Q. I own a neighborhood hardware store and get charged steep processing fees each time a customer makes a small purchase with a credit or debit card.
Am I stuck with these costs? Or, are there alternatives?
A. Processing fees can be a nightmare – especially when customers frequently use credit and debit to make a high number of small-value purchases.
These fees are a result of global processing networks that involve up to five parties in every transaction.
Such inefficiency accounts for costly processing fees, which typically range between 1.5 percent to 4 percent of each debit- and credit-card purchase, plus an additional 20 cents to 30 cents charged every time the merchant swipes a card. For businesses whose customers often make inexpensive purchases using credit or debit, these fees are painfully evident.
Unfortunately, the only way for businesses to completely avoid processing fees on small items is to go “cash only” for such purchases. This might sound logical at first, but it will likely push customers toward large competitors that can absorb fees they incur for small items.
Fortunately, community banks are beginning to offer “mobile payments services” as a means of helping businesses reduce processing costs. With such a service, merchants can accept payment for goods or services from customers whose cell phones are linked directly to their checking or debit accounts.
This is a direct payment system that only involves the customer, the merchant and the bank.
Because there are no middlemen involved, processing fees are relatively non-existent, providing merchants with a means of significantly offsetting expenses associated with credit- and debit-card transactions.
According to Wences Casares, mobile-payments-services pioneer and Bling Nation co-founder, mobile payments are rapidly becoming popular among consumers from younger segments who heavily rely on cell phones to older segments who enjoy the convenience and added security.
In addition to cost-savings benefits, businesses should consider accepting mobile payments in order to accommodate consumers who are increasingly turning to mobile devices to make purchases.
Such mobile services also provide more than just savings on transaction fees, such as instantly redeemable loyalty incentive programs that are costly to develop and manage for small businesses.
While it is currently unrealistic for businesses to only accept mobile payments or cash for small-ticket purchases, they can accept mobile payments to help reduce processing expenses. Every little bit helps.
