Park, but it closed.

Big Star is a prime example of a bar/restaurant that accepts cash only, and given their volume, they probably save thousands of dollars per month by doing so.

It isn't feasible for the type of business I own, but I can certainly see the appeal.

Hi,

I remember once Steve Drucker commenting on credit card fees, especially American Express, are a significant expense in high volume, low margin businesses. He made an interesting statement: they were your default business partner.

Regards,

jay2021 wrote:Credit card purchases actually hurt a business bottom line especially if the tickets are small. Some restaurants have $15 or $20 minimums for credit card purchases. There are percentage of sale fees, per transation fees, monthly gateway charges and probably a few more obscure fees barried in the monthly merchant statement.

Actually people run up higher tabs with credit cards than with cash; one study I saw suggested as much as 30% higher. What's more, the credit card companies now offer a couple of fee structure options, one of which is designed for places that have a lot of small-ticket transactions. That's when you started seeing McDonald's and Starbucks and 7-11 and what-not taking credit cards. There may be some businesses where it hurts the bottom line, but I gather for those that accept them... it doesn't or they wouldn't.

Drover wrote:Actually people run up higher tabs with credit cards than with cash; one study I saw suggested as much as 30% higher. What's more, the credit card companies now offer a couple of fee structure options, one of which is designed for places that have a lot of small-ticket transactions. That's when you started seeing McDonald's and Starbucks and 7-11 and what-not taking credit cards. There may be some businesses where it hurts the bottom line, but I gather for those that accept them... it doesn't or they wouldn't.

In line with this, I have to believe credit cards are a good thing in the eyes of most businesses whose bread-and-butter is small ticket items, or those businesses wouldn't have changed their practices in the last ten years to start taking them. Businesses that cater to "young people" (as I call them) in particular. It absolutely astonished me (for the first thousand or so times) to find myself in line behind some young person at Starbucks paying for a $2.00 cup of coffee with his or her debit or credit card. Silently, I muttered to myself in my curmudgeonly way, "You gotta be kidding, kid. You're out on the streets, and you don't have friggin' $2.00 in your pocket?!??" And truthfully, I still don't get it. But I have accepted that it is the way it is. And that it represents incremental revenue for Starbucks and every other business. These are not customers who would be paying with cash if credit and debit cards weren't accepted. These are customers who wouldn't be walking into Starbucks if credit and debit cards weren't accepted.

My Girl Scout troop sold cookies yesterday morning at Peet's in Evanston-- we had about 5 people ask if we accepted credit cards and then leave when we said no. Not much of a loss for a small timeframe, but over time it would add up. Accepting credit cards for GS cookies is in the works... and (I hope) the council would eat the fees, rather than taking it out of the pittance the troop gets per box.

Saw someone ask to use a cc @ Marios last yr. Clueless. Involved in a project now that doesn't take cc w/this next to the atm. @ first i thought it was a bad idea, but not now. if my tix avg was higher i'd do it, but this works just fine.

riddlemay wrote: Silently, I muttered to myself in my curmudgeonly way, "You gotta be kidding, kid. You're out on the streets, and you don't have friggin' $2.00 in your pocket?!??" And truthfully, I still don't get it.

Could be an age difference? Many kids I know only walk around with debit cards attached to their checking accounts or their parents checking accounts. Rarely do they use cash. Most things in their lives are swipe and go.

Even the vending machines I use now take plastic. Seems to be attached to a cell phone device attached to the machine.

Yeah, it's a generational thing. My daughters are completely bewildered at my apparently outdated habit of carrying around cash. Heaven forbid they're in the car when I have to stop at the ATM for cash; the eye rolling and sighs would make you think we were stopping the buggy to water and feed the horse.

Totally generational. I was raised in a day and age when you thought about what might happen to you if some crisis, God forbid, happened and you didn't have enough cash to buy your way out of it. (There was a time, boys and girls, when Lincoln Towing only took cash! Just to name one crisis.) And in which not having enough money on you to buy a sandwich or a cup of coffee was even slightly shameful. Those days are clearly gone!

riddlemay wrote:Totally generational. I was raised in a day and age when you thought about what might happen to you if some crisis, God forbid, happened and you didn't have enough cash to buy your way out of it. (There was a time, boys and girls, when Lincoln Towing only took cash! Just to name one crisis.) And in which not having enough money on you to buy a sandwich or a cup of coffee was even slightly shameful. Those days are clearly gone!

Gone is an understatement. I am waiting for the time when it will be routine to permit payment electronically via Google Wallet, Square Cash, Paypal, Venmo, Chase Quick Pay, etc.

My friends, I suspect credit cards and debit cards are going away well before the middle of this century in lieu of electronic transmissions via smart devices.

pairs4life wrote:

riddlemay wrote:Totally generational. I was raised in a day and age when you thought about what might happen to you if some crisis, God forbid, happened and you didn't have enough cash to buy your way out of it. (There was a time, boys and girls, when Lincoln Towing only took cash! Just to name one crisis.) And in which not having enough money on you to buy a sandwich or a cup of coffee was even slightly shameful. Those days are clearly gone!

Gone is an understatement. I am waiting for the time when it will be routine to permit payment electronically via Google Wallet, Square Cash, Paypal, Venmo, Chase Quick Pay, etc.

My friends, I suspect credit cards and debit cards are going away well before the middle of this century in lieu of electronic transmissions via smart devices.

ApplePay. It's happening quicker than you think.

Hi- I know somebody in her 70's who never carries cash, and always uses her card when she is spending $2 at Starbuck's. She told me once that she does it so she has a record of all her transactions at tax time. Thanks, Nancy

As a retailer (NOT a restaurant) taking cards has its downside, but we do it because there is a net benefit. Primarily, it's a convenience to many customers and sometimes leads to higher sales. A secondary benefit is not having to schlep to the bank as often to make a deposit.

Obviously businesses factor the (not trivial) cost of handling cards into pricing.

As noted in earlier posts, there are charges per transaction, charges for a % of the transaction amount (including sales tax) and a bewildering variety of added fees which are always going up. Fortunately, my business' price points are sufficient to cover the costs. I would guess that for a small retailer the total will be at least 3% of sales. For businesses on a tight margin, that is significant. Some retailers such as grocery stores have a net after taxes of 2% of sales or less.

On the downside, there is the irritation factor of dealing with credit card companies. As Cathy2 pointed out they are your unwanted partners. I liken them to Big Al's goons, except instead of coming round once week to collect several C-notes, they are looking over your shoulder with every transaction.

Similarly, negotiating terms is difficult for small businesses. We don't have the volume that a McDonald's does to work out a low per transaction fee. Even the big guys have a tough time of it. Several years ago Wal-Mart and Target were plaintiffs in a complicated law suit against the banks over credit card practices. It became a class action and I was happy to let them take the lead.

Even so it took years to settle. I think my share of the settlement was about $50. Whoopee.

The card statements are masterpieces of obfuscation with a bewildering variety of fees and rates. I was trained as a CPA, but have rarely been able to trace the actual cost for a particular transaction. All I really know is the total amount it costs me each month.

Finally, people love to get travel miles or other benefits when using their cards. I hope you don't think that it costs the banks anything to offer these goodies. In fact, I think it's a profit center for the banks.

The money to pay for your airline points come out of the retailer's hide. The trasnaction rates for any particular card vary depending on how much the banks charge for a level of benefits.

A retailer's agreement (typically locked in for 3 years by the way) may have a base rate of 1.9%, but that's only the base. There are surcharges for many cards and there is no way of knowing beforehand what that charge will be. It could be an extra 1% or even more.

That's the story from the inside looking out.

Hi- Thanks for the insider's look. Does the retailer get charged anything when a debit card is used as opposed to a credit card? A group that I sing with, as one of our many fundraisers we sell Jewel gift cards. Jewel sells them to use for 5% less than their total value, and one of our members charges the initial card purchase at Jewel to his American Express card, for which he gets 4.5% back, which he then turns around and hands to us. Does that mean that Jewel is out 9.5% on every card he purchases? It is one of our biggest money makers. Thanks, Nancy

Saw a Girl Scout yesterday using Square payments. The idea was that a the slightly reduced return on a Square sale is better than a missed sale. That girl is going places.

George R wrote:Primarily, it's a convenience to many customers and sometimes leads to higher sales.

Thanks for all this background, George.

I'm curious...Would you agree that credit cards not only lead to higher per-customer sales (individual customer would have spent something, but spends more), but also to higher number of transactions, period (customer would not have walked into store if he didn't have card, because he has only 25 cents in his pocket)? That's my impression--although I haven't polled the the young people standing in front of me at Starbucks.

Hi- I heard on the news Saturday that Tom Hanks came up to a group of Girl Scouts selling cookies that day, and bought a box, and then stayed around for a few extra minutes, and offered to have his picture taken with anybody who agreed to buy a box of cookies from the Girl Scouts. This was somewhere in California.

NFriday wrote:Hi- Thanks for the insider's look. Does the retailer get charged anything when a debit card is used as opposed to a credit card? A group that I sing with, as one of our many fundraisers we sell Jewel gift cards. Jewel sells them to use for 5% less than their total value, and one of our members charges the initial card purchase at Jewel to his American Express card, for which he gets 4.5% back, which he then turns around and hands to us. Does that mean that Jewel is out 9.5% on every card he purchases? It is one of our biggest money makers. Thanks, Nancy

Mostly, yes, it's the vendor who takes a hit.
The fees on credit card transactions are typically higher on credit cards with loyalty programs -- the vendor has no choice on this matter, they can't tell that the customer's card gives back points/dollars/miles. I've never seen it get to be more than a fraction of a percent, though.

However, the miles or whatever that cards return are based to some degree on the total revenue the bank is getting, in other words, they factor it into their interest and fees.

Jewel may be able to claim the 5% discount is a charitable deduction, making it a slightly smaller hit.

W/visa and mc, it's around 3%, amex, 4%, which is why some opt not to take it. But if your margins in a restaurant are 10% on a good day, you can see why many are cash only. Also, it's not like you get your $ @ the end of the nite. Depending on the deal you make, it could take 3 biz days to get to your acct.

NFriday wrote:Hi- Thanks for the insider's look. Does the retailer get charged anything when a debit card is used as opposed to a credit card? A group that I sing with, as one of our many fundraisers we sell Jewel gift cards. Jewel sells them to use for 5% less than their total value, and one of our members charges the initial card purchase at Jewel to his American Express card, for which he gets 4.5% back, which he then turns around and hands to us. Does that mean that Jewel is out 9.5% on every card he purchases? It is one of our biggest money makers. Thanks, Nancy

Yes, the retailer is charged though at a lower rate. If it's processed as a credit card then the % is lower. Perhaps 1.25% instead of 2%. If it's processed as a debit card - that means entering your pin code on the machine - then the fee is less, maybe just 25 cents.

We don't have a pin machine as our transaction volume is too low to justify the cost of the fancy processor.

In the case of Jewel they may be big enough to have negotiated a better rate with AMEX. It may be their rate is less that 4.5%, as grocery stores have about the tightest margins around. But AMEX will make it up elsewhere.

Note: Retailers get hit up in many ways. The card processing industry is multi-layered with everyone taking a cut starting with the big processor banks at the top, the Visa and MC associations, then smaller banks and finally distributors.

Distributors are small entrepreneurs who are forced to operate with tiny margins. I know one who gets 12 basis points. That means if he has a client with an annual volume of one million dollars, he gets $100/month. He's an honest guy who provides good service, but it took me years to find him.

That explains why some distributors are always desperate for new clients, and why we get several calls a day from people pretending to be our card processor.

Some distributors also play games with the machine cost. I can buy a basic transaction machine new for about $200, but some will take advantage of ignorant small business owners and lease it to them for $50/month with a five year non-cancelable lease. That's $3000 for a machine that is $200 retail.

I guess you can see why I'm frustrated by the card industry.

riddlemay wrote:

George R wrote:Primarily, it's a convenience to many customers and sometimes leads to higher sales.

Thanks for all this background, George.

I'm curious...Would you agree that credit cards not only lead to higher per-customer sales (individual customer would have spent something, but spends more), but also to higher number of transactions, period (customer would not have walked into store if he didn't have card, because he has only 25 cents in his pocket)? That's my impression--although I haven't polled the the young people standing in front of me at Starbucks.

Both are certainly possible, though it's hard to measure. I do remember that my first card sale years ago was to someone debating about a modest purchase. I mentioned that we took credit cards and she then went ahead with the purchase.

I wouldn't confine the issue just to younger people, though in this case the woman was middle-aged. On the other hand just a few days ago we had some teens in our shop who made a purchase with cash. Most of our customers are middle-aged or older. It's hard to generalize.

George R., I'll chime in with the others to thank you for your insider's view. If you don't mind indulging us a bit further, what happens if it turns out that the customer was using a credit or debit card fraudulently?

I just got an offer in the mail for a free Square Reader (iPhone, iPad & Android compatible) and a flat 2.75% per swipe fee. No other fees at all. So, credit cards can be accepted rather inexpensively, if someone is so inclined.