Both the pains in the neck and amis de pain who frequent Taste Baguette must have been delighted to learn upon returning from their break that their favourite outlet has done away with its $10 EFTPOS minimum. The same intriguing development led your curious correspondent to consider why a card minimum remains in place at other outlets on campus, and whether it is justified.
We begin with a recap of high school commerce, or at least what I imagine to be the type of ground covered there.
When a cardholder purchases something from Taste, money is transferred from their bank account (let’s say Commonwealth) to Taste’s bank account (they roll with Westpac). Although Commonwealth and Westpac manage the two accounts, a third party, the payment processing system (usually eftpos, VISA or Mastercard), actually moves the money electronically between the banks. The processing systems do their jobs in the milliseconds between entering one’s PIN and when the words “transaction approved” appear on the terminal. They check that you have enough money in your account, makes sure your card isn’t dodgy, approve the transaction and log it, so the banks can settle between themselves at the end of each day.
There are costs associated with this process. Firstly, eftpos (the company, which is different to EFTPOS – a technical term for “paying by card”), VISA and Mastercard charge a fee for the processing service they provide. eftpos charges a flat rate of three cents per transaction; VISA and Mastercard, usually 0.5% of the value of the transaction. For each card terminal, banks also charge installation, maintenance and “access” fees to merchants. Depending on a stack of variables including but not limited to: the type of card, country of origin of the card and the number of transactions a merchant processes each month, additional charges are added to the transaction, and these are all borne by the merchant. Because of all these variables, it’s impossible to pin the banks down on the typical cost of a single card transaction. The yardstick for small businesses is 25 cents per transaction. Generally speaking, the greater a merchant’s turnover, the better the deal they can negotiate.
So why impose a card minimum? According to Angelo, the manager of Parma Cucina+Bar (which imposes a $10 minimum), “when we’re selling a cup of coffee for $3, even less with ACCESS, our margins are already low, so it’s tough for us to make a buck if we take another hit with the card fee.” He says raising prices to absorb card costs would make him uncompetitive. “But above $10, we can afford it.”
Daniel Panebianco, the manager of Ralph’s Café, mounts an almost identical argument for card minimums; he also cites a slower speed of service. The $2.80 fee for withdrawal from the in-house ATM probably has something to do with it too.
Whilst it is unlawful for a merchant to pass on a “card surcharge” greater than its real cost, imposing a minimum amount on card transactions is perfectly legal. The Commonwealth Bank is the only of the big four that explicitly prohibits card minimums in its merchant agreement, but doesn’t enforce this condition strictly. In the event of a breach, according to the bank, they “will respond by contacting the merchant and educating them on their obligations under the terms and conditions”.
But there is cost to cash, just as there is a cost to each card transaction. That cost comes in the form of handling and input errors, time spent counting it, Armaguard, and the fees that banks charge merchants for physically depositing it. Speaking to Warwick Ponder, executive manager of corporate affairs at eftpos, it seems that economies of scale – how much cash a business handles – has a strong influence on whether it makes fiscal sense for a merchant to impose a card minimum. The more cash they handle, the higher the cost of its handling, and the closer it approaches that of just absorbing card transaction fees (which actually decrease as a merchant’s volume of transactions increases).
Whether or not a merchant chooses to adopt an EFTPOS minimum is a delicate decision that must take into account a range of factors, including typical transaction amount, the number of transactions they process each month, and the deal they can negotiate with their bank.
Why did Taste Baguette do away with its minimum? Mitch, who was the manager on duty, said it was “management’s decision”.
Understandable, considering its complexity.