Credit Card Rates – What Should You Be Paying?
As we retailers batten down the hatches ahead of the Global Financial Crisis we know we have to look at costs. One obvious area to look at is the cost associated with credit and debit card providers. Are you getting the best deal possible?
Hoping to give AHJ readers an accurate summary a questionnaire was sent to all the major players. Unfortunately all but the ANZ and Diners Club (and their answers were too general to be of much use) opted for silence. Not to be deterred, we used a bannered small hardware store as a case study.
So, roughly what should we be paying for the ability of banks to provide the financial wherewithal for customers to buy our goods?
Credit Card Commissions
You should be paying well under 1% for Visa and MasterCard – between .1% and .34% under. Some bank providers want you to pay extra for the rewards schemes attached to their premium cards so you might find yourself being asked to pay between 1.15% and 1.76% (+GST) for bank-issued premium credit cards.
Of course being a member of a group or an industry association helps make the providers sharpen their pencils. Even so, the best deal available may not be the one your group or association has negotiated. This was certainly the situation in our case study.
The deal negotiated by the case study’s group was with one bank which offers a very low headline rate but charges higher rates for premium bank-issued cards. The case study business is in one of the highest socio-economic suburbs in Sydney so everyone has a premium card. In this instance the case study business is better off with another institution charging a flat rate of .78%.
Non-Bank Credit Cards
This segment of the market really means American Express, with Diners Club making a comeback following the disaster that was Ansett. Both companies still try to sign you up for somewhere between 2.5% and 3.5%.
American Express’ rewards program has been called the best in the world and both companies have major corporate clients. On the other hand, most Amex holders have other credit cards. They just want to maximise their points. You have to work out whether it is in your best interest to offer the facility to help them rack up those points!
The case study store does take Amex but then there are some really good deals going around for smaller shops to give them an incentive to take this premium non-bank card. This store has taken the decision not to pass on a differential charge for the use of American Express but then, it is now paying less than half of what it used to be.
Once upon a time the bank and non-bank credit card providers used to have a clause in the merchant agreement whereby retailers could not charge a differential rate for those paying by credit card instead of cash. This practice was outlawed by the ACCC a few years ago so the retailer must decide whether to pass on commission rates to customers and, if so, whether only the commission rates applicable to premium cards are passed on.
The case study shop has taken the decision to absorb all credit card costs, including American Express, as a necessary cost of doing business.
Some banks charge debit card transactions by a set fee per while others charge a percentage although generally lower than the commission charged for credit cards. Set fees vary from nine to 22c per transaction (+GST) – though the institution charging that highest amount cannot be serious!
Whether a flat rate or a percentage is better for your business depends upon your average sale per customer but certainly in the case study a flat fee per transaction is the cheaper option.
A single terminal hire varies from about $24 to $29.70 per month (+GST). A separate line for your EFTPOS terminal is vital so that line cost must be factored into your cost equation.
All banks offer free stationery. In the event of terminal failure freecall numbers are provided so retailers can ring in for authorisations for manual processing of transactions. Most banks will replace faulty terminals at no cost within hours in major cities and with 48 to 72 hours in rural areas.
Generally banks do not charge establishment or annual fees for your EFTPOS facilities although a minority do.
Have a close look at your current merchant charges and do a little comparison-shopping. The deals out there may well have changed since you last looked and it’s easy to phone up the banks for a quote.
Don Wormald has bought and sold many independent hardware stores. He has also been involved in the supply side of the industry as a consultant, director of a distributor and co-founder of a paint buying group.