Wise use of credit vs debit keeps money out of banks hands
Here’s some facts for any of you who wonder how some of the credit card processing business works. Be aware that this is from the perspective of a small business owner, and thus is very biased and limited in how the credit cards and the banking industry works.
For the record I am VERY PISSED OFF at how the banks took BILLIONS of dollars in our tax dollars in order to stay in business, yet they still insist on charging up to 30%+ in interest, and outrageous late and overlimit fees. At one time this would have been called loan-sharking; however since our government decided to make this legal (how much money did that cost the banks?), it technically isn’t loan-sharking or usury.
Now on to how the credit cards work – I’m going to put in actual numbers that reflect close what we (and other small merchants we know) pay. This number will of course be smaller for the larger corporations, who can negotiate better rates based on volume.
When processing a Credit/Debit card it breaks down like this:
If it’s a debit transaction, where you enter your PIN number, the merchant pays a flat fee for the transaction, typically between 35-50 cents.
If it’s a credit transaction, a merchant pays a percentage of the transaction, (for us 1.66%), plus a transaction fee (for us 12 cents). Now that is not all, if the card is a rewards card there is another 2-3% that is charged to the merchant. So for all of you who use your cards to get reward miles/points etc., be aware that the merchant is paying for those, and that the extra costs to the merchant may be reflected in the retail price of the item. I know 2-3% may not sound like much, but consider this, your local restaurant operates on 4-5% margin, so 2-3% can be HUGE to a merchant.
Also be aware that your local merchant may pay a monthly minimum and other miscellaneous fees such as fees for paper reports.
Using our current processor (with the numbers above), we’ve calculated that for us, it is less expensive to process transactions less than $21.00 as credit, and above $21.00 as debit. However, since our average sale is only around $14.00, we simply process everything as credit.
As you can see from the above, the banks want you to use your plastic as a credit card not a debit card, and the larger the transaction, the more they want this. I urge all of you to be aware of this, and if the merchant offers it, process your larger transactions as a debit NOT a credit.
Your debit/credit is a way for the banks to get a cut of every transaction, please use your plastic sparingly, let the banks know that their predatory practices are not appreciated and will not be tolerated. Of course the best way to show this would be to use cash and checks (of course they will get a cut of this too, as many banks now charge extra for cash deposits above a certain amount in a month).
Thanks for supporting your local merchant! Buy things you don’t need with money you don’t have, support the local economy.