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Debit card swipe fees—the fees banks charge businesses for each purchase shoppers make with their debit cards—were cut from an average of 44 cents to a cap of 21 cents for most transactions this past summer.
While this might seem to be good news for business owners, the reality is that some merchants have actually seen an increase in debit card swipe fees, because many of the major credit card networks eliminated discounts for smaller transactions—typically under $15—and are charging the maximum allowed by law since the new rules went into effect in October.
This is having a significant impact on coffee shops, delis, dry cleaners and other businesses with high volumes and small transaction amounts. As a result, some businesses have gone cash-only – at the risk of alienating their customers.
"We've been in business since 1996 and we've always been a cash-only business, and I don't see that changing," said Bart Casiello, co-founder of ZIPS Dry Cleaners, a dry cleaning franchise that offers dry cleaning for $1.99 per garment. He said that the company experimented with taking other forms of payment, but it did not have a positive impact on the business.
"About four or five years ago, we tried taking credit and debit cards in one store, but we saw that business didn't go up when we did," he said. "It wasn't only the swipe fee, but the cost of reconciling the transactions because each bank has a different time frame for depositing the money in your account, that caused us to stop. We are not operating on big margins, so it did not make sense for us to further cut into those margins by offering other forms of payment."
He said the decision was solidified when he saw that business did not go down when the store stopped taking other forms of payment. "Some people are not aware of our cash-only policy when they first come in, but they quickly adjust when they see the value that they are getting."
While it makes sense for some businesses to operate on a cash-only basis, for others it could be "financial suicide," said Ann Latham, president of Uncommon Clarity, Inc., a Massachusetts-based consulting firm.
She said there are three main factors business owners must consider when looking at the payment options they will offer their customers: the percentage of purchases currently charged to credit or debit cards; the strength of its brand, and the average purchase size.
"If your customers are accustomed to paying with credit or debit cards and can continue to do so for the same merchandise at the same price next door, you'd be crazy to switch," she said. "On the flip side, if your customers mostly pay cash now, your product or price point is hard to match, and the average purchase size is unlikely to dwarf the cash found in most wallets, the switch might be a breeze."
Greg Hammermaster, president of Sage Payment Solutions, a provider of business-management software and services, said it is important to keep customer preferences in mind when deciding what forms of payment to accept.
"Business owners don't always have a chance to have a chance to have a dialogue with customers," he said. "They might come in one time, see that you don't take credit cards and walk out."
He suggested that small-business owners take a lesson from the Girl Scouts. "We started working with them a few months ago and we are now rolling out a system that enables them to take credit cards," he said. "The mom has a plastic swipe device that is hookedto the audio jack of her phone. It is fully encrypted and very secure. Customer gets an electronic receipt sent to their email."
So far, he said there have been significant incremental sales in Girl Scout cookies. "If they were going to buy one box or two with cash, they might buy three or four if they can pay for it with a credit or debit card."
He said that businesses should also consider the marketing opportunities associated with taking a wide range of payments, such as offering volume discounts. "A dry cleaners, for example, could run a promotion for 10 percent off a certain size of transaction. That might be a tougher sell if the customer had to dig in to their wallet and pull out cash," he said.