Keeping Cash at Hand

There are a billion credit cards tucked into American wallets, nestled next to 530 million debit cards.

And for every transaction with one of those cards, which the U.S. Census Bureau estimated to be worth almost $3 trillion in 2012, somebody is paying a processing fee.

The fee is low, but two or three percent of every swipe can add up and turn customer convenience into merchant cost.

“Depending on the dollar amount of the sale it can be expensive to pay those fees,” said Matthew Lemke, Baylake Bank’s director of retail for the Bay Central region.

How it works

In order for money to get from a credit card to a business’s bank account, the card has to pass through a round of security measures. Credit card processing companies act as a middleman, making sure the card has enough to cover the transaction and that the card hasn’t been stolen before actually transferring money.

Processing companies, like Merchants’ Choice Card Services (MCCS), charge a fee for those services – that small fee merchants pay on every card transaction – but MCCS sales consultant Kevin Dymond said most of that fee goes to the credit card companies, not the processing companies.

Dymond explained it like this: Jane goes into the hardware store and swipes her world travel card on a $100 purchase. The merchant pays 2.5 percent of that purchase ($2.50) that goes to the processing company that handles the transaction and to the credit card company that gave Jane the card. The credit card company then “rewards” Jane for using her card by giving her air miles.

“Who’s paying for Jane to fly to Cancun on her air miles?” Dymond said. “[The fee] is going to pay for these cards that have all these bells and whistles on them. [Customers] just like to get all these kickbacks, they don’t realize that somebody’s paying for that and it’s usually the merchant.”

Since debit cards don’t give rewards the way credit cards do, the processing fee for debit transactions is lower.

If supporting the local economy is on consumers’ minds, paying with cash should be part of the equation, even if it comes at the sacrifice of special offers and discounts from credit card companies.

“In my case the credit card I use I get a little discount from,” said Door County Economic Development Corporation executive director Bill Chaudoir. “We pay our credit card every month so we don’t pay any interest charges, so it’s like everything I buy is on sale. It might be a challenge to get people to [pay with cash] unless you can convince them it’s worth doing to support other local businesses, especially small businesses.”

Cash, check or card?

Some businesses do not need to convince the customer, and choose not to accept credit or debit cards.

Since it opened more than 10 years ago, Good Eggs, a breakfast burrito restaurant in Ephraim, has been a cash- or check-only business. This spring, owner Joel Bremer decided to try accepting credit cards, just to see what happened.

Here’s what he learned: It’s hard to get reliable internet to run a credit card machine, processing credit cards took longer than making change, and customers jump on the opportunity to hand over their plastic and hoard their cash. On top of that, he paid two percent of each credit card transaction to a processing company.

“The real kicker was my staff not getting tipped,” Bremer said. “The 80 cents in change people absentmindedly drop into the tip jar they don’t write down on a piece of paper [receipt]. For my staff, walking out of there with a little bit of cash on top of a good wage makes it an attractive job… On a busy Sunday the tip jar was about $100 short.”

After six weeks, Good Eggs went back to accepting only cash and checks. Even accepting IOUs, which Bremer did before purchasing an ATM, was a better bet than plastic.

“We have the ATM there for customers to access the cash and I think they all understand – this is a sandwich, it’s not like they’re going dress shopping or dropping $100,” Bremer said.

Good Eggs is just one of many local businesses that don’t accept credit or debit cards, but for some small businesses such as Malibu Moo’s Frozen Griddle, paying a fee on low-value credit and debit transactions is worthwhile.

“I feel you’d lose the sale if you did not accept credit cards,” said Malibu Moo’s owner Mary Graff. “A lot of people walk through the door and ask if we accept credit cards, and when we say yes they say ‘ok, good’ and they come in.”

Graff estimates about 25 percent of customers use debit or credit cards on transactions as small as a soda or as high as a round of custards for the family.

“I think the majority of people do use credit cards, and I think it’s important that if that’s the choice they’d like to make, that we accept them,” she said.

Passing the fee

As of January, local merchants could choose to put credit card processing fees on the consumer. A court settlement made it legal in 40 states, including Wisconsin, to add up to a four percent surcharge to purchases made with VISA or MasterCard credit cards, but not debit cards or personal checks. Retailers have to inform customers of the fee, and Lemke said he hasn’t heard of any businesses tacking on the surcharge.

But avoiding credit and debit card transaction fees is simple – keep cash at hand.

“I know for small businesses those credit card fees can be significant, so I definitely see the point where [using cash helps] to support other local businesses,” Chaudoir said. “I bet there would be some interest with our fellow business people as well as dedicated consumers. That might be a nice, simple strategy to pursue. Credit cards are pretty darn handy – but I know that’s a significant burden for a lot of businesses.”