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Credit card fees cut into the profits of small businesses.

Many small businesses hurt by credit processing fees

Posted on 6/20/14 10:06:03 AM

Cash is king for many small business owners, according to Amber DeMorett, owner of the Irish pub Bushwaller's in Frederick, Maryland.

DeMorett told The Frederick News-Post that she's losing some serious coin every month to credit card processing fees. She said when her patrons buy a beer for $1.50 during happy hour‡, little of that comes her way. Credit card fees on small transactions typically means little to no profit for her bar. DeMorrett claimed her pub pays more than $2,000 in credit card fees each month.

"It gets pretty expensive," she said.

Accepting a credit card as a form of payment is crucial for many small businesses around the country, because many consumers expect to be able to make purchases without cash. Besides, the consumer isn't hurt by having to pay a credit card processing fee.

And it's not like credit cards are all bad. The U.S. Small Business Administration said the convenience of using credit cards regularly enhances the chance‡ that a consumer will make "impulse purchases," which helps improve a business's sales.

The cons of credit card usage for small businesses
If a small business accepts credit cards, the card transactions will add to the amount of work needed to keep a company's financial books in order, and a business will have to take account for the extra time and resources it takes to keep the credit records up to date.

As stated, a business that accepts credit payments will have to deal with fees for processing the purchase transaction. The fees might seem small, but they can add up if a company is accepting a lot of small purchases on credit cards.

According to CardFellow, a credit card processing marketplace, the average credit card processing fee for a retail business is approximately 1.95 to two percent‡. The average cost for card-not-present businesses, such as online shops, is a bit higher at 2.3 to 2.5 percent.

Getting consumers to use cash?
DeMorett and her pub decided to partner with the Cash Mob event hosted by the Downtown Frederick Partnership. Downtown Frederick looked to raise awareness of the cost of credit card fees for small business owners, and it hoped to send cash-spending consumers to a few stores and restaurants throughout the neighborhood on Wednesday nights.

Kara Norman, the partnership's executive director, told The News-Post that many consumers don't realize the toll that credit card transactions take on a merchant's bottom line.

"All the bits of overhead matter," she said.

Some stores, such as gas stations, offer discounted prices for cash-spending customers. This can entice people to come into such a business and spend more than they originally expected.

Getting around credit card fees
Michelle Schaffer, owner of the North Market Pop Shop in Frederick, said her store was part of the initial Cash Mob event. Most of the items Schaffer sells in her store cost less than $10, but she claimed that she doesn't worry too much about the cost of credit card fees.

She's also taking another route. Schaffer uses a PayPal application for transactions, and the app charges a flat fee for credit card purchases while giving her one percent cash back.

"I'm possibly lucky," she said.

It appears she's ahead of the times compared to most small business owners. Schaffer uses an iPad for all transactions in her store, and purchases can be made via an iPhone. She said she's not sure why more small business owners hampered by credit card fees are not using PayPal.

Author: Marc Vasquez