Card Processing Costs are Eating C-Store Profits

While there was once a time when business owners could choose whether to accept credit and debit cards, that time is gone.  Now, if you want to ensure that you are making as much money as possible and able to attract as many customers as possible, you should be accepting as many different forms of payment as possible.  However, making sure your customers can use their preferred method of payment at your store isn’t cheap.  If you’re already accepting credit and debit cards in your convenience or small grocery store, you are likely aware of the cost involved with doing so. If you’re not keeping up with how card processing and payment technology costs are continuing to change, you should be.  These developments could greatly impact your bottom line, and not in a good way.

What’s happening to card processing costs in the c-store and grocery industry?

In short, card processing costs are rising faster than the profits of convenience and small grocery stores.  As early as 2007, industry spend on card processing costs had already reached 7.6 billion dollars.  This was more than double the pretax profits the industry was seeing at the time.  In 2008, card fees made up 10.6% of store operating expenses as a percentage of gross profit and monthly cost per store had increased by 27.3% in just one year.

These rising credit card processing fees also force merchants to pass along the cost to their customers by raising their prices for items in their stores AND their gasoline.  These price hikes can lead to an even larger loss of customer foot traffic overtime, and ultimately damage the store’s reputation.

Thanks to actions taken by certain members in Congress and the House of Representatives (applauded by organizations like NACS), banks have been prevented from limiting merchants to just two companies for credit card processing.  Now, companies must compete for merchant business, allowing c-store and grocery owners to shop for the best prices. However, the cost of credit card processing is still high and merchants absolutely can’t afford to avoid it.

Where does the cost come from?

Transaction and interchange fees are what drive the cost of accepting credit and debit card payments in a convenience or small grocery store.  What are they for?

  • Transaction fees are the actual fee you pay per each transaction to your processing provider.
  • Interchange fees are the fees that are paid to the bank that issued the cards that are used in the transactions.

But the cost doesn’t stop there.  There’s added expense from:

  • Card processing terminals, pin pads, etc.
  • Settlement fees to guarantee the money is deposited into your account
  • Chargeback fees when a customer later disputes a transaction or reports a card stolen/lost
  • Any other service or maintenance charges your processing provider may add on

What should you do?

As stated before, there’s no way to avoid paying for credit and debit card processing in today’s convenience and grocery industry.  Besides spending time doing the proper research for a company that has your business’ best interests in mind, you should also do your best to negotiate with them.  By negotiating, you can ensure that all your needs and wants are addressed and you are getting the best rates possible.

Technically, you can implement surcharges to purchases made with credit or debit cards.  However, there are many barriers to this approach:

  • The process to implement these fees is very difficult
  • Customers will not be pleased with these added fees and will likely stop spending money at your store.
  • 10 states prohibit surcharging
  • Customer notifications must be posted to notify customers
  • Competition could gain an advantage if they aren’t charging surcharges

A merchant’s best approach to accommodating the expense of card processing is to stay informed about what they are spending and why.  This way, you will be aware of when it is time to find a new resource or negotiate your solution prices.

in Building Your Business, Industry News, The Banking Revolution, C-Store Trends