The bare minimum

There is a real danger in reporting on consumer issues: angry corporate goons with torches. Wait, that’s not it. The danger is that you will tear into some topic so trifling that the only way you’re likely to help the consumer is by giving him a good laugh at how much of a dick you are.

Welcome to today’s post about credit card minimums!

The other day I wanted a Vietnamese sandwich. I went into the sandwich place and requested the grilled pork. I handed over my Mastercard, and the cashier gestured at a sign on the counter: $10 minimum for credit cards. I could have walked to the ATM, but I was on my way to pick up Iris. No sandwich for me.

How much would the sandwich place have paid their bank for accepting my card? Somewhere in the 22 to 29 cent range. Each swipe of a credit card incurs a flat fee–usually 20 or 25 cents–and a percentage charge (known, Orwellianly, as the “discount rate”) of 1 to 3 percent. The merchant also pays a monthly or yearly flat fee and may be paying for the terminal rental as well.

Now, I admit it: 29 cents on a $2.50 sandwich is a big chomp–maybe enough to zero out the profit margin on the sandwich. That’s one way to think about it. Another way is: how much more profit will the restaurant make by accepting credit cards rather than accepting cash only? Judging by the proportion of businesses in my neighborhood that accept cards (nearly all of them), this is a pretty good tradeoff.

That’s why I ratted out the sandwich place, by going to the Mastercard site and filling out the Merchant/Retailer Violation form. You see, Visa and Mastercard don’t allow merchants to set a minimum charge. If you have a Visa card, Visa prefers that you call, wait on hold, and answer a whole bunch of questions. Fun. The number is (800) 847-2911, but I’d recommend just filling out the Mastercard form, which doesn’t ask for your Mastercard number.

I did ask the Visa rep what would happen when I made a complaint, and he said they would start by sending a letter reminding the business that minimum charges are verboten, and if there were further complaints, it could escalate as far as having their contract yanked. It seems unlikely to me that it would actually get to that point. Also, the Visa guy didn’t actually use the word “verboten.”

It’s obvious that small businesses are getting squeezed by the banks–accepting credit cards is a fact of life, and the banks that handle their merchant accounts would like to get as much money out of the deal as possible. They’re also getting squeezed by cranky customers like me, who want low prices and the ultimate in convenience. No wonder businesses try to weasel out of the rules–although doing it in a way that annoys customers seems counterproductive.

Does credit card processing have to be a one-size-fits-all approach? Most coffeehouse sales are in the $2-$5 range. Does a business like that have to get the same processing rates as, say, a furniture store?

So I made a couple of phone calls, and the answer is “sort of.”

I called Washington Mutual, a popular local bank, and posed as a coffee shop proprietor. WAMU does offer a package with no per-transaction authorization fee. Unfortunately, the discount rate is 12.71 percent, which is 31 cents per sandwich. I don’t see this making anyone happy.

One of my favorite coffeehouses, [Cafe Dharwin](, has no minimum charge and no surcharge. I emailed owner Dharmi Siddaiah and asked how he manages this. He said:

> I do pay a fee per transaction and it’s kind of on the lower end of
most companies.

> It is a bit difficult for a small business like us since our
average ticket price are lower than restaurants, but I decided to eat
that extra expense.

Awesome. Cafe Dharwin is at 10th Ave E and Miller.

You can’t talk about minimum charges without mentioning surcharges. Many coffee places with no minimum charge do levy a surcharge on credit card transactions below a certain amount–say, an extra 35 cents on transactions under $5. This is also against the rules, but I don’t get all bothered about it, because it’s only 35 cents and they’re not actually turning me away. It’s totally kosher to offer a 35-cent “cash discount,” anyway, so what’s the difference?

Here is my recommended policy, as your caped consumer crusader.

* When you encounter a minimum charge, ask to speak to a manager about it and explain that their practice violates their merchant services agreement–or, back in the real world, (a) call them later, or (b) just rat them out to Visa or Mastercard as described above. You’re not going to get anyone in serious trouble unless they’re flagrant repeat offenders.

* When using your credit card to pay a small bill, tip generously (by cash or credit)–at least $1 for anything under $5, enough to cover the transaction fee and then some.

Now, does anyone else have a burning consumer issue? Because you should get that looked at.

18 thoughts on “The bare minimum

  1. Maggi

    Hmmm. Just ran into this last night at my local Pho place. I watched another couple try to pick up a carry out order totalling $8.90 and the proprietor pointed to the $10 minimum credit sale sign he had posted. The couple left. Without dinner. I thought the practice was rather shortsighted on the proprietor’s part. Now I know it’s not only silly, but “against regulations.”

    I know (at least here in MD) it’s illegal to charge a higher rate to patrons who choose to use a method of payment other than cash. Here’s a thought… I wonder what would happen if a merchant hung a sign that said, “5% discount on all cash sales.”

    I bet he has less credit transactions eating into his profits. :-)

  2. Lauren

    I’m not sure how I feel about this. I know that I am silently cursing the person in front of me who is using a card on a $3.00 purchase when all I want to do is hand over my cash and head out the door. But, if a merchant has chosen to accept cards, then they must accept the cost of doing so. I’ve seen gas stations around Seattle offering a cash price and a card price and often wondered if it will come to that in other places as well.

  3. Tamara

    First, let me say how much I enjoy your blog, and second let me say that, I think you missed the boat on this one. The real story: What impact does VISA’s policy have on the viability of small busines in the USA? How many times, and how many ways, does VISA get paid for the same transaction? What is it worth, in billions of dollars, and who in society really pays for all that convenience? Why does VISA charge a higher service charge for check cards thn for credit—they have zero risk on check cards?

    A cash discount is NOT the same as passing on a transaction fee. Work it out. Say you have 100 customers a day, and your avg receipt is $5. Most customers use cash for this small amount, but a few, say 25% like to use their credit card. If you charge a transaction fee that covers a portion of your cost on credit, this affects those 25%, and fairly shares the added cost of offering the service.

    Alternatively, if you offer a cash discount to the other 75 customers, who were already willing to pay a fair price for the product, you just lost money on 75 transactions instead of on 25. In addition, some of the 25 switch to cash, so you lose even more. And you are still paying overhead to offer credit.

    Another option–Raise prices for everyone, and hide the added transaction cost. Oh wait, you cant do that either, because your customer knows that a bahn mi cost $2.50 down the street, and if Walmart offered it, it would cost $1.75. And also, why would we, as the customers want that? It is a lose-lose deal.

    Offering credit card service does not bring in customers. It does provide service to those who are already there. When is the last time you saw a promotion where the offering of credit card payment was a major part of the come-on?

    If you are in a business with a low profit margin and small avg receipts, like a resturant, grocery, discount store, etc. credit is a HUGE cost. Shopping for a credit card vendor is surprisingly complicated, full of hidden fees, comparison is difficult, and is a significant cost. One could probably make a business out of consulting on credit card vendor selection. This kind of business lives and dies on volume, b/c each transaction offers only a tiny bit of money, and you need many of them to pay your employees a living wage and still feed your family. A 30% markup, is what you use to pay rent, power, labor, buy product, etc. comes to 0.30 for one dollar, but it comes to $30 on a $100. One guy needs to handle 100x more business to make $30 markup and pay is osts out of that than this other guy. Kind of explains the decor at the bahm mi shop. Big difference in how a small high volume guy does business, compared to say Escada or Mercedes Benz.

    Who benefits when VISA does not allow you to pass-thru VISA’s high costs, or AmEx’s even higher ones? Big business does. Walmart can easily afford the fees. The small stores they edge out get hurt. The small store wants to offer service to keep its dwindling customer base. It cant raise prices for everyone, because you only want to pay $2.50 for your bahn mi or whatever it is. It cant pass on the high cost of offering credit on tiny tabs, because VISA (wrongly) bans it.
    CostCo does not accept credit cards. What do you think the avg receipt at CostCo is–maybe $350. They have plenty of folk lining up at the register.

    From your writing, I guess that you are a fan of small, often ethnic, businesses. Though you were right, in the sense that the business should follow VISA’s rules if they signed a contract with VISA, I think your actions here were hurtful to a business whose incredibly inexpensive product brings you pleasure. Each of us make many small, completely reasonable decisions, but sometimes their overall impact is to create a McDenny’s world that is not the one we want to live in.

    I dont mean to lecture, and I do appreciate the research that you did to support your feeling of being ripped by the bahn mi guy, but there really is another side to consider; one where further research might point to something more interesting and meaningful.

    Any thoughts?

  4. mamster Post author

    Tamara, last night I was saying to Laurie, “I hope someone really rakes me over the coals on this Visa post, or I will have worked all day on it for nothing.” Seriously, thanks for the comment.

    Here’s what I think. I think Visa and Mastercard are running a racket and imposing unfairly high costs on small businesses.

    But you seem to be arguing that accepting credit cards is literally unprofitable–that most restaurants and stores could make more money if they didn’t accept cards, because they would draw in just as many customers but wouldn’t have to pay the exorbitant costs of card processing. At least, that’s what I assume you mean when you say:

    > Offering credit card service does not bring in customers. It does provide service to those who are already there.

    Is this really what you think? Because you seem to be accusing small business owners of stupidly throwing away money. A friend of mine who writes about personal finance says that her sense is that adding credit card processing results in higher average tabs because customers don’t feel like they’re spending against the cash in their wallet.

    I assume that’s true for some businesses and not true for others. But no one is required to accept credit cards. A lot of aspects of doing business are expensive and annoying–researching and paying for credit card processing is certainly one of them, although I doubt it compares to taxes. A business is welcome to try credit card processing and see if it makes them money, then abandon it if it doesn’t–as you know, the forbidding landscape of the merchant services industry includes month-to-month options.

    I don’t mind if a business is cash-only, as long as it’s clearly posted. Cash-only is a particular kind of convenience: knowing you won’t be stuck like Lauren behind a card customer on a day when the Visa terminal keeps hanging up.

    But here’s what happened at the banh mi place. I went in specifically because I saw the Mastercard decal in the window. I ordered my sandwich and was only then informed that I couldn’t pay with my Mastercard. That’s terrible customer service any way you slice the baguette.

    Every business has to decide to what extent they want to try to break down the costs of doing business and pass them on specifically to the customers who cause them to incur those costs. My prejudice is that the best businesses barely try to do that at all–or they make it invisible. To me, setting a credit card minimum is like charging for using extra hand towels in the bathroom. Nickel-and-diming, pennywise, choose your platitude.

    Again, thanks for the awesome comment. What I’m wondering now is whether anyone has done an article with real examples, interviewing a variety of business owners about credit card processing and whether it makes or loses them money. Seems like a natural business-section article. I don’t think I can write it myself, but at the least I’ll email the reference librarian.

  5. Tamara

    Mamster–thanks for responding, and for not raking me over the coals for taking up space, on what is, after all, your site. I’m not arguing that small businesses are stupid and throw away money. Merely that they face very real and very tough choices as they figure out how to make money in a climate that favors big businesses, and is harsh on the unsophisticated. And sometimes, after putting in your 60 hours and barely making overhead, you are just too tired to implement all those “wouldn’t it be better if…” ideas that might even work.

    Us customer-folk tend to want everything, and as customers, it isn’t really our job to have to think about a business’ challenges from any point of view but our own. I know my clients could care less about my problems–they just want amazing work at a crazy price. (By the way, we dont accept VISA even though our largest and usually late-paying client promises to pay fast if we do. Our invoices run into the tens of thousands, but we have a small number of clients and individual transactions–and we think we’re real smart :)).

    I’m just saying a little empathy for the little guy, and let’s point a finger at the real villain of the piece (VISA, who totally dominates the market and wins no matter what. VISA–Most customers pay an annual fee and some late fees plus interest. Most businesses pay per transaction fees, monthly fees, equipment rental fees. Most banks or other offerers pay fees that I know less about. VISA makes LOTS of money for what used to be a way to carry over the cost of a purhase from onth to month. Not even counting the more predatory methods that have come into vogue in recent years.

    The sandwich shop probably should be cash-only if they can’t afford to follow VISA’s rules. That way your expectations wouldn’t have been raised, then dashed. It would also help them if they could learn to be smooth and sophisticated in their service, and get what they need without offending their fan base along the way.

    Did they have to throw out your sandwich?

    I dont think a minimum, or a fair charge is so awful, though it is prohibited). If handled with grace, you could have walked away smiling instead mad, so they blew it. All over a $2.50 sale too. I got a businessman right here at home who would readily discuss the challenges posed by VISA and their ilk, if you ever need one.

  6. Golbguru

    Nice piece of work. I have always wondered about what the real numbers were. In our place it’s not so bad, most merchants have a $5 minimum but it’s still silly.

    A regular % per transaction fee with a maximum cap might solve the problem..I think.

  7. Lore

    I suspect that I was not the reference librarian you meant to ask, but I looked in my library’s business databases and found you a couple of articles. They aren’t exactly what you were looking for, but they may be close. Email me if you’d like me to send them to you.

  8. Rocky

    I mostly agree with Tamara on this issue. Having shopped for credit card packages in the past the arcane logic and convoluted charts you need to make up to figure which package is better represents a huge headache. Assume that a place is running a 10 percent profit margin, 25 cents on $2.50 is ten percent plus the 1-3 percent “discount rate” and you’re actually talking about a loss on the sale of one sandwich.

    Where I disagree with Tamara is the idea that you don’t attract any more customers by taking cards. I think that being offered the convenience of paying with a card has caused me to pick one place over another many times. I’m fine with surcharges, minimums, and cash discounts as long as they tell me up front about these things.

  9. Rob

    I’ve had some small conversations about this with the proprietor of the coffee shop I’ve been going to for years. They were cash-only for the first years they were open, then accepted credit and debit cards for a couple of years, then went back to cash-only. This was something of a risk, as the place is a university student hang-out, and these bright-eyed youths whip out the card as an ingrained habit, evne as they stand six inches in front of the laminated sign with 104-point bold font saying CASH ONLY.

    After watching them tell one of these kids recently where the nearest ATMs are (and most of them are sheepish about not seeing the sign, and willing to go to an ATM and come back, it seems like), we had a brief chat about profit margins on a cup of coffee or a small baked good, and how the credit card companies were really screwing them over on the small transactions that are 90% of their business, and they just couldn’t afford it any more. Well, it seemed more like a psychological cost: it was driving the guy nuts every time he did his books.

    I don’t remember what the actual numbers involved were, unfortunately. But I do know that the shop managed to stay in business after dropping credit cards (and they never charged a minimum, I note), and is still healthy.

    And for what it’s worth, I continued to pay cash for my coffee and baked good through the whole time when they accepted plastic.

  10. mamster Post author

    Maybe the real lesson here is that I should try to pay cash more often and more businesses should try thumbing their noses at the plastic man and going cash-only. Like Paseo in Fremont. Cash-only, line out the door.

    Getting lost in the shuffle, I think, is the fact that I said I didn’t have a problem with surcharges. It’s the minimums that gall me.

    Tamara, they hadn’t made the sandwich yet, thankfully. I’m thinking about how I annoyed I would be if they had posted a sign in the window warning about the minimum. Probably still pretty annoyed. I wonder what they would have said if I’d offered $4 for the sandwich.

  11. Tamara

    Funny–I’d prefer a minimum over a surcharge. No real reason-just doesnt happen to bug me.

    I never thought much about the whole issue until I got to know someone who runs a small store and learned that point of view. Plus I am SO sick of chains taking over the planet. Anyhow, you had every right to feel annoyed b/c they didnt handle the situation well, and besides, you were hungry and wanted a juicy sandwich.

    Being a huge frequent flyer mile hog myself, I use my card a lot. Pay it off every month too, so VISA doesn’t get much out of me, so HAH! Nowadays though, when I am not spending much, and I envision the biz as a struggling independent, my small good deed is to pay cash.

    I’m also on a “I hate VISA” rag since I had to spend more than an hour trying to get a human to answer the customer service line and find out why all my charges from Oct 13-18 were being charged twice, and even three times (computer error-their fault). That’s annoying.

  12. stacy

    Being a fan of Big Gummint, my preferred solution is for the feds to step in and regulate the fuckers over at Big Credit. If Visa and MasterCard can’t play nicely with merchants on their own, force them to forego the per-transaction fee for transactions under $X. And yeah, I realise that Visa and MasterCard have a right to profit and all that, but at heart, I’m more a socialist than a capitalist. My heart bleeds for the credit card companies about as much as it does for the oil and insurance companies that rake in the loot while nattering about the beauty of totally free markets.

  13. haddock

    I’ll have to agree with Tamra here. I GET your point about seeing the decal and wanting to use the card. As a restaurant owner I also GET that the convenience of using a credit card is an enticement for many customers.

    I myself, use a card for many transactions, but not for a banh mi. I also use my card as a de facto checkbook, never running a balance, but I know I’m in the minority there. Some of the problem would be solved if people lived within their means, rather than financing their groceries, restaurant meals and everything else.

    As for Visa/MC they may state that their contract doesn’t allow for minimum charges but within my walls I have the right to conduct business any way I see fit. That’s why many signs have those signs reminding people of the right to refuse service. Granted, if I refuse service to a party I run the risk of being sued for discrimination, even if I refuse to serve a party for two at a table set for eight. That’s my risk. If it were me, the next time you came into my banh mi shop I’d ask you to leave.

  14. Misa

    I completely disagree with Tamara on the notion that offering credit card service does not bring in customers. My husband and I rarely use cash – we use our debit cards (his is Visa, mine is just recently changed from Visa to Mastercard – not because I chose that, but because my bank switched over – and neither of us even own a credit card). We do not frequent places that take cash only, with very few exceptions.

    With that being said, I have no problems paying an extra fee on small transactions because they (the business) is providing me with an extra service. Actually, I have no problem paying a fee on larger transactions, providing it is the same fee you’d pay for a smaller transaction (this is usually less than fifty cents).

    What I DO have a problem with is when I go somewhere (this happens most often at convenience stores) and they have a specific minimum with no budging on it – especially in instances where their sign about that is small and/or in an obscure place. I offer to pay the extra fee and only a couple of places have ever taken me up on that offer. I’ve even had a place refuse to let me buy things because they had a ten dollar minimum, I’d picked up something extra thinking it would go over ten and it worked out to $9.91. They offered to sell me a pack of gum that cost a quarter but by then I was too frustrated.

  15. mamster Post author

    haddock, first of all, this was a debit card, not a credit card. We never use our credit card for anything other than reimbursable expenses. I realize that this doesn’t make the slightest difference to the merchant, since the charge is the same.

    I am a small business owner myself. Like every small business owner, I feel that I am unfairly penalized by the tax structure and other regulations, and I spend way too much of my time dealing with paperwork and bookkeeping–but that I can’t afford the expense of an accountant to do it for me.

    But it’s not like this was a surprise. It was all right there for me to read on the IRS web site before I opened for business. I don’t accept credit cards, largely because my clients have almost never asked to pay by card. If they did, I would find myself in the same tough position as many small businesses: is it worth accepting cards and giving a big chunk of my income to the evil overlords at Visa and MC?

    Breaking your contract with Visa by imposing minimums seems to me like cheating on your taxes. A lot of people do it and most of them don’t get caught. Surely most feel they’re justified, that the the federal government stinks and above all doesn’t understand the realities of running a small business. Business that cheat on their taxes are taking a calculated risk. The same is true of businesses that cheat on their Visa contract: you might save money, you might annoy so many customers that you don’t end up saving money, or you might get turned in by an asshole like me. As you say, within your walls, it’s your choice, but you can’t pretend not to understand the risks.

    In the end, I’m with stacy. There is a class action suit against the credit card companies accusing them of collusion, price fixing, and charging exorbitant fees. (The specific issue in the current suit, I believe, is whether the card companies can charge merchants extra when a customer uses a premium card, which is complete bullshit.) I support this suit, and I would support more vigorous government regulation of the credit card industry. (And, for that matter, the payday loan industry, but don’t get me started.)

    That’s not going to happen with the current administration. So I’m happy to support businesses in their attempt to stick it to the man, *as long as they aren’t also sticking it to me.* That’s why I’m fine with surcharges but not minimums. When I see the Mastercard decal in the window, I expect that to mean that I can use my Mastercard to pay. Is that really unreasonable?

    Oh, by the way, click on haddock’s name, because he has some awesome pumpkin carvings on his blog. I’m taking a break from our pumpkins right now. Better get back on it, or I’m going to hear about it from Iris.

  16. Max

    The restaurants can do whatever they want but annoyed customers can do the same by either not returning or going one step further and report them. Malay Satay Hut is another example of this violation. If I remember correctly, their minimum is a ridiculous $20.

    I sell on Ebay so I know full well about high fees and commissions. That’s the cost of doing business. If I feel I don’t make enough to be worth my time, I quit. Ebay can still make a profit if they cut their fees in half but should they? Much like Mastercard and Visa, they are the only game in town. If I were Ebay, I wouldn’t either.

  17. Jason Truesdell

    My business has a higher average ticket than most sandwich shops (I sell gifty stuff), and my per-transaction fee is probably about 10 cents + 2.25-3.25%… the actual amount is a great mystery until the bill comes, since VISA and Mastercard now charge special fees when we accept rewards cards (on par with Amex or Discover, basically).

    I also occasionally struggle with costs on smaller orders… it never fails that someone will buy the cheapest thing I sell, which used to be about $5, pay $7 in shipping (which I don’t generally profit on), cost me $.50-1.00 in packing materials and about 5-10 minutes time… the credit card fees are yet another added cost. Sometimes small transactions cost more money than they actually make me, especially if I consider how much I can make in my other profession. But I choose to swallow all of those costs, because another day the same person will come back and spend ten or fifty times as much.

    For most restaurants, even coffee or sandwich shops, it’s really the same thing, whether they realize it or not. It’s not the $3 today, but the daily $3 latte or sandwich habit that makes them money, not to mention the fact that the same customer will bring their friends sometimes.

    I’m pretty sure both cash discounts and minimum tabs are against the rules on most merchant agreements.

    Starbucks manages to deal with the fees by charging substantially more than the artisanal coffee shops for not-so-special coffee and not-quite-fresh sandwiches. A 25-40 cent price difference on a $3 item will scarcely matter to people who like the product at a smaller shop, although I realize it’s a matter of scale.

    As a customer, for the most part, I’d just rather pay the small premium that makes my life more convenient. If 25% of people spending $3 use a credit card, the cost to recover that is 1/4 of the transaction fees… roughly 15-29 cents divided by four. OK, so add 8 cents to the $2.90 sandwich, and you’re done. Or make up for it by offering high-margin add-ons.

    The cost of food and transaction fees are usually only 18-33% of the menu prices anyway, unless you’re buying an expensive steak or high-end bottle of wine.

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