I was recently in Kensington market in Toronto when some fresh raspberries caught my eye at a local supermarket. I went inside to pay with my credit card when I was informed by the store clerk that I could only pay with credit card if I spent at least $20. This was more of an impulse purchase and I wasn’t close to the $20 threshold and I didn’t have the cash on hand, so I left the store without buying the raspberries.
I’m sure I’m not the only one who has experienced a situation like this. Let’s take a closer look at why retailers do this and if it’s ok for them to do so.
Credit Card Interchange Fees
The main reason small neighbourhood retailers put thresholds on purchases is because of a little thing known as credit card interchange fees. Interchange fees are invisible to consumers like you and me, but that doesn’t mean that they aren’t there. Every time you swipe, insert or tap your credit card, the retailer is charged an interchange fee. Interchange fees are typically one or two percent of the purchase – and even higher for premium credit cards.
Now, I know what you’re thinking. One or two percent doesn’t seem like a lot, but trust me, it adds up, especially for smaller retailers. Let’s say a retailer has $500,000 in credit card sales in a year and the interchange fee on average is two percent. That’s $10,000 annually that goes to interchange fees.
For the small mom and pop retailers just getting by, this can be a tough pill to swallow, that’s why some of them impose thresholds on credit card purchases or forgo credit cards completely. (Although similar to my situation, imposing a policy like that is probably going to lose sales).
With the governments in many provinces upping minimum wage, small retailers need every penny they have. Although interchange fees have been lowered in recent years, they still add up to a lot for smaller stores.
Dollar Threshold on Credit Cards
The local supermarket isn’t the first time I’ve run into credit card threshold and it won’ t be the last. But did you know that it’s against the rules of Mastercard and Visa for retailers to do that? It’s true. Retailers can’t set thresholds. They also can’t refuse premium credit cards. If a retailer accepts Mastercard and Visa, it has to accept all credit cards types under those brands, even the premium ones.
But before you report the retailer to Mastercard or Visa, perhaps look at it from their perspective. If they’re a smaller store, they’re probably being squeezed by higher taxes and wages. If you really want to do them a favour, consider paying with cash, at least when making small purchases at small retailers. Doing something like that will go a long way to helping keep these retailers in business.
The Bottom Line
The next time you use your credit card, don’t forget that there’s a cost to retailers – and a cost to you. Even if you pay the same price to use your credit card as paying in cash, prices are overall higher at the retailer to account for the interchange fees, so don’t lose sight of that. Happy spending!
