Fast Food and Credit Cards

I think this is a desperation move. Very few retailers directly pass on the processing fees, and the ones who do are usually small franchised businesses, like individual gas station owners. I suspect that this is a local franchisee's way of dealing with a cash crunch.

The flip side of the processing fees extorted by banks is that consumers who use plastic spend 10-20 percent more than those who pay by cash. The decision behind forcing credit card customers to directly pay the processing fee ignores the fact that credit card customers are bigger spenders. My guess is that this move will backfire and produce resentment among credit and debit card customers.

(full disclosure: Historymike used to own five franchised restaurants in the 1990s, and he is fully aware of the costs of accepting credit cards).

I agree with historymike. While I've never owned a business I use to work for a middle-man processing center for online companies.

From my understanding there are tiered fees. You could have a flat rate like 3-4%, (possibly lower if the card is present, higher if over the phone and not in person, etc). As well as a small flat fee per transaction.

I thought fast food chains opted for the 2nd, since you might spend $0.25 credit card fee, but better than 4% overall, banking on the numbers. Which is why I never use my credit card if I'm buying something that's a couple bucks. Have also seen several places have signs "$x fee if purchase is under 10" or something to that affect.

"The flip side of the processing fees extorted by banks is that consumers who use plastic spend 10-20 percent more than those who pay by cash."

This is definitely not true in the convenience store or gasoline business. Customers routinely purchased a single pop or pack of cigarettes or 5 gallons of gas. When you net the credit card processing fees from the profit margin those sales represented a net loss to the retailer.

The reason banks constantly stress using your debit card as a credit card (no pin number) is because the banks can then charge the merchant the higher credit card processing fee rather than the lower fee associated with true debit card use. To process a debit card as a debit card the card holder must input a pin number.

As for Burger King my guess is this. First, its probably only a local franchise owner who's implementing this policy, not the entire chain. Second, I'd bet a bag of Whoppers that they're in violation of their Visa/MasterCard contract by doing this. Those contracts specifically forbid the retail merchant from charging a debit or credit card customer a higher price than cash customers and they specifically forbid a retailer to refuse to accept a credit/debit card for any purchase regardless of the amount.

I'm siding with the restaurant chain here. So called debit card usage that result in credit card fees are retail merchant rape. Its high time the consumer understands the banks true role in this.

I completely agree that merchant fees are exorbitant, holland, especially in the age of digital data capture and instantaneous computer transactions. Banks no longer employ an army of people processing paper slips, the original basis to justify processing fees.

Here is a transcript of an NPR story examining the phenomeon of consumer spending via credit cards. A Dun and Bradstreet report indicated that consumers spend 12-18 percent more with credit cards, while McDonald's noted a per-check jump from $4.50 to $7.00 when customers choose plastic over currency.

Personally, I noticed that credit card customers were much more likely to puchase add-on items such as 2-liters and bread sticks (I was in the pizza business). They were also more likely to choose delivery over carryout.

While I grumbled about the 3 percent I paid in processing fees, I did prefer credit card customers, since I never got burned by scammers the way I did with bounced and fraudulent checks. I estimate I lost about $100,000 in ten years to uncollectable NSF and stolen checks.

http://www.nytimes.com/2009/11/25/your-money/credit-and-debit-cards/25card.html

Australia does regulate credit card interchange fees. Retailers can pass along those charges to the consumer. There were some unintended consequences.

I rarely carry much (if any) cash.

If a place doesn't accept credit cards, I'm unlikely to shop there. (I write checks at Costco. Don't use a PIN transaction anywhere b/c I get charged a fee.)

If a store/restaurant charged me a higher fee for using the card, then I would go to a competitor who didn't charge the fee instead.

Not that I don't understand why the restaurant/store would be tempted to pass the fee along. But from a consumer perspective, I'm still going to spend my money somewhere else.

I'm with you, mom. I wouldn't allow a merchant to charge me a fee to use plastic either. I guess it stems from the idea that retailers will always be making a profit regardless of how many fees the banks impose on them. This is may not be a fair assessment but I just don't have any sympathy for the merchants.

I have some sympathy for the mom and pop places who might be less able to absorb the fees as part of the cost of doing business. But not corporate heavyweights who might have some negotiating clout with the banks.

But I'm still not likely to shop anywhere that I can't use my card or that charges me a big fee for the card.

(Exception being merchants who participate in the Scrip program through my kids school.)

mom2 - Inga - politely and respectfully - Banking Industry Brainwashing Bullshit. The "corporate heavywieghts" just raise their prices thereby passing the fees on to you. Congratulations for being mindless consumer patsies. Bankers love you.

i think the real problem this thread is addressing is how much horrible fast food people are eating!

holland - obviously any fee of any sort that a business has to pay is somehow passed on to the consumer.

Be that as it may, the debit card via credit transaction is my preferred way to pay. Its more convenient than cash, and there are other advantages as well (some purchase protection, easier to track online vs. saving cash receipts, etc.).

If a business chooses not to accept credit/debit transactions, that's their choice. And if they want to try to have a price differential for credit/debit vs. cash customers, that's their choice too. (assuming its not in violation of their merchant contract)

Frankly, I think you were a little out of line with the "mindless consumer patsies" statement. I have the right as a consumer to choose where I spend my money - and that includes the choice to use businesses who won't treat me differently based on my preferred method of payment.

I too, tend to pay with debit/credit. Working from home means I rarely drive and usually do not have cash in hand from a bank or ATM visit. When I do go to the bank it's for a quick deposit of checks in the drive thru. I like keeping track of what I spend online with card transactions. I also get miles/points on my purchases. THAT SAID... I don't like to carry a balance on my cards and prefer using debit. I hate banks. And after the past 2 years, I think we all have more reasons to hate banks.

P.S. holland - my apologies. After perusing the "where art thou Darkseid?" topic, my definition of "out of line" on TT has changed completely. Pretty much anything you could say would be completely "in line" compared to that debacle. lol

what I've not seen is the up to 20% interest rate (depending on the card) your meal will cost you when you're making your credit card payment.

"The flip side of the processing fees extorted by banks is that consumers who use plastic spend 10-20 percent more than those who pay by cash."

How true this is! Who keeps cash these days? The video store near me only takes cash and as a result I rent much less. Sometimes while driving home I think, gee maybe I'll get a movie while I'm out, but then I realize I have no cash so I skip it. I think they are shooting themselves in the foot.

I'm like a lot of posters here, ever since the days that even fast food started allowed credit/debit cards I almost never have cash on me.

While I almost never use a credit-card, I use my credit union mastercard almost exclusively. If for any other reason, I wrote my own finance software and every 2 weeks I love going to their website, downloading a qif or csv of all of my transactions and letting my software suck it in.

Then I can generate reports and graphs of spending trends on the fly. You can't imagine how much this has helped me over the past year. Those little $5-6 purchases here and there really add up and made me a lot wiser in how I spend my money.

To be back on topic, also agree with the small business point of view and a guy I knew summed it up nicely for me.
Back home I went to mom and pop video game/movie store with a friend they only took cash for years, then one day he started taking cards. Asked him why and he said "Honestly the 2-3% (?) sucks but I have so much more traffic now it more than makes up for it."

Although not a fast food place the Toledo Library takes credit and debit cards which I found out sometimes makes very little sense. I went in one day picked up some books and CD's and was told I had a fine of $1.50 or so which I had forgot about, and the librian asked if I wanted to pay it then, and I said sure and since I don't carry cash gave them my bank MC debit card, and I told the guy it was great that they took cards because I seldom carry cash , and he said yeah except it can be expensive for the library and he explained that it costs us $2.00 for every tranaction they make, meaning for them to collect my $1.50 was actually going to cost them $.50 than they collected. Mind you he wasn't complaining or trying to talk me out of paying with a card. I told him not to process it then and that I would just pay next time and that I would make sure to bring cash. He must of liked the gesture and figured he was saving $.50 because he just cleared my fee without running the card. This was right before the cutbacks so I couldn't help but wonder how much money they have lost by taking creedit cards.

Why would the credit card companies charge fast food places a percentage but the library a flat rate?

My bank refunds me these fees. THANK YOU MFCU!!!

I'm interested in this discussion a lot because my son, who has the Crossfit gym downtown, wants to begin to take credit cards for his t-shirts, paleo meals, and, of course, payments for his services. He was going to talk to his bank today and see if it's feasible. He's not really making a profit right now, but we hope that will change if he can take credit and debit cards. Do those of you that have had small businesses feel this is a good thing, that the fees are worth it? He had mentioned passing the fee along to the purchaser, but this thread makes me think that's not a good idea.

nana - He need not talk just to his bank for credit card processing services. Banks traditionally charge higher interchange fees than other processors and ask for much longer contracts. Some idiot at Fifth Third once offered me a lower processing rate for one year than anybody else, but a FIFTEEN YEAR contract. In other words, the first year was a teaser rate. Shop around. There are many other processors interested in capturing small business card processing. Even Costco offers it's business members credit card processing and its highly competitive. He does not need to get any permission from his bank to use an outside processor linked to his checking account.

The link below is just an example of one of the hundreds of possible credit card processors your son could get a quote from. (I never used this company - this is not a recommendation.)

http://google.northamericanbancard.com/landing/s/1343?s_kwcid=TC|9057|credit%20card%20processing||S|e|3787787432&gclid=CPbG4NnlkJ8CFQvxDAodTGSlNw

Another important issue is equipment. Rent, lease with a buy out or buy outright? He will have to make that decision. All have pluses or minuses. If he buys the equipment make certain that it is a major brand that can be used by any other processing company. Otherwise he'll be stuck with useless equipment should he decide to change companies.

With all companys watch for the fine print. Especially contract renewel periods. Some automatically renew for long periods (years) and give you a very narrow window to end your contract if you're dissatisfied for any reason. Some charge punitively high cancellation fees.

The bottom line is this: He needs to know the profit margin on every single item he sells to determine if the profit margin is lower than the credit card processing fees. Those items he will be selling at a loss. It wont matter how many more sales he makes by accepting credit cards. He could still lose money.

In the C-Store business, which has razor thin margins, many small sales were net losses when a debit/credit card was the form of payment.

Holland, thank you so much!! So many things to think about, I'm pretty sure he wouldn't know any of this! thanks!!

Holy crap, did we do this?? lol!

http://abclocal.go.com/wtvg/story?section=news/local&id=7202517

nana - One other extremely important thing to remember. Your son should assume that every item he sells on a debit/credit card will be processed at the higher credit card interchange fee rate. No customer with a debit card will willingly input their pin number and allow their debit card to run as a true debit card at the lower rate.

These mindless consumer patsies have been programed by the banks to run their debit card as a credit card. They don't realize that prices everywhere are higher as merchants try to to keep their bottom line in the black. Credit card processing fees have risen to the merchant nearly 90% since 2000. To assume that merchants absorb this cost is assinine.

Holland, why am I mindless if I opt to use my card as credit and NOT get charged by my bank?

You're right. You dont get charged by your bank. The bank charges your merchant. The merchant raises his prices to recoup the fee. You're still paying buddy. You're still paying. When the merchant raises his prices the cash customer is paying too. Hence, some business attempt - unsucessfully - to recoup the fees from the people who cause them by adding on a fee for a debit/credit card purchase and/or setting a mnimum purchase before they will accept a debit/credit card.

Never - ever - is it truely "free" for anyone.

You guys got those cards with benefits, like miles, or cash back or other perks? Merchants are charged higher processing rates for accepting those cards. That encoded strip on your card places all cards into tiers by the processors. The more perks with the card the higher the processing fee. The merchants pay for your miles, or your cash back or any other perk you get. You think they're gonna eat that!? Think again.