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Summary: If you have a shop and you accept Credit/Debit cards like Visa, Mastercard, Maestro, American Express, etc., you have to pay a fee. Is there any way to keep accepting those cards without paying the fees?

I went to the shop and I bought an item which cost $1.20. I asked the seller and he confirmed that he has to pay $0.70 for that transaction. The seller also added that he bought the item for $0.60. This means he lost $0.10. He confirmed there is no way to avoid this. I'm not sure if this applies to online transactions as well.

Why should the fees be paid? I believe there are also good reasons to keep paying those fees:

  • Credit Card circuit provides fast transaction execution compared to... (is there any comparison alternative, maybe online payment alternative)?
  • Credit Card circuit checks during the transaction if the card is valid and has not been stolen.
  • ...
  • ...any other reason?
muru
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Francesco Mantovani
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5 Answers5

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Is there any way to keep accepting those cards without paying the fees?

No. You're receiving a service, why would you be receiving it for free?

He confirmed there is no way to scape to this.

That's incorrect. He can avoid these fees by not accepting credit cards for such a small charge. Cash is legal tender.

The credit card companies allow (after being sued numerously) merchants to set minimum transaction amounts below which merchants are not required to accept credit cards for payment. This is specifically to avoid cases where the fee is prohibitively high compared to the transaction amount.

The fees are usually structured with either fixed floor or with a fixed component. For example, 2% of the transaction, but no less than $0.50 (fixed floor), or $0.25+2% of the transaction (fixed component). Both make it significantly more expensive to accept credit cards for low amounts.

littleadv
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10

As to why merchants take credit cards, even with fees, the common answer answer is an increase in sales. A friend started taking credit cards and her business double or tripled in volume. As her cheapest item was $6.00 and the average item was $20 - $30, the fees did not kill the profit margin. The most expensive items were $1200 - $1400. It was not uncommon for people to buy $250 - $400 of stuff. For average retail, most people don't walk around with hundreds in cash.

Large volume cash shows tend to be at wholesale shows for vendors. One off transactions for hundreds or thousands of dollars, where you would not trust anything but physical currency (because checks and cards can be forged and the seller often eats those losses). Even then, once a business relationship is formed, things other than cash become allowed.

Today, many buyers expect to be able to pay with a credit card. The only major places than don't are MJ, tiny food vendors, and individuals (me buying something from a friend). Even the government will often take credit cards (but may upcharge you the 3% transaction fee).

EDIT: Just a note, this is how things work in America. Other countries have different standards and practices. The numbers listed in the original question looked like American Credit Card numbers, so the specific answer was based on that. Note, debit cards may (often do) have different processing fees. Point of the answer to was answer why a merchant would take Credit Cards. In the absence of a cheaper electronic payment system, it is usually good for business.

Walter
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Is there any way to keep accepting those cards without paying the fees?

I think there might be some special rules/discounts if you're operating a non-profit 501(c)(3) but that doesn't apply to your scenario.

He confirmed there is no way to avoid this. I'm not sure if this applies to online transactions as well.

Yes, this applies to online sales as well. Accepting credit card payments means that you're paying for a service. Do you eat a satisfactory dinner at a restaurant and then think of ways to not pay? Of course not, you chose to have this service provided to you.

WHY SHOULD THE FEES BE PAYED?

Because the merchant chose to accept credit card payments at their business.

So, how do you mitigate the pain of credit card payment fees for low-value items as a merchant?

  • Raise your base sale price to account for the transaction fee
    • That $1.20 could have costed $2 instead
  • Do not accept credit cards below a certain threshold
    • Small shops/restaurants often impose a $20 minimum purchase if paying by credit card
  • Offer 2 prices: cash price and credit card price
    • Gas stations have implemented this tactic in my area for many years now; it's usually a $0.10/gallon difference but I suspect they will raise it fairly soon
    • A local restaurant which I frequent tacks on a 3% credit card processing fee if paying with a credit card

Most places tend to take the gamble that high-value transactions outweigh the occasional low-value sale. It's called "the cost of doing business".

Gas stations and convenience stores in less affluent neighborhoods might opt to not accept credit card at all if their transactions are usually less than $20.

MonkeyZeus
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Only for regular customers.

The shop owner might issue his own customer cards. Payment is done via debit charge at the end of the day/week/month. The shop owner will need to have his own infrastructure to collect the payment data for his "premium customers" and will have to offer an incentive for his "premium customers", typically some discount. Note that while cash discounts are illegal in some places, giving a discount to "premium customers" is legal.

Obviously, this won't work for non-regular customers, so the shop owner will have to accept the regular plastic money, but the incentive will convince the "premium customers" to stay with the shop's "premium card".

Note that there debit charge fees as well; they are however usually cheaper than what the credit card companies charge. Plus, it's also possible to charge the customer at the end a month (for the cumulated sum of the individual purchases in that month) to reduce the fees even further - at the cost of having to wait up to a month for the money.

After all, the shop owner will need to calculate whether this could a be a working solution. If there are enough reliable regular customers, this will work.

Klaws
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Is there a way to bypass POS Credit Card processing fees?

No: if you want to accept cards for payment you will need to pay a fee for that service.

But there could / should be different providers on the market with different fee structures. Searching might reveal providers with lower price per transaction or lower total cost (depending what else a package of services might include).

I see an unhealthy effect of the fee structure and increased use of cards in chains of shops around where I live - they tend to stop selling goods with a unit price below a certain price level. Not selling single "something", as example, only selling double packs or sixpacks or similar.

ghellquist
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