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.

What does recession look like?

Sales of face paint are bucking trends...Now that the UK is officially in a recession, what is interesting to see is how news organisations want us to visualise economic slowdown.

When the Great Depression is mentioned, a lot of us would picture people walking around, in sepia, with mouth and brows arced downwards, like a sad clown. But where did this image come from? Television, most likely.

Though this isn’t a new piece of imagery, call me crazy, but this is how I’ve always pictured it. An episode of the Simpsons is one example that I can remember where this has been brought to screen, in the scene an ancestor of Moe Syzlack comments “Oh, jeez, there’s always a line”, when attempting to commit suicide from the top of a skyscraper in 1929 and is greeted by a long line of other jumpers, obviously a very popular pastime when Wall Street crashed.

Sky - Recession pictureGuardian - Recession picture

Today the image used by most major news outlets is the ‘its raining and here are some shops that have closed down, how depressing.’ scene. In this image there is usually 1, but no more than 3 people in the shot. None look interested in shopping in the least. Mostly they are shot speeding past the camera, blur lines and all, representative of an entire populous that just doesn’t have the money to buy.

BBC - Recession pictureThe BBC think that recession is best represented by a Hasidic Jew and a poorly dressed fat woman who hasn’t had the spare money to go to a hair salon in the last 4 quarters, quite obviously representing the length of time that UK growth has been negative and subsequently how long it has taken to get the official ‘recession’ stamp.

For quite how long growth will continue to fall, I don’t think anybody knows, but what is for sure is that while we’re in this state there will be a lot more images and depictions of life as it changes significantly. The boom and bust policies of governments and corporations have once again showed us its downside and we’re left kicking ourselves for being so naïve as to think that our prosperity would never end.

Where once credit was only an online application away, giving our society the illusion that we were flush with cash to spend on luxury cars, binge-drinking and all-inclusive Carribean holidays, many are having to learn new skills in penny-pinching, seeking out deals and shopping with thought. Perhaps then not all is bad? Responsibility being given back to individuals and families for their actions and spending is a way of giving back some free and constructive thought, previously clouded by credit lines that were tantamount to being unlimited?