By Marcy Stamper
The running tally on the chalkboard that greets customers at Glover Street Market in Twisp currently registers $53,434.19. That’s the amount that the Twisp grocery has paid in credit card fees since 2010.
Actually, because it’s time for an update, the figure is probably closer to $60,000, said Glover Street Market co-owner Molly Patterson.
Patterson said she first began posting the tally as a way of educating customers about the hidden costs to merchants for processing credit and debit cards.
While the fees are very complex—they vary for different types of cards, different banks and even different products—Patterson calculated that her store pays an average of $1.09 per transaction when a card is used. Glover Street now charges a dollar for any purchase under $10 paid for with a card.
Many local businesses have started charging a fee for card transactions under a certain amount or now impose a minimum purchase. The Twisp Chevron charges 25 cents for any charge under $5. At Pardners Mini Market in Winthrop there is a $5 minimum to use a card in the store. The Mazama Store also sets a $5 minimum for credit cards. There is usually no minimum at gas pumps, because those transactions are processed differently.
At Hank’s Harvest Foods in Twisp, annual credit card fees top six figures between the grocery store and gas station, said owner Hank Konrad. Still, although it’s 25 times a day—100 times a day in the summer—that people use a card for purchase of just 50 cents or a dollar, Konrad does not impose a surcharge or set a minimum charge. “I don’t like rules or limits,” he said.
In January, the Old Schoolhouse Brewery in Winthrop decided to start charging customers $1 for every credit card transaction. “We are very aware of the credit card system and its impact on consumers and businesses,” said co-owner Laura Ruud by email. “We see both sides, as we are also consumers and receive the benefit of frequent-flyer miles when we use our personal credit cards.”
But with 76 percent of their customers paying with plastic, the Winthrop pub paid $22,000 in credit card fees in 2013, just over $1 per transaction, said Ruud. The decision to charge a fee has helped educate consumers, said Ruud. “When we explain the outrageous credit card processing fees to our customers, most all understand and support our decision to do so,” she said.
Ruud said they did not want to simply raise their prices, since that would penalize customers who pay cash.
Surcharges now legal
As a result of a settlement reached in January 2013 in a class-action suit brought by a group of retailers, merchants may impose a surcharge when customers use a credit card, although 10 states (not including Washington) prohibit surcharges.
Surcharges cannot exceed 4 percent and the charge must be clearly disclosed. Surcharges are not permitted on debit card transactions. Merchants are also permitted to provide discounts for cash sales.
Convenience and help with budgets
Consumers’ decisions about how to manage their finances are highly individual, and few obvious trends emerged from a random sampling of local shoppers. Dave Dunn of Twisp almost never carries cash and typically pays with checks, particularly for groceries. “It’s a force of habit,” he said.
A Methow Valley resident who declined to be identified said she uses credit cards for “pretty much every purchase, unless it’s less than $20.” Beyond the convenience, she said it helps her track her expenses, since she reconciles her charge slips with her card statement each month, which she always pays in full. “I don’t pay attention to where the cash goes—I don’t have the discipline,” she said.
Peggy White of Twisp generally uses cash for groceries and saves credit cards for large purchases. “I get scared of using credit cards all the time,” said White. She also finds that using cash helps her manage her spending. “I feel like with cash, I don’t spend as much. It’s easier to just hand a card over.”
Complex fees vary by card, business type
The world of credit card fees is arcane. To most consumers, the processing fees are invisible, and it is even hard for merchants to sort them out. “I take the statement and read the contracts—it’s really difficult to decipher,” said Patterson.
Issuing banks charge an interchange rate to process card transactions, which covers fraud losses, said Beau Adams, chief financial officer of Farmers State Bank in Winthrop. There is also a fee from the company that supplies the card terminal, and sometimes an additional “swipe” fee. Some card companies just charge a flat rate that is high enough to cover all categories, he said.
“It is probably one of the more complicated parts of banking—Visa and MasterCard have a slew of rates,” said Adams. While Farmers does not offer merchant services, Adams assists customers in finding card processors.
Visa’s list of interchange reimbursement fees covers nine pages, specifying different percentage rates for groceries, restaurants, gas and car rentals. Other fees depend on whether it is a debit or prepaid card, whether the card is present, and whether the customer enters a personal identification number. Rates may also differ based on the amount of the transaction. Cards that offer rewards for airline miles or future purchases generally mean higher fees for merchants.
Visa and MasterCard rates range from under 1 percent to almost 2 percent for debit and prepaid credit cards. Rewards cards run from about 1.5 percent to 2.5 percent, and corporate cards go as high as 3 percent.
Rates also depend on the processor. Ruud said they have renegotiated their contract twice to get the best possible rate.
Protections for stores, shoppers
While the fees may seem burdensome, there are benefits to both businesses and consumers. When a customer pays with a charge card, merchants know immediately if the card is good or not, whereas they absorb some risk for checks, said Adams. Today, banks rarely charge merchants a fee to accept checks.
Credit cards may also mean bigger sales, and consumers get some protections when they pay with a card. For example, if a customer disputes a transaction, the customer typically does not have to pay until it is settled, whereas the customer may have to wait for funds to be replenished to a bank account if the dispute involves a debit card. Credit card companies also often provide short-term insurance for theft or damage on purchases.
Nevertheless, to some small-business owners, it can seem that the credit card companies reap the biggest share of the benefits.
“The credit card companies are the big winners,” said Ruud. “First, the consumer often pays a yearly credit card fee (Alaska Visa charges us $75 a year), then the consumer pays a high interest rate on any unpaid account balance, then the business owners pay for each swipe of the card (over $1 per transaction),” she said by email.
“We think more and more businesses will be charging customers for using the card as the credit card processing fees continue to rise,” Ruud said.