If you ever get frustrated when you go into a store or restaurant and find out they're a cash only business, it may be because the owner doesn't want to deal with all of the complexities around accepting credit cards. It costs them money to give you the convenience of paying with plastic. But now they have the option of passing those costs onto consumers by using credit card processor Slice.
Whenever you use a credit card to pay for a purchase, there are a bunch of things going on in the background that incur costs to make that transaction happen. Here's the quick lowdown on what happens whenever you swipe or tap your card. First, the bank that issued your credit card and the card network (Visa, Mastercard, American Express and Discover are four major card networks) together charge the storeowner for allowing them to accept the credit card. According to payments processor Square, this usually costs the storeowner a percentage of the purchase price, plus a flat fee.
Then there's a payment processor that secures the transaction and make sure it goes through. They also tend to get a percentage of the transaction, plus a flat fee, for their services.
What merchants actually pay per transaction can be pretty complicated, and they vary by card network. Value Penguin estimates that these fees can range from 1.43 percent to 3.5 percent of a transaction, depending on the network. Visa, Mastercard and Discover are all on the lower end of the spectrum, while American Express is generally higher.
When you add in the processor fees, Square estimates that it costs merchants anywhere between 2.87 percent to 4.35 percent of a transaction to accept a card. That can really add up on small purchases, which is why you'll sometimes see storeowners specify a minimum amount in order to pay with a card.
A new twist in the world of payment processing comes from Slice. Slice is a processor that offers businesses the possibility of free credit card processing, but that's not because it's found a way to make credit card processing free. It's because they've figured out a way to pass on those fees to the customer.
Slice does this through a couple of different methods. Merchants have the option of adding on a "service fee" to all of their customers, but they can give a 3.99 percent discount to those who pay cash. Say you go out for a burger and a beer, and your bill is $25. With Slice's cash discount program, you'd get about $1 back if you paid with cash. If you paid with a credit card, you'd still pay $25.
Slice also gives business owners the option of using a credit surcharge, adding 3.99 percent onto every bill that's paid by credit card. In this sense, you're not getting rewarded for paying cash; you're paying for the privilege of using a credit card. Slice says they give signage to merchants to publicly post so consumers are aware of this process.
If you're wondering whether this is even legal, the answer is for the most part, yes. Cash discounts are legal in all 50 states, while 42 states allow for credit surcharges. Slice says on its website that consumers pay additional fees for using cards, citing ATM fees as one example.
While you as a consumer might understand the merchant's point of view, and you might even be willing to pay extra to use a credit card, there's one other element to keep in mind: Business owners tend to build credit card fees into their prices.
Pricing is a complicated element of retailing. Whenever a merchant prices an item or service, they have to taken into account the actual cost of the item, plus costs of labor, utilities, rent, and other factors, including credit card fees.
While Stripe gives merchants the option of giving cash discounts or adding a credit surcharge, consumers don't know whether or not the prices of the products were calculated to include card fees in the first place. If they were--and savvy customers know which stores have better prices--then the consumer could find that merchants are taking another slice out of their wallet and they're paying twice for using a credit card.
