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A pain in the wallet
Plastic processing costs take bite out of retailers' profits, raising fees for consumers
| Friday, Jul 20 2007 7:15 PM
Last Updated: Friday, Jul 20 2007 7:19 PM
Robby's Nursery & Landscape Service in Bakersfield is one of a growing number of businesses that has seen a dramatic increase in the number of customers paying with credit or debit cards instead of cash or checks.
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Richard Kesterson of Omaha, Neb., swipes his debit card at a supermarket in Omaha. Like millions of other Americans, he didn’t consider paying by check. Using a debit card is easier, he said.
But Kathy Robinson, manager of the family-owned nursery on Hageman Road, worries she may have to start raising prices to offset the increasing cost of accepting plastic payments.
Robinson estimated the prices her small business pays to process debit and credit cards has at least doubled in the last year.
"The cost is skyrocketing," Robinson said. "It could be $1,500 to $2,000 a month just to process them. It used to be next to nothing. That's an extra expense on top of everything that we didn't used to have. It comes right out of our bottom line."
Some have started tacking on debit card transaction fees to offset costs. All Star Market on Fairfax Road charges customers 50 cents per transaction for debit card gas purchases.
Manager Mike Taing said transaction fees can range from $500 to $800 a month and eat up much of the gas station/mini mart's profits. Taing said customers need to pump $10 or more of gas at a time for the business to break even or make money on credit and debit card purchases.
"It is very expensive," Taing said. "They (fees) are always going up."
Robinson said small businesses are charged higher rates because they have less sales volume, and mom-and-pop stores do not have the clout of chain stores, which can negotiate cheaper rates.
Monthly transaction fees are on top of the cost of equipment to process electronic payments and additional fees paid to a bank or independent company for using a credit and debit card payment service.
It is customary for retailers to be charged a fee of 2 percent to 3 percent of each sale for processing credit card transactions, with some credit cards -- especially reward cards -- charging much more, Robinson said. She said the nursery is charged a flat rate for debit card sales, which takes a significant bite out of profits on small transactions.
"We don't have a choice what card they use," Robinson said. "Nobody asks the merchant. The individual knows how much it will cost them up front. We have to pay whatever they say. We don't have an option."
Bonny Anderson, financial services representative at Iowa State Bank, said most merchants prefer customers enter a PIN (or personal identification number) instead of signing for a transaction because retailers are charged a fee for processing signature debits.
PIN transactions don't carry those fees for merchants because the transactions are more secure, said Debra Ross, executive vice president and general manager of Wells Fargo Merchant Services.
A report from the American Bankers Association shows that credit and debit cards are consumers' first choices when paying for goods and services, with cash and checks combining for less than half of their monthly payments.
Debit cards, which now outnumber credit cards in consumer use, are accepted in most places, including fast food restaurants, coffee shops and doctors' offices.
The main reason is convenience.
"With a debit card, you don't have to worry about how much money you have in your pocket," said Frederick Lowe, editor of ATM & Debit News in Chicago.
-- The Des Moines Register contributed to this report.