A small business perspective on payment systems

Credit card machine

The interchange fees and percentage fees on that $1 soda could be costing small businesses 50 percent or more. Image: Flickr / lancefisher / CC-BY-SA

In the next few months, congressional legislation is set to reduce debit and credit card interchange fees to 12 cents per transaction. Banks and some legislators are attempting to slow the implementation of this new law, worried that it will hurt business competitiveness. But for small business owners, like me, these limits are more important than ever before.

Interchange fee primer

Card interchange fees are, in short, fees paid for the privilege of allowing customers to use a credit or debit card. Otherwise known as “swipe fees,” these fees range between 12 cents and 75 cents and are charged every time a card is swiped. This “interchange fee” is in addition to a certain percentage of the transaction amount that is charged for use of the card. The interchange and percentage fees go to pay the company that provides the card machine, the card processor and the banks involved with the transaction. These fees added up to $50 billion in 2010. Current interchange fees in the United States are about twice as much as those in Europe. Some congress members are trying to push through legislation to stop lower interchange fees, claiming they would make businesses in the United States less competitive.

How interchange fees affect business

For a small business, the decision of whether to accept cards is tough. Accepting credit cards means paying a fee and a percentage on every credit card transaction, plus most credit card processors charge a monthly fee, so the costs are high. For a small business that runs on tight margins, it is even worse. Even with available alternatives that reduce cost, any small business will have to eventually pass on the cost to consumers through minimum purchases, higher prices or additional charges on card payments. There are benefits; accepting cards means customers are more likely to make bigger purchases, and more customers are willing and able to pay for your product or service.

My small business perspective

My husband and I own a small business that offers a variety of products and services. Whether we should accept credit cards was never really a question — it was a necessity. Without a physical location and relatively low monthly sales volume, the $20 to $100 monthly fee of a traditional credit card terminal simply did not make sense. We chose start-up Square to run our credit cards, which charges a flat percentage of every transaction and processes credit cards through smart phones. On an average month with $300 in sales, our business pays more than $8 in credit card fees. Added on to $30 in business taxes and $26 in sales tax we collect, the amount available to pay our suppliers and make a profit gets thinner. The reduction in credit card interchange fees would allow us to reduce the amount we charge customers or be able to actually hire employees. Either way, card fees may not sound like much to a consumer, but those few percentage points are what can take a small business from “surviving” to “competitive.”



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