“SORRY, there’s a $10 minimum.”
Australian shoppers are being ripped off and businesses are shooting themselves in the foot with old-fashioned transaction minimums, MasterCard has warned.
The credit card company is waging a campaign to shame Australian retailers into abandoning the practice, which research shows is hated by shoppers and bad for business.
According to MasterCard, 84 per cent of customers resent restrictions on smaller transactions, 62 per cent find it frustrating when they can’t use cards for small transactions, and 44 per cent avoid such shops altogether.
In fact, the amount of money wasted in a year by the typical Aussie shopper forced to purchase an extra item at the checkout to make up a “minimum” card limit could pay for a trip to Bali, MasterCard says.
As part of its “Zero Minimum” campaign, the company has interviewed young professionals and busy mums who have calculated how much they are wasting by falling into the “minimum spend trap”. A twice-weekly purchase with a $6 top-up on a $4 coffee works out to $624 a year.
“The big picture on this is that Australians have absolutely embraced contactless payments,” said MasterCard head of market development and innovation Garry Duursma.
“In excess of 70 per cent of all face-to-face transactions are being done contactless, and increasingly people are starting to use their cards for extremely low-value everyday purchases like a cup of coffee or a magazine, things we used to carry change for.”
Mr Duursma said “legacy thinking” from when card payments were much more expensive and much slower than they are today were becoming a “handbrake on business”.
Retailers that have scrapped minimum spends since the campaign launched earlier this year have seen a spike in their business, he added.
In general, there are five kinds of fees banks charge to process transactions:
• One-off fees including terminal establishment fee, closure fee and on-site installation.
• Ongoing fees like terminal rental, access fee and annual fee.
• A service fee on credit card transactions, usually a percentage (0.5-3 per cent).
• Banks may also impose a merchant service fee on credit card transactions.
• A basic fee per Eftpos transaction, which tends to be just 10c to 50c.
While there is “still a cost of the transaction” because “somebody’s got to provide the service”, Mr Duursma said the merchant service fee, which made up the biggest chunk, had nearly halved in recent times.
“The Reserve Bank has been tracking the reduction in the average interchange for some time now. This is the basis of the merchant service fee that the retailer pays — the biggest chunk of that is interchange,” he said.
“It’s below 80 basis points now, where at one point if was above 150 basis points. Since the RBA first started the process of managing and reforming the cards business, interchange fees have been coming down considerably.”
According to MasterCard, 53 per cent of Australian businesses have no minimum for card payments. Of the 47 per cent which do have a minimum, nearly a third don’t have a sign telling customers.
“It’s quite embarrassing when a consumer comes to the counter and the merchant says, ‘Oh, I’m sorry, there’s a minimum payment’,” Mr Duursma said. “It’s inconvenient when they’re asked to spend more. It just becomes a bad experience.”
He said MasterCard’s “Zero Minimum” campaign, which launched earlier this year, has focused on rolling out point-of-sale advertising to the shops that don’t have a minimum in a bid to raise awareness and shame other retailers.
“The majority of merchants didn’t have a minimum, but almost none of them had a sign up to say they didn’t,” he said. “Now that more and more retailers are prepared to put up a sign saying they have no minimum, that starts a process of slowly educating the rest of the market.”