How your convenience could be killing small businesses

Maestro ad campaign 2007-2008

It’s a well known fact that credit card companies are greedy. They appear nice, loaning you money whenever you need it, just by handing over your card whenever you need a quick cash fix, but when the bill comes in you quickly see why. Extortionate interest rates are not the only way that they make their money though, they have their cake and they eat it too. When you use your card, a percentage of the total transaction is also payable to the card issuer by the retailer.

Actually, a portion of the total is payable not just to the card issuer, but also to the payment processor. In fact, when you make a card payment there are a whole bunch of different companies benefiting, out of the money that had you paid cash, would all have gone to the retailer.

Although costs do vary between providers, on average a retailer will pay around 4% of the total transaction value on a card payment to the payment processor. There are often monthly costs associated too, and then there can be an amount payable to rent any chip & pin machines. Accepting cards can be very costly.

If this is so, then why do so many small businesses choose to accept cards? Well, simply because they have to. Over the past 30 years, the past 15 especially, paying by card has become the norm. Card issuer Maestro even had a campaign in 2007-2008 telling us that “cash is dead”, which is totally in their interest to do, since for every payment made with their card instead of cash, they make a healthy profit. There is very much the perception now that if you don’t accept debit or credit cards, then your customers will go elsewhere.

When I ran a retail business, the profit margin was very low since we were trying to compete in a very hostile industry. The profit margin we worked between was generally 6-10% over cost price. It was an online business, so we had no choice but to find a payment processor and accept debit & credit cards. After some shopping around, we had to settle with a provider that charged a £15/month fee and 4% on every transaction – this was the best we could find, and there were big limitations. All of a sudden our profit margin fell from 6-10% to 2-6%, a mighty drop when you consider how little we were making anyway. You won’t be surprised to learn then that this business is now defunct.

Another drawback is payment times; again, terms vary, but the time between you making the transaction and the beneficiary receiving the money can be up to three months. In fact, that’s how long most have to wait for the funds to be sent to them. This is generally to do with fraud; giving time for fraudulent use to be reported and investigated.

But what do you care? Well, you shouldn’t really have to. What I’m getting at is this; there’s a lot of talk about supporting local businesses, and a lot of us are. Shopping with independent supermarkets or snubbing Starbucks and going to a local coffee house.

Your local deli, coffee shop or corner shop probably survives profit margins similar to those in the case above, meagre amounts, and although they may have the chip and pin machine for you to pay with, they’re secretly scowling every time that you do, because that split second decision between cash or card can make one heck of a difference to them and their survival. So choosing to hand over the wonga will go some way to making sure they’re still there next week, next month or next year. Think of it like “Gift Aid“, would you leave that box unchecked if you didn’t have to?

tl;dr: Try to pay by cash with small business, especially for small amounts, because credit card companies take a big chunk of their profits.

Should businesses be sorry?

When I worked for a bank, I was sometimes in charge of letting IT users (internally and externally of the business) know that there was a problem (or outage), one of the first things I was told was that in the email or text message I should not apologise for the inconvenience. Essentially, as I was talking “as the company”, I had to refrain from admitting any liability or anything resembling the company from being able to take the blame or be culpable in any way.

In a similar vein, many years earlier when I was working my first job, at a fast food restaurant, on my first day of performing duties cleaning the dining area I was given a mop and a set of instructions; not of the most efficient way to clean the floors, but of how to handle a slip and fall incident: “If someone falls, don’t say it was your fault – don’t ever say sorry”.

I bring all of this up for a reason, because I have had this “corporate indifference” around me me from a young age, whether or not I believe it to be right, whenever I see a company apologise publicly I tend to have a debate with myself on whether or not it is causing damage to their image, or what damage it could cause them should a legal case ensue.

The case that has made me bring this up is Cardiff Bus’ new social networking presence, on Twitter and Facebook. Their social media representative tweets live changes to services, down to “x bus is going to be 20 minutes late”, which is pretty fantastic, really – in lieu of getting their “real time screens” at bus shelters working (which were installed about 10 years ago, but have never been properly operational).

But every tweet or Facebook update is suffixed with “Apologies.” (or sometimes “Apologises”). Does this make them seem unprofessional, or is emotion coming from a corporate entity refreshingly human?

http://twitter.com/cardiffbus
http://facebook.com/cardiffbus