By Michael Ferrari
Through a special arrangement, what follows is an excerpt of a current article from Convenience Store Decisions magazine presented here for discussion.
It's no secret that the cost of accepting credit cards is reaching dire new heights. According to the National Association of Convenience Stores (NACS) State of the Industry report, credit card processing fees cost retailers an estimated $6.6 billion in 2006 - over $1 billion more than the prior year.
While not accepting credit cards to avoid lofty costs is not an option for any retailer expecting to drive fuel volume and stay competitive, there is relief to be found.
On the "basics" level, stores should make sure transactions are qualified for the best rates from Visa and MasterCard. Retailers can check monthly or quarterly statements and focus on fixing the downgraded transactions. Penalties may be assessed for not providing the qualification requirements for a particular sale. Also, manually entering a card number when a card reader is malfunctioning often leads to additional penalties.
A second way to reduce transaction fees is through store credit or debit cards. Wisconsin-based Kwik Trip developed a proprietary credit card internally without third-party involvement.
"It costs us about half as much to process our cards then it does to process any other [major credit card]," said Jeff Wrobel, controller for Kwik Trip.
A similar method is combining Automated Clearing House (ACH) networks with a loyalty program to create a secure debit card program. This can enrich a store's loyalty program too.
"If you can transfer some of the savings gained from ACH Debit transactions and give that to loyalty customers, those customers will be open to using ACH Debits," said Pat Lewis, partner for Idaho-based Oasis Stop N Go stores and CEO of KickBack Rewards Systems.
Indeed, one potential downside is that customers frequently require tangible incentives to use store credit or debit cards over major credit cards.
Finally, retailers and lobbyists, led by the Merchant's Payment Coalition (www.unfaircreditcardfees.com), are fighting excessive credit card fees head-on. Looking at costs similar to interchange fees on the lobbying front may help as well.
For instance, David Bishop of Willard Bishop notes that moist smokeless tobacco (MST) uses a similar calculation method - albeit for taxing purposes - as credit card issuers.
"As the industry works hard to lobby for changes in how credit fees are assessed, they should be also aware of the opportunity to gain near-term relief by also supporting weight-based taxation in MST," recommended Mr. Bishop. "In both situations, retailers have a right to improve the business conditions impacting their ability to earn a profit."
Discussion Questions: Of the suggestions mentioned, which are the most feasible for retailers to reduce credit card transactions fees? Which aren't? Do the options differ for larger and smaller retailers?