A few misconceptions about credit cards

“All generalizations are false, including this one.”
— Mark Twain

When I discuss credit cards at bookselling conventions, or with customers in the bookstore, I hear a lot of absolutes. “We don’t take American Express because it costs so much more” is a common one. Some are rooted in truth. Some are generalizations that just don’t apply any more. I’d like to address a few of them that drive me crazy.

Myth 1: American Express

Let’s start with the example I quoted above. That used to be true. But today, you have to understand how the credit card business works. Credit card companies exist for the same reason as any other company: to make money. They make it from every side. Customers pay interest and a wide variety of fees. Merchants pay monthly fees, a percentage of each transaction, a flat fee per transaction, and a wide variety of fees.

Customers have a choice about which card to carry. Merchants have very little choice about what card to accept: if you take one Mastercard, you take ’em all. So the credit card companies offer special deals to customers and pass the cost on to merchants. Does your VISA card pay you back a 1% bonus? It’s the merchant who accepts your card that’s paying the 1%. With all of the reward cards available today, stores pay pretty much the same to accept VISA as they do to accept American Express.

Myth 2: You need a store to accept cards

When I’m doing book signings, the store typically handles the money. But there are times (especially with my Who Pooped in the Park? books) when I’ll want to set up a table somewhere and peddle books. The system we use at the bookstore was pricey to set up, and requires a computer, Internet connection, receipt printer, and mag card scanner (or we can use the old “knuckle-buster” with carbon-paper forms, but that costs us extra: see below).

We looked around a bit for options for book sales, and settled on GoPayment. We already use QuickBooks (which comes from the same company), so it was quick and easy. We filled out the forms and they sent us a scanner that plugs into the top of my iPhone. It doesn’t use the bookstore’s merchant card account, and if you spend a few minutes entering each of your books (or candles, or whatever you sell), you just have one button per product.

Myth 3: They can’t DO that!

When we bought our store in 2001, the merchant card agreement was pretty clear: we must check signatures on every card, we can’t charge extra for credit card transactions, we can’t set minimum transactions for credit cards… The list goes on. We assumed these were hard, fast rules. In reality, the bigger companies negotiate their own deals.

We aren’t allowed to charge extra for credit card transactions, but there’s a sign down at the County Assessor’s office that says they do. We have to check signatures, but the grocery store clerks don’t look at the card at all. We don’t set minimums, but the convenience store I stopped in last week had a big sign declaring no credit cards on transactions under $5.00.

Consumers: If you don’t like the rules a store sets for your cards, pick a different store.

Merchants: If you don’t like the rules your credit card merchant account comes with, shop around for a new one.

Myth 4: The costs are a simple formula

We were trying to figure out all of the fees on our statement, and learned quite a bit about how cards work. Credit card companies would like you to believe that it’s very straightforward: on each transaction, the merchant will pay 20 cents plus 2.7% (for example). Perhaps there’s a monthly fee on top of that, but that’s it, right? Nope. That barely gets it started.

• If it’s a premium card (e.g., a Rewards VISA), the merchant pays extra.
• If the mag stripe doesn’t read and they have to manually enter the number, the merchant pays extra.
• If the total number of transactions in a month falls below a specified minimum, the merchant pays extra.
• If the merchant enters your ZIP code and it doesn’t match your billing address, the merchant pays extra.
• If the phone line/Internet connection is down and the card is processed manually, the merchant pays extra.

As a merchant, what can you do about this? Not a whole heck of a lot. Ask lots of questions when you set up the account, and budget an extra percent above what you expected to pay. Be courteous to your customers. If you happily accept their tattered old card for a dollar candy bar, they just may remember that and come back later when they have a hundred bucks to spend.

As a consumer, how can you help out? If your mag strip doesn’t work, get a new card. Try to carry a few bucks so you don’t have to use your card on tiny purchases. If your card isn’t billed to your regular home address, memorize that billing ZIP code.

Update November 2012

I’ve posted an update to this article, as our store has changed to the Square credit card processing system.