MilesBuzz! - Credit Card Merchant Charges

As long as we're beating the CC business to death, I'd sure like to come up with definitive answers on the costs.

1. I'm pretty sure that the big players (United Airlines, Hertz, Hilton, etc.) have negotiated very low rates from the card guys - probably well below 2%. Is this true? And would a chain like Hilton, for example, get a corporate-wide rate, or does each individual property negotiate on its own?

2. Conventional wisdom has it that businesses like super markets and department stores operate on very thin margins - typically a couple of percent or so. If this is the case, a 2-3% cc charge would eat up all the profit, yet every supermarket I've been in in the US and Europe accepts cc's. What's the situation here - have they raised prices to compensate? Are we suckers if we pay cash?

I'd like to hear actual numbers from people on the rates paid by the big guys, the little guys, and the mom&pops. Is it supposed to be secret? If so, I think I'd like to know that, too.

Can't do any scheming unless we know what we're dealing with. http://www.flyertalk.com/forum/smile.gif

Hey look - I've got a palindromic post count!

[This message has been edited by BigLar (edited 10-09-2003).]

I wish it were that simple. I have a small business and my official rate is 2.02%, but very little actually goes through at that rate. There are 6 or 7 divisions for type of card(I've never been able to find out what a non-qualified retail card is)---visa, mc, scanned, punched by hand, called in when the line is down. Additionally, there are all sorts of nickel and dime charges(think of your current phone bill) plus charges from the bank that accepts the money from the processer, etc. Some accounts work on percentages as low as 1.57%(so I've heard), but add on a 15 or 20 cent per item charge,etc. Both Visa and MC have made a minumum charge amount a violation of contract, so small charges tend to change the mix when you negotiate based on volume and average charge amount. Hope this helps, but I spend a lot of time on the phone with my processor, trying to find out why the rates seem to vary from month to month. I can only image what the statements from a chain store must look like.

Visa/Master ~1.5-1.6%
Discover >2%
Amex >3%
Diners Club more than Amex

It also depend on the charge and volume.

The following page lists the wholesale rate charged by Visa and Mastercard as of April 2003 (they are updated every 6 months):

http://www.discoveringmontana.com/doa/gsd/content/Resources/TCForms/SPB02-32BPRICING2 .pdf (http://www.discoveringmontana.com/doa/gsd/content/Resources/TCForms/SPB02-32BPRICING2.pdf)

The rate is for large Supermarkets who pay 1.20% for Visa/Mastercard credit cards and a flat $0.40/transaction for VI/MC check cards.

(The net cost for Supermarkets is lower than this since the alternative of cash/checks also has a cost involved in depositing it in the bank which is avoided with credit cards).

The highest rates normal are charged to T&E (Travel and Entertainment) merchants like hotel & restaurants, when accepting a World Mastercard or Visa Signature (2.1-2.2%).

The absolute highest wholesale rate of 2.65% is for an old fashioned paper (knuckel duster) charge, which is basically a penalty for not using an electronic terminal.

The lowest rates are for large Corporate purchases over $3K (0.75%) or large Government purchases over $5K (0.95%).

In theory these wholesale rates are supposed to be a combination of a base discount rate which depends on the interest rate (probably around 0.6% at this time) plus an add on based on the fraud and/or charge back history of the merchant & charge type. Presumably Corprations and Govt have the lowest charge back rate (maybe employees can't be bothered too much with disputing their employer's credit card), followed by Supermarkets (when is the last time you heard of anyone contesting a grocery charge because the quality of the food was bad ?).

Note that the rates are very complicated and only the very largest merchants pay these rates plus a hefty flat per month fee to their credit card processor. Smaller merchants pay a markup on these rates plus a smaller monthly fee to their credit card processor.

[This message has been edited by ananthar (edited 10-09-2003).]

I would assume a supermarket also saves money on insurance and security costs. Fewer armored truck pickups, lower risk of robbery, etc.

I'm sure that the rate structure in other nations varies. I've found a tour company in Turkey which adds a 6% surcharge if you pay by credit card...this probably reflects a higher fee they must pay.

------------------
Middle_Seat

The phenomenon of credit cards has not fully "caught on" in some countries. It is truly a much easier system than cash. That said, I doubt that we'll ever be rid of cash completely.

I have experienced merchants in Germany accept credit cards with remarkable reluctance. Including large purchases (over €100). Even when the credit card logos are advertised.

In Australia i think they just passed a law earlier this year that allow merchants to pass credit card surcharges back to customers who choose to use credit cards.

Matter of factly, when I booked a vacation with Qantasholiday 3 years ago, if i paid by credit card, i had to pay 3% extra. i ended up paid by check. And the office i purchased the package is based in LA, near LAX.

Many countries when you offer to pay cash, you get a discount at least 5 to 10%.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by Happy:
Matter of factly, when I booked a vacation with Qantasholiday 3 years ago, if i paid by credit card, i had to pay 3% extra. i ended up paid by check.</font>

At first I was going to comment that a lot of businesses that offer discounts when paying by check ignore the costs of bad checks. Sure, a check doesn't cost anything to deposit, but some of them come back with a 100% discount fee, so to speak.

But an airline selling package tours probably doesn't have to worry about this. They probably have an advance-purchase requirement, and if the check is not honored, they don't honor the tickets.

Living in Mexico, I have not been able to use my Visa/MC at several establishments since it is issued from a foreign bank (outside of Mexico). Even Ticketmaster in Mexico won't accept cards from foreign banks.

As far as the cash discount, that is rampid in Mexico. It is usally 10% discount and I the reason being is that if it is charged they have no choice but to report the sale. But if it is by cash . . . well . . . who is the wiser and they save the 15% tax payment to the govt.

My company is based in Australia and we currently pay 1.15% for VC/MC. Since the RBA has introduced some reforms, we have had talks of this dropping to about 0.95% for all VC/MC transactions.

I go around southeast Asia a lot and see a real mix. Worst I've seen is the Philippines, where some banks outside the big cities charge the merchants 7%. Not surprisingly, acceptance is very low and surcharges are passed on at all but the highest-end places, which are few in number. Indonesia was surprisingly one of the best, with good acceptance and not much surcharging. Singapore and Malaysia also are well-covered, but those countries have the highest living standards and that's expected.

Still, the credit-card companies haven't cracked the small-business market (i.e. the mom-and-pop places) in most countries, and most consumers don't have cards. It generally makes for much faster checkouts, though - I have to shake my head at how some people in the U.S. use debit cards even for purchases of less than $10 (or $5) at grocery stores. I suppose they could be getting some rewards (though at &lt;$10 it doesn't seem worth the extra time taken), but I doubt it. They probably just took what the bank pushed on them. The bank gets a merchant fee, the store gets more costs to pass back to consumers, and the consumer gets basically nothing. Maybe they need a contest where all who charge less than $10 to a debit card get automatically entered. Grand prize" a wheelbarrow full of AOL trial discs!!*


(* Winner must return wheelbarrow)

[This message has been edited by RustyC (edited 10-11-2003).]

For small business, credit cards have a major downside--chargebacks. Very Large companies that provide lots of profit to the credit card companies have the credit card companies work harder for them in fighting charge backs.

The other down side to credit cards is the trail you leave behind of when, where and how you have spent your life. Cash leaves no fingerprints.

After reading the recent Visa/Master Card settelement with the retailers, I have come to the conclusion that the credit card companies are very evil in the way they conduct their business.

Ironically, the cards with the least chargeback risk (corporate purchasing cards) actually cost our firm the highest rate (non-qualified, same for anything with a business name embossed on the card). We have negotiated exceptionally low rates on American Express (we have a picture of our sales rep in an unsavory position), so we pay below 2%, which is quite unusual.

American Express frequently targets some market segments for better discount rates; we see this especially in grocery and hardware - I suspect there may be some logic there, as people who use their cards at grocery and hardware stores may tend to carry a balance and generate finance charges, which is where the real money is made.

Eric

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by VibeGuy:
American Express frequently targets some market segments for better discount rates; we see this especially in grocery and hardware - I suspect there may be some logic there, as people who use their cards at grocery and hardware stores may tend to carry a balance and generate finance charges, which is where the real money is made.</font>

That, or getting into grocery/drug/hardware stores may be one of AMEX's last barriers into total acceptance everywhere. I think they're working very hard at trying to get to the point where you don't need to carry a VISA or MC as a backup in case someone doesn't take AMEX.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by VibeGuy:
Ironically, the cards with the least chargeback risk (corporate purchasing cards) actually cost our firm the highest rate (non-qualified, same for anything with a business name embossed on the card).
Eric</font>

Supposedly there is a way to avoid the non-qualified surcharge : Corporate credit card users are supposed to be issued with a secret ID by their company and if that ID is entered at the point of sale into the machine, the non-qualified surcharge disappears. Of course most users of corporate cards have no idea what this ID number is. Supposedly MC/Visa are afraid of unauthorized users (eg recently fired employees). I have never understood this logic since if Corporations are capable to losing track of who has their card (and fail to collect them when firing employees) they are just as likely to loose track of the authorized employee ID.

My theory is that this is not really about fraud but a sneaky way to make up for the fact that most corporate credit cards are payed off at the end of the month and would be less profitable than regular cards without the non-qualified surcharge.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by ananthar:
[B] Supposedly there is a way to avoid the non-qualified surcharge : Corporate credit card users are supposed to be issued with a secret ID by their company and if that ID is entered at the point of sale into the machine, the non-qualified surcharge disappears. B]</font>

Actually, it's nothing so secret as all that; if your equipment/software is programmed to supply the additional purchasing card data (usually shipping zip code, sales tax amount and sometimes PO or line-item purchase details), transactions qualify at the lower interchange rate. The catch is, the software that we love to pieces otherwise doesn't support this interaction. Feh. American Express is unique in not hitting Merchants for a surcharge for purchasing-card transactions.

A previous poster's point about Global Card Domination is well-taken - about the only place our firm does business that *doesn't* take Amex is Fry's. Darn them.

Eric

The non profit I'm at is an extreamly small business in credit card terms, ten months out of the year we have a few hundred dollars or so per month on one merchant account, the other months we had $35-40,000 on the account (event ticket sales). Our merchant rate was 2.0 something on visa and mastercard, pass through to Amex, with no per item charge, and a $20 a month fee.

Rates of 1.5 or even lower are not unusual.

We saved a zillion in the processing of those charges people would have had to key them in manually at a terminal, the rate would be higher, you would call if they number was wrong or the card denied, etc.

Easily worth the credit card fee to us.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by lesleylane:
Living in Mexico, I have not been able to use my Visa/MC at several establishments since it is issued from a foreign bank (outside of Mexico). Even Ticketmaster in Mexico won't accept cards from foreign banks.</font>

Can you tell us if any of these are "card-swipe" merchants where the card is presented in person at a retail establishment? Of all the credit card situations I've experienced personally or read about here on FlyerTalk or elsewhere, I've never heard of a situation where an in-person merchant accepts MasterCard/Visa cards for purchases, but places restrictions on where the card was issued.

Note that I'm not referring to any of the following situations:
- Cash withdrawals from an ATM
- Cash advances at a bank or bank equivalent
- Online purchases
- Merchant displaying Visa/MC logo but discourages/prevents use of card, presumably because of cost to the merchant (without respect to issuing country).

Can lesleylane or anyone else confirm a situation in any country where a card-swipe merchant restricts the use of valid Visa/MC cards based on country of origin where they otherwise accept such cards without a problem?

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by bibbubyu:
Visa/Master ~1.5-1.6%
Discover &gt;2%
Amex &gt;3%
Diners Club more than Amex.</font>

The situation with Diners Club as stated above is not true in many situations. I used to own a business that accepted credit cards, and our deal was that Diners Club was honored at the same discount rate as Visa/MC (subject to a set floor - if the particular merchant's Visa/MC rate was below a certain amount, then DC would be at the floor rate. But, if the Visa/MC rate was above a certain amount, then DC was at the same rate as Visa/MC). Amex was higher than Visa/MC/Diners.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by VibeGuy:
A previous poster's point about Global Card Domination is well-taken - about the only place our firm does business that *doesn't* take Amex is Fry's. Darn them.</font>

If there is ANY company bent on world domination, it's Fry's. I've abandoned them completely. Did you know that Fry's holds the dubious honor of having a poor record with the BBB in every single locale they have ever opened a facility? That and the blue-sticker madness makes it completely not worth the 0.005% I can save there versus the reputable mom and pop shop.

A good clue for Amex might be where they're awarding double membership rewards options points (grocery stores, U.S. postal service, etc.). They have a reputation among retailers for higher rates and still resistance in some places to accepting them because of that.

The one that really blows me away is debit cards, though. Consumers are willing to pay extra (in the form of higher prices because of the merchant fees) so they can save their banks money. (Imagine the resistance in the old days if they had surcharged even 1% for paying with a paper check!).

Some banks even have the nerve to charge for debit cards; they do it by the month because they found that a single annual fee generated complaints. And merchants aren't crazy about debit cards because they don't get the extra spending from people digging further into debt.

I have gotten three free, mileage-earning, upgradeable tickets through my credit-card rewards program in the last four years. What would I get on debit cards for the same spending? Much less, and probably nothing.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by Steve M:
Can lesleylane or anyone else confirm a situation in any country where a card-swipe merchant restricts the use of valid Visa/MC cards based on country of origin where they otherwise accept such cards without a problem?</font>

In France, all French cards have a chip (smart cards), and purchases are confirmed by typing your PIN into the terminal. Most of these terminals have a slot for swiping the magnetic strip of foreign cards, but they don't always works and the personnel in less touristy areas doesn't always know how to use it. I've also seen signs in stores stating that they only take French cards, but whether this is technical or the merchant protecting himself against the use of stolen foreign cards, I don't know. Also, vending machines (such as the SNCF or metro ticket machines) will not accept foreign cards because the machines are set up to use the chip and PIN, not the magnetic strip.

In different cities in the Guangzhou province in China last fall, I was turned down from using my MBNA Amtrak CC in many restaurants. They said their card swipers were programmed for only China based cards. Hmmm... http://www.flyertalk.com/forum/rolleyes.gif

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by elCheapoDeluxe:
Did you know that Fry's holds the dubious honor of having a poor record with the BBB in every single locale they have ever opened a facility? That and the blue-sticker madness makes it completely not worth the 0.005% I can save there versus the reputable mom and pop shop.</font>


I'ts hardly surprising - I got into a heated discussion with them yesterday at the Seattle branch over availability of advertised merchandise and willingness to transfer it from another store. The sad thing is, though, that they are often the *only* firm in our market that sells first-quality electronics components that is open something besides 8-5 M-F, and when you *REALLY* need a certain AMP connector or a crimping tool, it's kinda like castor oil; nasty, but necessary.

Eric

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by elCheapoDeluxe:
That and the blue-sticker madness makes it completely not worth the 0.005% </font>

What's the "blue sticker madness"? I've had decent luck with Frys. Sometimes the stuff is defective, but they are good about returns even if you just changed your mind, as long as you get it back within the 15 or 30 days. I got my best-ever bargain there: a Brother MFC 9600 floor model in perfect condition for $250. That said, if it's not a sale price, you will likely do better at Sams or Costco.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by RustyC:
The one that really blows me away is debit cards, though. Consumers are willing to pay extra (in the form of higher prices because of the merchant fees) so they can save their banks money. </font>

Agreed, it's incomprehensible. My pet peeve is the credit card issued by my credit union. Every d*mn time I use it, the terminal tries to nag me into using its ATM feature. A word to the wise: use credit cards from banks with which you have no other business.

I take Visa, MC and AMEX. My average charge is $3-400, which is supposed to be decent. I cannot swipe cards. My base rate is 2.1 or 2.2%, and then I get a bunch of excess charges, including the telephone calls we supposidly make to confirm cards. Comes out I get very close to 97% of the charge. Amex does not throw on the BS, the rate is 3%.

My small business does 90% of its transactions on cards. For Visa/Mastercard I am charged 2.3% plus $.30 per transaction. Amex is similar but I had a deal with them at the start. They only charged a flat $5 in any month I had an Amex transaction while I built my business. Since my typical Amex charge was over $200 that was a decent deal. Once I reached a target volume number for my total sales they shifted me to a standard deal that is pretty close to what Visa/MC do.

I also have to pay a monthly fee to access the gateway that processes the charges. I do all my transactions either online or over the phone and do not have a terminal to swipe cards. Supposedly you get better rates when most of your sales are through a terminal with the physical presence of the cardholder.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by willie--wonka:
Both Visa and MC have made a minumum charge amount a violation of contract</font>

What recourse (if any) does a consumer have in the face of such a violation of VISA/MC contract by a merchant with which the consumer wants to do business?

American Express also does not allow a minimum charge if as a merchant you accept either MasterCard or Visa. If you don't then I believe you can set a minimum.

As a consumer, you have very little recourse other then trying to get the credit card companies to fight the battle for yo, as I don't think that there are many states that have made it a law, just a violation of the credit card agreement.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by bedelman:
What recourse (if any) does a consumer have in the face of such a violation of VISA/MC contract by a merchant with which the consumer wants to do business?</font>

Walk away from the transaction. If the merchant wants your business, it will relent.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by bedelman:
What recourse (if any) does a consumer have in the face of such a violation of VISA/MC contract by a merchant with which the consumer wants to do business?</font>

A more aggressive approach is to write your credit card information on a piece of paper and leave it at the check out counter and walk out with the merchandise : by tendering payment in the form advertized by the merchant, you cannot be convicted of theft.

Don't try this unless you are willing to have the merchant arrest you and are willing to counter sue for false arrest.

A lot of assumptions about other countries here are wrong.

The Travel Agent listed above was screwing you, plain and simple. No company in Turkey pays more than 3.5% or so, and many much less. Next time, refuse to do business any other way than with a CC and walk it if necessary. They will always relent. This is the nickle and dime nature of many places in the world (A Turkish bazaar merchant will let you knock down his price 50% but then demand 8% for useing a card, hmmm).

In China it is true and certain establishments only take Chinese cards.

the above being said, the reason some smaller merchants in developing countries are reluctant to take cards or try hitting you for a "fee" is because they are TAX CHEATS. In these countries tax collection is weak and cash transactions are almost never reported (or at least nowhere near their true value). In other words, when a CC transaction happens, it is "official" and they will have to pay taxes. Therefore they are asking for you to pay for their civic duty.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by bedelman:
What recourse (if any) does a consumer have in the face of such a violation of VISA/MC contract by a merchant with which the consumer wants to do business?</font>

I have done it, it is a big pain in the behind. It took a half dozen phone calls to get the right number. I don't happen to have it handy, otherwise I would post it. When I finally got through, they said they take these things very seriously, and they get calls all the time, like several a day even.

With the number of businesses that have minimum charges (and some of them are large!) I find it hard to believe Visa/MC takes it seriously.

I have not reported a merchant to Amex yet, but generally I find them vastly more responsive. I asked a low-level customer service person about this once and they offered right there to take any reports of problems.

Mostly I do not patronize businesses that insist on a minimum charge. They are unfairly competing with others who are not violating their merchant agreements. In particular, there is a big Mac computer store a block from me that I will not shop at because they charge 3% extra to use a credit card. I have toyed with the idea of sending one of their ad flyers in to the credit card companies.

I have walked away from transactions before. Sometimes they will then do it but *****, and other times they will just *****. Once I walked away from two already opened bottled drinks that the merchant had to toss because they refused my Mastercard. "Nope, sorry, don't have anything else." Followed if necessary by "I know that your merchant agreement requires that you accept all valid cards so why won't you accept mine?" They really hate that.

I have seen stores that post a sign saying that they prefer people not use a credit card for small charges because of the overhead. This I am ok with.