Operators: Cut Your Credit Card Fees in Half
‘Wallets’ vs. ACH electronic payments
So I just got back from Rite-Aid where I used the newfangled chip insert card at the checkout terminal. It took about 30 seconds to ring up the transaction what with its failing to read the first time, the swipe failing after that, and then inserting it again.
This wasn’t the first time I’ve used my card at an insert reader. I know the drill. You put the chip card in, wait 10 seconds and then pull the card back out.
Brutal. Ten seconds is the best you can do? Bring back swiping.
I’d rather we focus on a real problem with merchant processing: the cost. Now there’s a problem, especially for parking.
The parking industry probably averages around $5 per transaction when you consider on- and off-street rates across the U.S. Compare that transaction size with the merchant processing fee you pay to make that happen. The best rates you will probably find are somewhere around 2.5% + 25 cents per transaction.
On $5, you are looking at around 37.5 cents in processing fees. That means that 7.5% of the industry’s electronic revenue is going to the banks and Visa and MasterCard. That’s wild.
Some vendors have solutions that help with “wallets” (or stored value cards) owned by the operator. These so-called wallets, with accounts unique to individuals and locations, definitely work. With a $20 “wallet load” and the same 2.5% + 25 cents rate, you cut your merchant processing fee in half on that $5 parking fee!
Do the math, and you’ll see what I’m talking about. (The math is given below if you don’t want to run the numbers.)
Another vertical — transit — has known this for years. They have even smaller transaction sizes, usually averaging around $1 to $2. These make the pain involved in merchant processing more poignant. That’s why you see all of those transit agencies with their own wallets. You’ve got the Clipper card in the SF Bay area, Ventra in Chicago, the Go-To card in my hometown of Minneapolis, and the Breeze in Atlanta.
Those are just a few. They are used quite often in transit systems.
Unfortunately, the so-called wallets don’t solve the problem completely, because users really don’t love giving every operator $20 to start using their facilities.
As an operator, you know this can turn people away, and that’s not good either. So what’s next?
The next focus has to be on other technologies. Nothing makes people lower prices like competition does, and right now the credit card companies have no competition. All of it is fragmented and just doesn’t work well enough to make a difference.
Google Wallet is all but dead. Apple Pay is fizzling. Is Android Pay gaining steam? I doubt it. Even if any of these worked, they all still use Visa and MasterCard. And the big issue with cost remains.
The solution lies with automated clearing house (ACH) electronic payments. These bank-to-bank payments bypass Visa and MasterCard, and they generally are very inexpensive. The problem has always been that they are a pain to implement. (“We’ll deposit two small amounts in your account and check back in a couple days.”)
If the implementation could be improved, you will have found a great way to solve the parking industry’s biggest issue. I’m working on it. You should be, too.
Contact Charlie Youakim at email@example.com.
Save Half This Way
$5 average fee
• $5 fee * 2.5% processing = $0.125 percent fee
• $0.125 percent fee + $0.25 fixed fee = $0.375 merchant processing fee
$20 ‘wallet load’
• $20 fee * 2.5% processing = $0.50 percent fee
• $0.50 percent fee + $0.25 fixed fee = $0.75 merchant processing fee
• $20 fee / $5 avg. parking fee = 4 effective transactions
• $0.75 merchant processing fee / 4 effective transactions = $0.1875 merchant processing fee
• $0.1875 is exactly half of $0.375