The Merchant Payments Coalition (MPC) is the latest industry trade group of many to take up the fight against card processing fees. Merchants pay on average 2.50% to accept credit and debit cards for purchases, and the shift to contactless and digital payments accelerated by the pandemic means that card transactions make up the majority of a merchant’s sales today. Visa’s latest Global Back to Business study released this month found 18% of small businesses surveyed are already cashless, 41% expect to accept only digital payments such as cards or mobile payments in the next two years, and that 64% will do so in the next 10 years. Meanwhile, 16% of consumers said they no they longer use cash, 25% expect to be digital-only in two years, and 53% will do so in 10 years.
According to MPC Executive Committee Member and National Association of Convenience Stores General Counsel Doug Kantor, “As more purchases are made with cards, costs for merchants go up dramatically.”
Accepting credit and debit cards is a service that merchants pay to use, and like any other service, the more you use it, the more it costs. While the increase in service fees resulting from more card transactions is obvious to merchants, less obvious are the operating costs that those fees are displacing. Card processing fees are often, and incorrectly, categorized as an added cost to the merchant that has no benefit. In reality, card processing fees are displacing the higher costs of handling cash and checks, and when properly accounted for, result in operational savings for the merchant’s business.
Cash is a universal tender, and this is fundamentally what makes it so expensive for most merchants to accept. The costs of reconciling register drawers, safeguarding the cash with dual-employee controls, vaulting, losses from incorrect change given by clerks, risk of robbery and theft, and lastly fees that banks charge commercial customers to accept deposited cash, all tally up to more than what merchants are charged to accept payment cards if properly accounted for. Accepting personal checks exposes the merchant to fraud and insufficient funds losses, unless a guarantee service is used, in which case the fees to guarantee a check are the same or more than those charged for payment card acceptance.
In higher-volume stores, efficiency drivers like self-checkout and buy-online-pickup-in-store (BOPIS) are only made possible with cards and digital payments. The sales lift operational efficiency, and displaced costs associated with handling cash and checks deliver a positive return on investment for card processing fees that is unmatched in any other area of the merchant’s business.
For years, merchants have been laser-focused on driving down the operating expense of their businesses, but the pandemic has highlighted and accelerated the shift in consumer preferences to utility, convenience, and experience. While many businesses closed during the pandemic, those who survived and thrived were able to pivot quickly to meet their customers where they are, and where they want to be. Consumers don’t wait in line at Starbuck coffee shops because they have the lowest operating costs and sell a cup of coffee cheaper than their competitors. Rather than complaining about the costs of accepting payment cards, smart businesses are succeeding by leveraging the capabilities of payment cards in new ways to delight their customers with fast, efficient payment experiences.
Overview by Don Apgar, Director, Merchant Services Advisory Practice at Mercator Advisory Group