Knowing Your Card Fees Can Lead to Significant Savings

Sifting through the complexity of a monthly credit card statement can be daunting for any merchant, but for Ralph Edward, comptroller for UConn Co-op Bookstore in Storrs, Connecticut, one thing was clear: The bookstore was paying a huge sum to its credit card processing vendor in transaction fees. He told BTW that what the store paid in credit card and Visa/MasterCard debit card fees was equivalent to 1.5 percent of the bookstore's annual income -- no small amount. "When you think about ["The 2% Solution"] ... and the fact that interchange fees were 1.5 percent of our annual income," finding a way to lower transaction fees could drastically influence the bottom line.

One of UConn's solutions is to invest in PIN pads, Edwards noted. At present, UConn accepts traditional credit cards and Visa/MasterCard debit cards -- both of which require a signature. And while the bookstore pays a lower transaction fee for the Visa/MasterCard debit cards (per last year's well-publicized antitrust settlement between 8 million merchants and MasterCard and Visa), the price-per-transaction on debit cards, when a customer enters a PIN number, is significantly less than signature-authorized cards. (To read about the antitrust settlement, click here.

According to J. Craig Shearman, a spokesperson for the National Retail Federation, in general, credit card processors offer some kind of three-tiered price rate structure for transaction fees:

• anywhere between a 1.5 percent and 2 percent (or even more) transaction fee per sale for credit card purchases (where a customer's signature is required);
  
• a lesser transaction fee per sale for Visa/MasterCard debit card purchases where the merchant asks for a customer's signature; and
  
• anywhere between $0.15 to $0.25 fee per sale for a debit card or Visa/MasterCard debit card purchase where a customer enters a PIN number.
  

Considering the popularity of credit cards and the growing popularity of Visa/MasterCard debit cards, a bookseller needs to be cognizant of what his or her store is paying in transaction fees -- regardless of store size. In 2003, either credit, debit, or prepaid gift cards were used in 53 percent of store purchases, with either cash or checks used in 47 percent of them, according to the most recent "Study of Consumer Payment Preferences."

"If anything, for a small store, the differential is greater because larger stores can often negotiate a lower transaction fee for credit card sales," Shearman said.

As such, a store that invests in a pin pad could see significant cost-savings. That's certainly what Edwards is banking on. He noted that the PIN pads cost about $300, and while that in itself isn't cost prohibitive, because of the size of UConn Co-op, the bookstore needs to order 50, making it a significant investment for the bookstore. Nonetheless, he believes that, in the end, the PIN pad capability will ultimately offer the bookstore considerable savings in transaction fees. --David Grogan