Small Merchants with Smaller Sales Feel Credit Card Squeeze

Carolyn Mooney and her son own and run Hope's One Stop, a convenience store in Merrimack.

When I met Carolyn Mooney, she was installing a touch screen program to speed up the process of ringing up sales.

Mooney: Because this is a convenience store. You want in and out.

Hope's One Stop rents movies but most of its business is typical convenience store stuff -- cigarettes, beer, basic food items, and more cigarettes and beer.

Mooney says many of her customers are having a tough time weathering this recession.

They've lost jobs or if they've kept their jobs, they've seen their hours cut.

Whatever their situation, they buy less.

CUT: Those people who rush in on a Saturday or Sunday morning to get milk because they need it for their coffee or the kids’ cereal, they'll buy the half gallon rather than the whole gallon. Everyone is downsizing.

Ditto for beer.

The customer who once took home a box of 18 cans now leaves with just a six pack.

The drop in revenue is bad enough but if the customer pays with plastic, it hurts Mooney even more.

She pays a set fee plus a percentage on each sale.

But as her average sale amount goes down, the set fee goes up.

Her customers' buying habits are squeezing a bottom line that’s already under pressure.

CUT: 1019:12:00 We have been hit with, actually, my son and I discussed this the other day. Our fees have gone up 19% since we’ve started the store.

For a variety of reasons, this is a very hard time for convenience store owners.

Beer prices have risen, and so have state and federal tobacco taxes.

According to the New England Convenience Store Association, 20 New Hampshire stores shut down last year.

Card fees might not be the owners' biggest headache but an extra thousand or five out the door is tough to manage these days.

Controlling the cost of plastic is particularly frustrating because the world of card fees makes the Byzantine Empire look like a meeting of the local PTO.

CUT: Let me back up for a minute. I need to probably tell you how this industry is structured.

Jacques Breton is Vice-President of MJM Associates.

His business is getting merchants, like Carolyn Mooney, to sign contracts to process their credit and debit card charges.

He works with firms that process transactions. Those processors in turn work with the banks.

And then there are the credit card companies.

There are many steps in this process and every step comes with a fee.

BRETON: It’s banks, it’s sales organizations, it’s processors. It’s a little bit of everybody trying to maintain a bottom line.

The single biggest cost to merchants is something called the interchange fee – the percentage tacked on to each sale.

That percentage changes depending on the sort of plastic the customer uses.

One of the most lucrative for the banks, and most expensive for the merchants, is the rewards card.

These cards give the user free air miles, or rebates or points for some other purchase.

The money for those rewards doesn’t come from the banks or the credit card companies.

It comes from the merchants… through these interchange fees.

And, says Breton, the banks push these cards heavily.

BRETON: I’ve seen financial institutions that had a standard credit card, no bells and whistles, turn around and offer to their good customers rewards card. So as to increase the interchange level – make more money.

Right now in Washington, a consortium featuring 7-11 and just about every retail trade association , is pressing Congress to limit these fees.

The banks and the credit card companies are dead set against any such move. They point to one independent report that shows the average interchange rate has dropped a bit over the past few years.

Nessa Feddis, senior counsel for the American Bankers' Association, says the interchange fee is the wrong target.

Instead, Feddis points out that the card business is extremely competitive and merchants like Carolyn Mooney should take advantage of that.

FEDDIS: Small businesses do have a lot of choices out there. They can move to another bank or find another service provider. There are many service providers out there that provide access to these services sometimes they can be cheaper but she should shop around.

Feddis also says there's nothing to stop merchants from giving customers a discount for using cash.

But merchants take credit and debit cards because customers find them convenient and that convenience translates into more business.

So, Feddis says merchants should expect to pay their fair share of providing that service.

For his part, Breton, who remember, is in the business of selling this service, has his own strategy to ease the burden on merchants.

BRETON: At my regular retail establishments that are friends of mine here locally, I pay cash. I give them a check.

That’s guidance from a man in the know.

And now you know too. The next time you’re at the check-out counter, depending on how you feel about the merchant, you might want to ask yourself the quintessential question, paper or plastic.

For NHPR News, I’m Jon Greenberg.