Debit vs. Credit Cards

[Eagle1]

How does my bank make 3% when I use my debit card?

That is about what I (merchant) pay for every CC or Debit transaction. Not all goes to the issuing bank but it is out of my pocket.

Most people don't think about it but it means raising prices at least enough to cover costs, since everyone likes using cards. Just wait and see what happens if we go cashless...

 

[scootr]

I do too. And yes I’ve had them hacked twice over the years. Both times the bank closed the card, issued a new one, and refunded the fraudulent charges.

Me too. One time for $11k travel package in London. Hello paypal.
Now I carry 2 debit cards on the same account. If (when) 1 gets compromised I report and cancel it while continuing to use the other and wait for a replacement... never skipping a beat. I use these cards for online business so yeah they can get illegally shared. Paypal has always been very good about erasing the fraudulent charges and issuing a new card. My BofA debit card has never been hacked... it been abused but it turns out that was the wife

 

[Jstpssng]

I check my accounts often, to prevent fraudulent activity. One morning I discovered that Amazon had done a query on my main account to see how much money I had available. There is no way they should have had that number; I only used it as an ATM card. I called the CU as soon as they opened and had it turned off.

That's the account which most of my paycheck is deposited to; I pay all of my bills through it. I also have overdraft protection which comes out of my savings account; they could have wiped me out. The bank may reimburse you for the fraud, but you are SOL for any overdraft fees occuring because the money wasn't there when you wrote a check or paid a bill.

 

[Jstpssng]

That is about what I (merchant) pay for every CC or Debit transaction. Not all goes to the issuing bank but it is out of my pocket.

Most people don't think about it but it means raising prices at least enough to cover costs, since everyone likes using cards. Just wait and see what happens if we go cashless...

I've seen people try to swipe for a cup of coffee and the store owner just gave it to them; stating that it would cost more than they would make. Some people will take advantage of that and do it intentionally, but I prefer to pay my own way.

 

[JethroB]

I've seen people try to swipe for a cup of coffee and the store owner just gave it to them; stating that it would cost more than they would make. Some people will take advantage of that and do it intentionally, but I prefer to pay my own way.

I remember a few small businesses that had a minimum purchase of $4-5 to use a card.
On the drink my dad used to say the same about his drugstore soda fountain drinks in that the cost of the cup was more than the drink itself. We could have all the Coke or Sprite we wanted but we had better reuse the same cup.

 

[Eagle1]

I remember a few small businesses that had a minimum purchase of $4-5 to use a card.

At one point it common for small business to pay ~$1 per transaction plus %. Merchant services still has monthly fee to use their system on top of %. Most small business went to higher % rather than per transaction fees.
A dollar fee on a $3 sale is pretty much a complete profit killer.

 

[MossRoad]

Wife and I go to a lot of craft shows, art shows, outdoor events, etc., where small purchases are common. Multiple vendors in tents. Things like that. ALL of them have credit card readers for their phones and prefer that over cash, as they don't have to keep change, it interfaces with their book keeping, etc.

If transaction fees were that much, they wouldn't use them. I'm sure they add in the price of doing business to the price of their products.

I do know of many restaurants that only take cash. I'd like to know the reasoning. I'm pretty sure several of them are anti-establisment don't let the man track me kind of places. That's fine. But I'm also pretty sure a couple of them are doing it because cash is easy to mis-report on taxes. I really doubt much of it has to do with the transaction fees.

 

[Sprinkler Fitter]

They charge the vendor you are doing business with. How do you think that banks can afford to pay 2% back on purchases?

That is about what I (merchant) pay for every CC or Debit transaction. Not all goes to the issuing bank but it is out of my pocket.

Most people don't think about it but it means raising prices at least enough to cover costs, since everyone likes using cards. Just wait and see what happens if we go cashless...

I own a food truck so I know how it works but me using my card to buy something I don’t pay 3%, if they want charge 3% I’ll pay cash

 

[Jstpssng]

I own a food truck so I know how it works but me using my card to buy something I don’t pay 3%, if they want charge 3% I’ll pay cash

You are right, you don't pay. The vendor pays the fee.

 

[Sprinkler Fitter]

You are right, you don't pay. The vendor pays the fee.

That is why I asked how I pay 3% like someone said I pay every time I use my card but it’s the person selling it pays the 3% unless they want to charge 3% more for using a card but like I said that I pay cash

 

[MossRoad]

Wouldn't the vendor just price the cost of the transaction fee into the product.

A $5 hotdog would cost $5.15 at 3%.

 

[Eagle1]

Yup

 

[Jstpssng]

Wouldn't the vendor just price the cost of the transaction fee into the product.

A $5 hotdog would cost $5.15 at 3%.

It's figured into the overhead somehow. In a lot of cases the rest of us subsidize those who don't carry cash.
Gas is one exception. I don't know about other places but here we pay an extra dime per gallon at a lot of stations for the convenience of using a card.

 

[DK35vince]

Wouldn't the vendor just price the cost of the transaction fee into the product.

A $5 hotdog would cost $5.15 at 3%.

Thats exactly what they do.

 

[scootr]

Sales tax is another example of hidden costs. Collect it, then labor to separate it out of the income and file a report only to pay an additional fee of paying by CC.

 

[Sprinkler Fitter]

Wouldn't the vendor just price the cost of the transaction fee into the product.

A $5 hotdog would cost $5.15 at 3%.

We price our food assuming a card will be used, we don’t add a percentage for a card, we make a little more if you pay cash

 

[MossRoad]

Sales tax is another example of hidden costs. Collect it, then labor to separate it out of the income and file a report only to pay an additional fee of paying by CC.

What labor? Very few businesses do paper and pencil labor. It's almost all electronic. If anything, paying by credit card uses much less labor than paying with cash on both ends.

 

[Torvy]

We price our food assuming a card will be used, we don’t add a percentage for a card, we make a little more if you pay cash

It's harder to track, but you may actually make more because you accept cards. Basically, your customer base is considerably larger because people can use plastic. Many small businesses and consumers only look at individual transactions rather than the aggregate. This makes them inadvertently dissuade customers by penalizing them for their choices.

According to Gas Buddy, about 4% of people pay with cash. So, for every 100 customers, you would make a little more on 4 of them, but would potentially lose up to 96 customers if you did not accept plastic. Sure 1/2 of those are debit card transactions, but without the credit card, processing would not even exist. (it is a loser for the bank).

 

[Torvy]

What labor? Very few businesses do paper and pencil labor. It's almost all electronic. If anything, paying by credit card uses much less labor than paying with cash on both ends.

Good point. Cash is also much more dangerous to keep on hand.

 

[Sigarms]

Wouldn't the vendor just price the cost of the transaction fee into the product.

A $5 hotdog would cost $5.15 at 3%.

This is on primary reason why HVAC contractors who offer financing usually build it into the job estimates. When you see a company offering 5 year 0% interest, doing a 15k job, a contractor can easily be looking at being charged 10% , and that's at a buy down rate on the contractors end.

As noted, you can't charge for credit, but you can build it into your cost and then offer a cash discount.

My SIL is a massage therapist and has her own business. She refuses to take credit cards due to the finance charge. I explained to her to build it into her price and offer a flat rate discount if paying by cash to make it easy on her, but won't listen.

Running a business today, you have to accept credit cards today. No running to the bank and no bounce checks.