Minimum Purchase Requirements and Credit Card Processing

Reducing credit card processing fees has long been a challenge for merchants trying to save money.  The benefits of accepting credit cards as a method of payment are obvious in a society that relies heavily on credit.  Businesses that make this option available to their customers almost always see an increase in sales as a result.  This boost in sales does not come without a price for merchants.  With the privilege of accepting credit cards comes with credit card processing fees which can quickly add up.

Asking for minimum purchase with a credit card in the past

In the past, many small business merchants have tried to reduce these fees by requiring a minimum credit card purchase.  Most consumers are familiar with the practice.  Often appearing in hand written signs at gas stations or grocery stores, “$10 minimum purchase required for credit cards” policies are not uncommon.  What many consumers and in some cases even the vendor themselves do not realize is until recently this practice was actually in violation of the vendor’s merchant agreement.

New new rules for minimum purchases

As a result of the credit card reform, several aspects of credit card processing have changed.  One of which is the minimum purchase requirements set forth by businesses.  The major credit card companies no longer prohibit merchants from enforcing a minimum credit card purchase as long as they follow certain rules.

Visa has already changed their policy to allow merchants to require a minimum purchase amount for credit cards.  This minimum amount cannot exceed $10 and may not be applied toward transactions made with a debit card.  MasterCard has not yet officially changed their policy on minimum credit card requirements, however they plan to in the future.  American Express is also permitting minimum credit card purchase requirements as long as the merchant has the same minimum requirement for all credit cards.

This change in policy will impact both merchants and their consumers.  For the merchant, minimum purchase requirements help reduce credit card processing fees.  Merchants have to pay a fee for each transaction.  If a small business such as a gas station has many “micro” payments, for example using a credit card to pay for a soda or snacks, they end up paying more in credit card processing fees.

The effect of the new law to consumers

Consumers will be affected in another way.  Many people choose to not carry cash and make all or most of their purchases with a credit card.  This offers convenience and in some cases an easy way to track expenses for individuals who use their credit card for day-to-day purchases and reconcile their balance every month.  For these consumers, the minimum purchase requirement means they either have to buy more than they intended to meet the minimum or carry cash.  While this may not seem like a big deal, it does in fact limit options for consumers which may result in a loss of business for merchants who require a minimum payment for credit card purchases.

Merchants should carefully consider whether the money saved on credit card processing fees is worth the potential loss of sales if credit card consumers opt to take their business elsewhere.

Posted on Friday, September 24th, 2010