Not Knowing Credit Card Best Practices Will Cost You

No bookseller has to be reminded that a successful bookstore's profit margin is, more often than not, slim, and -- in the current economic climate -- possibly non-existent. It's for that very reason, said Michael Barnard of Rakestraw Books in Danville, California, that booksellers must be pro-active in how they handle credit cards and card transactions, to minimize the associated costs and risks. Barnard recently led a session on credit at the Northern California Independent Booksellers Association Trade Show.

"This is an important issue in an industry with a two percent margin," Barnard said. "If credit card transactions cost you two percentage points rather than a half percentage point, there [could go] your profit margin right there." The days when people paid in cash or by check are slipping away, if they haven't already. "More and more transactions are shifting to debit cards," he said. "Sales that once were free now cost money, and this is a new layer of expense. I think a reason that retailers are less profitable overall is because of this."

Know the card and the transaction fees

Every credit or debit transaction carries a fee, and it's paramount for retailers to know what their credit card processor is charging for each. How much a bank will charge you for a particular type of card transaction is based on the level of risk to the issuer, as well as how the bank or acquirer is rewarding their customers. For example, a card transaction that is manually entered and is not signature secured will usually carry a higher fee than either a credit card transaction where a signature is secured or a debit transaction where the card is swiped and the customer has entered a security pin number. In addition, American Express cards will have higher fees because the company does not charge its customers interest and makes its profits from fees. Rewards cards will cost more, as well. The actual costs will vary from bank to bank.

For transactions of around $20 or more, the least expensive for the retailer is usually a debit card transaction where the customer enters in his or her pin number, as opposed to a credit card transaction requiring a signature. For sales under $20, how the transaction is processed "doesn't matter," said Changing Hands Bookstore co-owner Bob Sommer. This threshold may be different for each store based on their transaction percentage rate, but will generally be in the $15 to $25 range.

Since debit card transactions are generally less expensive, both Sommer and Barnard said that their staffs are trained to encourage customers to use their pin numbers if at all possible. "We ask, 'Will you be paying with debit?'" Sommer noted. Most customers generally don't mind either way, but if they prefer to sign for a transaction, the staff is instructed to do as the customer wishes.

"You must train frontline staff to ask the question based on knowing where that [threshold] point is," Barnard stated. "They should look at the card and [if it's a debit card], ask the customer can we treat this as a debit. People are good about it. Some don't want to, and you can't do anything about it. But if you never ask the question ..."

Over the long haul, prompting customers to use pin numbers can save a bookstore a significant amount of money. "At say $100, a signature transaction might cost me between $2 and $2.50," Barnard said. "But it's $0.40 to $0.70 if I treat it as a debit."

Sommer said he has heard of retailers providing discounts for cash purchases, although that is not a Changing Hands policy.

Another way to cut costs is to find a processor offering better rates. Since banks charge different transaction fees, both Sommer and Barnard recommended that booksellers seek bids from different companies and a re-bid from the company they currently use. "If you tell your bank you're going somewhere else," chances are they will try to keep your business, Barnard said.

And finally, a merchant can simply choose not to accept more expensive cards such as American Express and Discover. However, because of the "honor all cards" agreement that merchants must sign, a store cannot refuse a specific MasterCard or Visa simply because it is a rewards card or is not a debit check card. "You can't pick and choose," said Barnard. "Failure to [honor all cards] will get your credit card [merchant status] revoked."

Credit Card Hardware

When it comes to the kind of terminals a bookstore uses, Barnard stressed that booksellers should educate themselves on the hardware they need to minimize costs, and the hardware they do not need. "Some retailers think they need to get a pin pad for debit card purchases," Barnard explained. "But we just take the credit card terminal and turn it around [to face the customer] and let them key in their pin number."

Barnard noted that booksellers should be aware of a new, less expensive transaction type that is available now, but at present is rarely used by retailers: Pay Pass. "This provides a new level of security where information is encoded into a hologram on the card," he said. "The [Pay Pass] terminal reads the hologram when the customer taps it with their card.... At the moment, banks are not prioritizing Pay Pass." However, because Pay Pass is more secure, he believes it is just a matter of time until banks start promoting this payment method. When enough customers are using it, a bookstore could save even more on transactions by offering Pay Pass.

Changing Hands' Sommer noted that human error sometimes comes into play when it comes to credit card transactions, and his store uses PC Charge to guard against such instances as best as possible. "PC Charge runs the credit card through the point of sale and that has saved us money," Sommer said. "It keeps any employee from finishing a sale without a charged credit card -- such as instances where a card is rejected and the employee didn't notice."

If a store does many off-site events, Sommer noted it might be worth buying a wireless credit card terminal. "We do have a wireless terminal -- it's not cheap, but it's not [a] manual [transaction], so you get a better rate," he explained. "It's handy, and sometimes we use it in the store when registers are busy."

Data Security

Data security, if handled carelessly, is not only costly, but the fines for a breach traced back to a store are so hefty it could put any bookstore out of business. For that reason, a bookstore owner must understand what it takes to be Payment Card Industry Data Security Standard (PCI/DSS) compliant.

The PCI Security Standards Council offers merchants a self-assessment questionnaire (SAQ), which the council notes is a "validation tool intended to assist merchants and service providers in self-evaluating their compliance with" PCI/DSS. There are multiple versions of the PCI/DSS SAQ to meet various scenarios. The questionnaire also contains an attestation of compliance that a merchant then provides to their acquirer or card brand.

Barnard warned that a retailer can be charged a monthly fee for non-compliance (see the PCI FAQs). "If you then become properly qualified, once you said you are doing it right, if they trace a data breach back to you, you are responsible for the costs, including fines.... So once you verify you handle data properly, you can't fake it. This is something you need to discuss with your credit card processing rep." --David Grogan