relief from credit card costs

It’s no secret that the cost of accepting credit cards is reaching dire newheights. According to the most recentNational Association of Convenience Stores (NACS) State of the Industry (SOI)report, retailers were burned for an estimated $6.6 billion dollars in credit cardprocessing fees—an increase of over $1 billion from the prior year.

Accepting credit cards has become anecessary evil. Foregoing a credit cardacceptance program to avoid lofty costsis not an option for any retailer expectingto drive fuel volume and stay competitive.Rising gas prices, hair-thin margins andother consequences are making the growing costs of accepting credit cards seeminsurmountable, but there is relief to befound. The following are just a few optionssome retailers are taking.

Keeping it Simple

While data about interchange fees isn’talways clearly presented to retailers bythe issuing credit card companies, thereare many other fees associated with creditcard processing costs that are much morevisible and manageable. According to TomRandolph of Tom Randolph Consulting,a firm that specializes in interchange fees,there are options to limit these fees.

“One of the ways to reduce interchangeis to make sure that transactions are qualified for the best rates from Visa andMasterCard,” said Randolph. An optionoften overlooked by retailers is the abilityto work with their processor to find out justhow many of their transactions are eligiblefor the best rates from the issuing company.The retailer should request a monthly orquarterly statement that shows the percentage of transactions qualifying for the bestrates. After that, storeowners should focuson those being downgraded to find a consistency and develop a plan to get as manyof those downgraded transactions to qualify for the best interchange transactions.

“Any mom-and-pop store that is doingtransactions at the point-of-sale (POS)through Visa and MasterCard can bepenalized for not providing the qualification requirements for a particular sale,”said Randolph, which leads to additionalcharges.

Most retailers take for granted the amount of money lost through additionalprocessing fees that come from seemingly trivial tasks, such as entering a cardnumber manually when a card reader ismalfunctioning. It may seem simple, buttasks like machine check ups and encouraging customers to pay inside instead of atthe pump could reduce costs and add tothe bottom line.

“No matter how many transactions astore goes through, if just 1% are not getting the best processing fees available, thatcould amount to thousands of dollars takenfrom the stores’ total annual profits,” saidRandolph.

Steps like this may seem too simple tobe true, but Randolph noted many of hisclients have overlooked this easy option tooffset some overall credit card costs.

“There are quite a few people that havenever thought to take this approach,” hesaid. “One of the first things I ask is howoften they clean their credit card readers. Alot of them have never done it before andthey find that right after they do, they havea dramatic improvement in their downgrades and savings.”

Avoiding the Fees
While experts, retailers and lobbyists,led by the Merchant’s Payment Coalition(, of whichNACS is a founding member, try to fightthe costs of interchange and credit card fees head-on, individual chains are also fighting the good fight. La Crosse, Wis.-basedKwik Trip Inc., for example, is attemptingto dodge excessive credit card fees altogether by developing a proprietary creditcard program, the Kwik Card.

The card program was developed,deployed and is completely managedby Kwik Trip without any third partyinvolvement.

Programs like the Kwik Card save storesthousands of dollars each year. The reasonis simple—if a customer isn’t paying with aVisa or MasterCard, then Kwik Trip doesn’towe their card issuers money.

The company began issuing the cardsalmost 15 years ago and since then has handled every aspect of the program, from theapplication phase to the collection process.While Kwik Trip still accepts other majorpayment cards to stay competitive, promoting the Kwik Card still serves as a potentway to avoid and offset credit card fees.

“We’ve done the math and comparedwhat it costs us to issue and run our cardservice verses what it costs us in feesaccepting from other major credit cards and found that it costs us about half as muchto process our cards then it does to processany other types,” said Jeff Wrobel, controller for Kwik Trip.

New Technologies, New Solutions
With new technologies constantlyimplemented at the store level, retailersare coming up with innovative ways tonot only avoid costly credit card fees, but use the situation as an opportunity to cultivate a loyalty program for new and existing customers. One method of doing this is using AutomatedClearing House (ACH) networks and combining them with a loyalty program tocreate a secure debit card program.

ACH networks have been used for yearsto process various forms of electronic payments, such as e-checks that someone willuse through their bank to pay various billsonline. Since the networks provide a link

to individual checking accounts and offerlow processing costs—almost 50 cents lessthan it costs to process the average c-storetransaction using a Visa or MasterCard—c-store retailers have been searching for away to take advantage of the technologyto offset credit card transactions, but werecontinuously rebuffed by the difficulty ofconvincing customers of the benefit of sucha system. That’s when it wasdecided to combine ACHwith a system that alreadywas benefiting customers—store loyalty programs.

“The ACH debit card is thenewest and strongest entrantinto the alternative methodof payment world,” saidPat Lewis, partner for TwinFalls, Idaho-based Oasis Stop N Go storesand CEO of KickBack Rewards Systems.Lewis is attaching an ACH Debit programto his chain’s popular KickBack rewardsprogram.

To increase consumer adoption, Lewishas filed a patent for a new process dubbed,”Instant Acquisition.” “Rewards alone have not been enough to gain widespread acceptance,” said Lewis. “Itis also necessary to make the sign up process quick, easy, andconvenient.”

KickBack members simply present their driver’s license and apersonal check, which is read electronically and married to theirloyalty account. The customer then picks a multi-digit UIN, or”Unique Identification Number” (not to be confused with a PIN),for security purposes. From that point on, their old loyalty carddoubles as a debit card, offering “potentially greater” rewardsthan they were already reaping each time they pay with the card—no more fumbling with multiple cards at the counter; no morepaperwork to fill out for enrollment.

Lewis’ ACH Debit concept, introduced last month at the 2007NACSTech show, benefits both retailers and customers. Retailerssave big on processing fees. Customers are offered a rewards-based alternative to their credit cards.

“The natural home for ACH Debit is by piggybacking it on aloyalty platform. It affords the user more convenience since notonly do they already have the card, but because it’s quick, convenient and secure,” said Lewis. “If you can transfer some of thesavings gained from ACH Debit transactions and give that to loyalty customers, those customers will be open using ACH Debits.”

Changing the Big Picture
Retailers have the options to combat costly fees from a varietyof fronts within their stores. However, looking at costs similar tointerchange and credit card fees may open some other profitability options as well.

“A lot of the frustration that retailers are experiencing overinterchange fees comes from two concerns,” said David Bishopof Willard Bishop, a retail consulting firm. “First, they have verylittle,
if any, control over motor fuel costs, a primary driver of thehigher credit card expenses. And secondly, retailers believe the feeis unfair as their expenses are increasing at an alarming rate eventhough gallons sold are relatively flat year over year.”

What may be a surprise to retailers, moist smokeless tobacco(MST) uses a similar method, albeit for taxing purposes, as usedby banks and issuing card companies that is at the center of thecurrent interchange debate. In both cases, changing the currentstructure can improve overall profitability.

“Even though no other product category uses this taxingmethod, most states tax MST based on the value of the product,”said Bishop. “What we’ve learned is that this type of tax is alsolikely restricting a retailer’s profit potential. For instance, recentanalysis revealed that states which converted from an ad valorem-or ‘at value’—tax to a weight-based tax experienced stronger salesvolume 3.3% points higher versus states with an ad valorem taxrate.”

The issues impacting motor fuel and MST are different, butretailers do face a common threat with each, relating to an unfairmethod of charging a fee or taxing a product based on its value.

“As the industry works hard to lobby for changes in how creditfees are assessed, they should be also aware of the opportunity togain near-term relief by also supporting weight-based taxation inMST,” recommended Bishop. “In both situations, retailers have aright to improve the business conditions impacting their ability toearn a profit.”


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