posted on November 24, 2008 11:54:35 AM
I posted this in the wrong forum, so here it is...
Love your frequent flyer miles??? Guess who pays for those airline tickets and rewards? Not the bank, airline, hotel, or car rental company that promote their business through these so called rewards.
Before you pull out that Rewards/Frequent Flyer Credit or Debit Card again, you should understand exactly how you earn those so called freebies.
THE MERCHANT PAYS UP TO 8 TIMES WHAT YOUR MILES ARE WORTH!!!
When you pull out your reward card and use it as a credit card, you are punishing the merchant that you are using the card at.
If you are a merchant, you see this in a tiered processing fee format. A regular credit or debit card may be charged 1.65%, but then doubles, sometimes even triples when a Reward Card is presented.
What that means to the buyer is little, because they think they are getting a great benefit. But they don't know the truth about who pays for those rewards you get and where that money goes.
If you buy $1000 at a mom and pop store, Mom and Pop pay $16.50 to process a regular credit or swiped debit card. If it's a reward card, double that to $33.00 or even triple to $49.50. Imagine if someone took $16.50 or $33.00 out of your wallet each time someone used a reward card! Multiply that by the tens to hundreds of reward card users in any given business... and mom and pop are losing thousands of dollars each year... in essence banks are stealing their hard earned money.
What does that extra $16.50 mom and pop pay for the consumer to get that reward on a $1000 purchase? If your reward is 1 point per dollar, it costs merchants $1515 for you to rack up 25,000 points (the minimum for a restricted coach class plane ticket). If you want to fly without restrictions (50,000 miles), you are looking at $3030 for a coach ticket. This is what the merchants pay for you to fly. Who in their right mind pays that much for a coach class ticket? Nobody, if you can see it right before your eyes.
If you get 2 miles per dollar, then you're ticket costs $767.50 for that plane ticket. This of course doesn't include the annual fee you are charged, or any additional fees you are charged by your bank to get your plane ticket. Wells Fargo charged our business $25 a year for the cards, plus $50 per plane ticket to redeem them. Any way you look at it, you are taking money from businesses and giving it to the fat pockets of the banks... many of which receive money from that 700 billion dollar bailout.
How much do the airlines charge the banks for those redeemed frequent flyer seats? Probably about $100-200 per ticket wholesale at the very most.
This is one of the biggest scams, and should be stopped, or regulated so that the banks and airline companies are paying the fees... not the merchants.
Most merchants are not aware that this happens. I found out last year at a gas station, when the owner got upset at me for requesting he swipe it as Credit, even though it was our Business Debit Card. I told him that I got reward miles, and then he told me this. When I called my processor, they confirmed it.
Please educate as many people as you can about this scam. If you use a rewards card, think about using it only at bigger merchants that pay significantly smaller processing fees than small businesses.
Larger corporations like your local Target, Wal Mart, or grocery stores are generally not located in your town, so all of the profits leave your area anyways. I would guess that 85% of sales from credit cards never touch your local economy. That other 15% is to pay minimum wage to that kid at the cash register. Add that to how much the bank gets on the reward scam, and in essense you are really punishing your local economy.
We as consumers, and business owners need to understand things like this better. You really get what you pay for, and passing the buck (or often times thousands of bucks) onto your neighbor isn't really helping yourself out much b/c those neighborhood businesses suffer from these hidden charges.
Do yourself and your local economy a big favor and cut those frequent flyer and reward credit and debit cards, or keep them in your wallet and use them at the big companies that pay half the amount in processing fees than do your small businesses.
posted on November 24, 2008 11:59:21 AM
Not all merchant accounts pay more for accepting these cards. If the merchant is too lazy to look around for a competitive rate that does not punish accepting reward cards, then that is their problem, not mine.
Even if this wasn't the case, I am going to do what is best for me (getting the reward points) and not what is in the best interest of the merchant!
posted on November 24, 2008 02:03:46 PM
do i sense a merchant processing salesman? or someone who just doesn't get it.
it's not like you stop getting charged a fee b/c you have a single tier rate. single tier rate it is based on averages which includes reward cards. you are paying for it either way.
blaming it on laziness is quite farsighted. I spent a year analyzing at least 20 different merchant processing systems, and no matter what you do as a merchant you get charged more for those cards whether it is in a flat rate or multiple tier system.
it also depends on the type of business you have. restaurants, cafe's, etc. have their own fee structures. grocery stores have another, gas stations another, and retailers have another. each pays fees slightly differently.
it is true that each processor will make money on their service, and that you should shop around and negotiate. But being educated about how these companies make their money and how it affects your business is just as important. It is knowing how your money works. You should always know something about those you do business with. know your customer, know your vendor, know your bank... etc.
the less money in the local economy means tougher times for everyone. that business owner who you purchased a pair of shoes from with a reward card made less money on the sale because some giant bank from China, Saudi Arabia, or Switzerland created another scam that benefits them at a 400% markup. in turn, that means that shoe store owner has less money to spend at your business, which means less money for you... it cycles through. in the process it holds local economies back & slows them down. if only half of that money went to your local businesses, everyone there benefits.
I don't turn away a card from customers, by contract I can't. However, I do educate them so they know how their dollar affects their economy.
I am closing my business accounts at Wells Fargo because I don't want to be part of their system any longer. They charge a fee for everything. Their processing rates are outrageous (something that I have never used), and their customer service sucks. Ironic that they will get at least 25 billion in bailout money plus however much money they are getting for their buyout of Wachovia.
We used to have a Wells Fargo rewards card. We loved our rewards card, but when we began understanding how it worked, and how it also affects our business... the two don't add up to a margin that benefits us. As you point out ebayvet... everyone should look out for themselves, not for some wealthy bank CEO getting free handouts.
I got about $200 to $300 in rewards a year from using our cards. That included all fees paid to the bank for the service (annual fees/redemption fees/etc). Some people may get more, some less. That was from purchases only. This excludes miles earned based on flight miles, car rentals, etc. Then I analyzed our processing statements and see the reward card rate producing at least 4 times the money, dollar for dollar than what I was getting from my card.
I moved our business accounts to my credit union... and I am paying NO Monthly Fees for each account. I don't have to pay to download my bank account to quickbooks, I am earning 3% (thru the end of 08) on my two checking accounts and 1% after the introductory rate. We also have a savings account that is fee free as well. In just monthly charges I have saved $204, plus I have an extra bank account to help manage our funds better. I also get free downloads of quickbooks updates which maximizes time without sacrificing $15 a month. Wells charges $15 a month for this service, which we always passed on. We get Free Checks, the biggest free ATM network in the country, and free overdraft protection by using our savings account. Their banking system is real time, meaning when I deposit $1000 in checks or cash, that money is instantly available... including deposits at an atm. But guess what the credit union doesn't offer??? REWARDS CARD PROGRAMS!!! I feel pretty good that I'm not passing on extra fees to someone else. I have to use a card to make purchases, especially for our business accounting... but I know my dollar is being used wisely in the process.
The reality is that when it comes to processing cards... your best bet is to have a PIN pad. Depending on your break point, if you process that $1000 debit or credit card with a signature for 1.49% with no additional fees for rewards, you pay $14.90 to process that payment. Have that customer enter their PIN number on the pad and you are paying less than $1.00 for the same purchase. Multiply over the course of a month and that $13.90 difference per $1000 grows very fast. We save hundreds of dollars each month processing PIN vs. running cards as Credits... even when they are Debit cards. It doesn't matter if the rate is 1/2 of a percent or 4%- there is a point where your credit rate on a purchase becomes more expensive than a single transaction fee by running it as debit and vice versa. There is a point where debit is more expensive on lower priced items than it is by running it as a credit.
That money we save knowing this helps us better manage our business and puts a little more money in our pockets so that we can buy other goods in our area. I've even had a few customers express their disdain for reward cards themselves. Word is getting out and people are paying attention.
[ edited by shagmidmod on Nov 24, 2008 02:27 PM ]
posted on November 24, 2008 05:38:01 PM
Nope, just a medium business with a merchant account. You need to make your responses a tad shorter, most aren't going to read paragraphs.
Anyway, as someone who uses these cards and the rewards, I am not going to look out for a merchant's best interest and not use the card. Nobody else is either.
posted on November 24, 2008 05:53:22 PM
You go right ahead and continue. Nobody's stopping you, but you're not going to stop me from writing long or short messages.
As I have said, people can make up their own minds, and with just a little education, it is already working.
posted on November 24, 2008 07:10:36 PM
I am not trying to stop you, just point out that long messages in internet forms tend not to be read, that's all.
posted on November 24, 2008 07:14:04 PM
Shag is right. Take care of your neighborhood merchants or they will disappear. Take care of the local and national manufacturers or they will disappear. When neighborhood businesses, barely coping to survive, prefer cash but will accept credit/debit cards, I try to oblige with cash. It's not all about me. It's about keeping my neighborhood businesses viable.
posted on November 25, 2008 06:22:15 AM
It looks like the answer to all of this is that merchants have the right to determine what methods of payment they will accept. I know many of my stores will not accept Discover or AMX. It is their decision based on costs, etc.
By the same token, Ebay gets to decide their preferred method of payment, also (PayPal). It is all about the bottom line.
posted on November 25, 2008 07:18:04 AM
merrie- you are partially correct. we don't accept AMEX or Discover because of their rates and fees. we average about 2-3 times a year that a customer attempts to present those cards... but with reward cards it isn't so clear.
You may not know what type of Visa is being presented. Not all reward cards have "frequent flyer" on them, or any other marks to identify them. Our Wells Fargo cards were Platinum Business Check Cards.
What I do, and what I ask our employees to do is run cards as Debits if they see "Check Card" or "Debit Card" on them. I don't bother to ask the customer because if they don't want it run as a Debit they will say so.
Accepting online payments is much different though. I haven't encountered a system that allows a buyer to enter their PIN for debit cards when paying online. Online merchants are simply stuck with a percentage rate vs. PIN based debit.
