Not all customer payment methods are created equal. Cash, checks, credit cards, debit cards, discount/reward cards, and gift cards are all common payment methods that typically are part of customer expectations.
Each of these payment methods has benefits and costs, and there are huge variations among the costs – in particular the interest rate and the “interchange fees” paid by retailers to banks and intermediaries. Average fees for credit/debit card payments are 2 percent, and in the retail grocery industry that 2 percent is large – equal to or greater than the “bottom line” net margin for a typical store.
Banks and major card companies make millions of dollars from interest and interchange charges, and they are fighting to prevent customers from being given information that would enable them to reduce those charges. The National Cooperative Grocers Association (NCGA), along with numerous other plaintiffs such as the National Grocers Association and the National Restaurant Association, has been in antitrust litigation with VISA and MasterCard and major banks since 2004, but the banks have been stalling to keep this class-action lawsuit out of court.
Meanwhile, customers paying cash or with basic credit/debit cards are subsidizing the higher costs for transactions paid with premium or discount cards. For a summary of the background to these issues, see “Battleground and Opportunity,” by Donald Kreis, from a 2010 issue of Cooperative Grocer:
NCGA in August 2012 rejected a proposed $7.25 billion settlement to the class action lawsuit, declaring that the deal being offered would not protect the users of credit and debit cards from exorbitant fees. It would merely allow retailers to pass on those fees to customers without addressing the structural unfairness and lack of transparency. (Find the NCGA statement opposing the proposed 2012 settlement at: https://www.ncga.coop/node/5178.)
On September 20, 2012, NCGA and other plaintiffs reaffirmed their opposition to the proposed settlement in a letter to leaders of the U.S. Senate and House of Representatives. In the view of the plaintiffs, tthe settlement:
•Entrenches the Visa/MasterCard duopoly,
•Enables continued centralized price-fixing by Visa and MasterCard,
•Allows Visa and MasterCard to continue to handcuff merchants and prevent them from seeking better deals and communicating openly with their customers,
•Forbids merchants from opting out of restrictive new rules set forth in the proposal,
•Gives Visa and MasterCard the ability to keep market forces from working by keeping prices hidden,
•Makes all current and future merchants – even those that are not yet in existence - forever surrender their legal rights, and
•Limits emerging innovations that can bring meaningful competition to the marketplace, such as mobile payments.
Minimum payment/signature requirements
Notwithstanding the unresolved state of the class action lawsuit, retailers do have options in educating customers about payment methods. Thanks to the Durbin Amendment to the 2009 financial reform act passed by Congress, retailers can now restrict card payments below a low figure and also can process card payments below $25 without a customer signature, thus reducing transaction time at the register. (Most retailers, concerned with preserving customer options, do not enforce a minimum payment limit.) The minimum for no-signature transactions is actually regulated at the state level, but VISA now allows no-signature below $25 transactions for all its customers.
Store managers warn that for the no-signature option, there is a danger of inconsistent records unless the bank card processer and the Point of Sale system software both support no-signature transactions. In such cases, registers can be programmed to print receipts that read, “no signature required.”
Additionally, in May 2012 VISA announced that beginning in 2013 retailers will be protected from fraud chargebacks on transactions that have been electronically read and appropriately handled at the point of sale. In addition, VISA will waive the requirement for its card issuers to ask retailers for a copy of the receipt when a cardholder disputes a transaction; receipts are presently required in such cases. There will be no change to existing fraud liability in tandem with these changes (http://www.progressivegrocer.com/top-stories/headlines/industry-intelligence/id35351/visa-raises-no-signature-limit/).
Customer cash back issues
For recording of cash back to customers for card transactions over the amount of the purchase, co-op retailers have this advice: Forgetful or inaccurate cashiers are largely bypassed by using POS software that integrates the two functions of recording card transactions and recording cash-back transaction. Retail managers who do not have this system integration must exercise added review of cashier summaries and enforcement of cashier performance standards on cash returns and other opportunities for error.
EBT card payments
EBT (electronic bank transfer) cards are used, among others, by food stamp (SNAP) recipients. An issue arises when a customer wants to combine an EBT payment, for which only certain products are eligible, with a credit/debit card payment for the remainder of the purchase. POS systems are set up so that the EBT card payment must be processed before the card payment. Failure to follow this sequence leads to time-consuming reconstruction of the transaction at the point of sale.
The proper sequence requires education of customers who are EBT card holders. Discussion among retailers indicates that conveying the requirement to process EBT first, before credit/debit cards, is not necessarily difficult and soon becomes a customer habit. Initially, however, the cashier can expect to have a conversation with the customer and cannot expect to rely only on a sign at the checkout lane or on the card payment pinpad.
Co-op credit cards, co-op gift cards
Each payment method has its costs, and that includes cash and its counting and secure handling. Co-op owners and co-op earnings are affected by the payment methods. What, then, might be the better options to encourage among customers and owners?
One strategy that has been pursued by a few co-ops, including Outpost, Wedge, Seward, and Wheatsville: partnering with a local credit union to issue VISA or MasterCards bearing the food co-op’s name and logo. As stated in the above-linked article, “Battleground and Opportunity”: “Under the byzantine system for remitting interchange fees, some of this money flows back to the credit union in question—which can then share it with the food co-op. In the case of The Wedge, the shared funds end up with the co-op’s charitable foundation.” Here is a 2009 Cooperative Grocer article by Outpost general manager Pam Mehnert, describing that co-op’s collaboration with a local credit union to issue the Outpost Visa card: http://www.cooperativegrocer.coop/articles/2009-01-20/credit-union-collaboration.
Best of all the options for reducing transaction fees may be to use a debit card transaction to purchase a co-op gift card. This could be done monthly or periodically (gift cards are available through NCGA and also from individual retail co-ops). If the card holder shops using only the gift card, this results in only one small interchange fee for each total gift card amount.
From Berkshire Co-op, Art Ames commented that they use scannable membership cards in just this fashion (Sept. 25, 2012): "In order to reduce credit card fees, a cause that our owners embraced, we now have a program where owners can make a monthly cc charge, and we transfer the balance to the owner cards. We now have 80+ owners doing this and we are already saving on fees and its growing and unintentionally helping cash flow as owners essentially prepay for groceries."
Future option: mobile payments
Retailers may want to prepare their card payment terminals for a new and growing trend of mobile payments – i.e., customers using smartphones and the like for financial transactions.