Have you ever withdrawn your credit card to pay for your purchase? If so, you’re also asking yourself why there’s a minimum credit card. The lowest rate can be bothersome or indeed inconvenient for consumers, but merchants have financial reasons to implement it.
If a merchant accepts credit card payments, it relies on card networks such as Visa, MasterCard, Discover, American Express (or combinations) to process credit card transactions. These networks also charge a replacement or “swipe” fee each time a customer pays a card.
Sellers cannot avoid these charges and may set a minimum to offset that cost. This means setting a minimum purchase to offset costs, as it is likely the driving factor behind the minimum purchase requirement.
Are minimum purchase requirements legal?
Yes, minimum credit card purchase requirements are legal. However, there are requirements that merchants must follow, and the minimum amount cannot be a random amount determined by the merchant on a whim.
Dodd Frank Wall Street Reform and Consumer Protection Act In 2010, merchants become consumers Credit card for payment.
Specifically, merchants have the option of setting a minimum $10 purchase requirement on their credit card to offset the cost of the burdensome processing fee. However, $10 is the maximum amount that a merchant needs to make a minimum purchase. And this minimum applies only to credit card payments, not debit cards. It is illegal for merchants to charge a minimum purchase amount on debit card purchases.
It also states that if merchants choose to impose a $10 minimum purchase requirement on credit card purchases, they must do so for all credit card companies. In other words, merchants can’t minimize American Express customers only and do not do that for Visa and MasterCard purchases.
Why do merchants need to purchase a minimum credit card?
A minimum of $10 purchase may sound confusing to consumers. After all, consumers usually don’t pay for the convenience of using a credit card. As mentioned above, merchants pay an exchange fee for each credit card transaction.
The exchange fees vary, but they account for the majority of the total cost of credit card processing fees paid by merchants. Credit card processing fee Depending on the amount of purchases excluded directly from the merchant’s revenue, it may range from 1.5% to 3.5% per transaction.
If your credit card purchase is based on a $10 threshold, the interchange fee will not only eat up the merchant’s profit margins, but in some cases it will cost more than the price you sell to the seller than the price you would like to seller.
How interchange fees work
Tapping or swipe a credit card for a purchase is a second nature for everyday consumers, but it can be quite a bit in the background for credit card transactions to take place.
If you use a credit card to purchase something at a terminal or with a merchant, the card will request approval from the credit card company and extend the amount of the purchase to you. At the same time, the credit card issuer will perform a check to ensure that the purchase is not fraudulent. Once the purchase is verified, the issuer processes the payment. merchant Exchange fee It covers the cost of smooth handling of all these steps without too much confusion at checkout.
The impact of interchange fees
How much can interchange fees have on profits? Let’s assume that a couple owns a gas station and sells candy bars for $2. They purchased a wholesale of candy bars for $1.50, hoping to make a profit of 50 cents on your purchase. Now, let’s say you used your credit card to buy that candy bar. With that $1.50 purchase, the exchange fee is a minimum of 40 cents for merchants, resulting in a profit of only 10 cents for the shopkeeper. This means the difference between a 25% profit on that candy bar and a 5% lower profit on a credit card.
The interchange fees are digging into the merchant’s profits, but the shopkeeper must carefully balance the amount of money they are supposed to lose if the customer prohibits paying with a card. As the US continues to use credit cards for transactions, they want to impose minimum purchase requirements to reduce exchange fees.
How to avoid minimum purchase requirements
If you accept credit card payments from a customer, there is no way for the merchant to avoid paying the exchange fee. It’s a fee they have to consider in their revenue, and weigh how they sell items while minimizing the money they’ve lost to exchange fees.
However, as a consumer, there are options to avoid the minimum purchase requirements such as:
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Add items to your purchase. Buy as many items as possible in one transaction so that you can meet the minimum purchase threshold.
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Pay in cash. Instead, you can avoid the minimum credit card requirements by digging into your wallet for cash.
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I’ll go shopping somewhere. If meeting minimum requirements or paying in cash is not appealing, you can take your business elsewhere to a store that doesn’t impose minimal. (Don’t let it get in completely Support local small and medium-sized businesses! )
Conclusion
Merchants must pay an exchange fee each time they accept a credit card for a transaction. These fees are added for the merchant and can quickly dig into profit margins, even making even fewer transactions unprofitable.
Merchants are legally permitted to impose a $10 minimum purchase requirement on credit card purchases to combat these fees. But it is the maximum amount and they must apply it fully to all credit card transactions.
