You know, there are some things that improve with time - wine, jewelry, scotch, and me. But here lately there’s something I’ve realized that is NOT improving with time... the banking industry.
Waaaayyyy in the back of your store are hundreds of dusty old books with tiny little numbers written in tiny little green columns. Those books are filled with the in-store accounts that constituted the way we did business for hundreds of years. Then, somewhere around the late ‘70s, something called MasterCard/Visa came on the scene. If I recall correctly, the conventional wisdom was; “It’s a fad. It’ll never stick!” Conventional wisdom was wrong.... it stuck.
Back then, the credit card companies had very high standards and very high expenses. When a customer came in with a shiny new piece of plastic, it meant that they were “somebody.” When they came in, you knew a nice sale was just a matter of finding the right piece of jewelry for your customer. Fast forward a decade or two and pulling out “the plastic” has a whole new meaning.
Back in the ‘70s and ‘80s, credit cards were revolutionary. It meant that the stores no longer had to carry the note. For a mere 4% of the sale, you got your money the same day if you wanted. Credit cards meant someone else took the risk as well as the role of the collection agency. No more monthly statements to send. No more collection calls to make. No more paperwork to do. It was cool. And the best part of it? The only people that had a credit card were the cream of the crop of society. In the jewelry industry we call these people our “target market.”
In the beginning, it went something like this...
Someone would come in and be interested in purchasing a shiny new bauble. As a salesperson, you’d mention that your store offered layaway and in-store credit. Your customer would then whip out that shiny new piece of plastic and you knew the sale was a lock. The only thing you needed to do as a salesperson was to find out what the credit limit was and max it out. It was a dream come true!
When just the right item was found, the customer would say; “I’ll take it.” You would then say, “It’ll be just a minute while I run this card.” Then the credit card approval process began. But, before I say this, I want you to know that I’m not telling you this because I want to take a trip down memory lane. I’m telling you this because I want you to understand how complicated and expensive it was to process credit cards in the beginning.
First, you’d pull out this long metal credit card machine and ‘imprint’ the card onto a 5-part carbon form. You’d then write all of the pertinent information about the sale on the form. Then, you would go sit at a desk with a phone that had a long row of buttons across the top (come on... who still has one in your store?). Next, you’d punch an unlit button towards the far right of the row and you would call a ‘1-800’ number (that they were paying for), you’d get a live human immediately (that they were paying for). You’d spend a few minutes reading the number of the card, the expiration date, and the drivers license number to them. They’d ask you the amount of the sale and then they would put you on hold for a minute or so. They’d come back on the line and give you an authorization number, and the sale was done. The money was yours. The next day (or the same day if you wanted) you’d take the credit card slip to the bank and deposit it just like a check and the money was yours.... minus 4%!
And you know what? That was money well spent. In the beginning it was expensive as hell for the banks to process credit cards. But you traded 4% to avoid the hassle of doing it yourself with your in-store accounts... addressing the envelopes, buying the stamps, making the collection calls. That 4% made you money.
Fast forward to 2011 and let’s see how complicated it is to process a credit card:
Customer hands you a card
You swipe it
3 seconds later it’s approved
2 seconds after that the customer signs the slip
2 seconds after that, you say, “Thanks for coming in.”
No ‘1-800’ number. No ‘answer on the first ring’ operator. No staffing a call center 24/7. Heck, you don’t even have to go to the bank and deposit the slips anymore, it’s all electronic now.
So what’s wrong with this picture? The fees charged to retailers have gone up! Why are they still charging me between 6 and 10 percent for something that’s gotten cheaper for them. I swear, between the interchange fees, the statement fees, the batch settlement fee, the annual compliance fees, the MasterCard authorization fee, the Visa authorization fee, the US cross border fee, etc, etc, etc. It is out of control.
Throw in debit cards and now every single sale I make costs me money to process. I pay between 25 and 35 cents to process a debit card and somewhere between 6 and 10 percent to process a credit card depending on the month. It’s gotten so I don’t even read the statement anymore because I can’t understand it.
Do I have a crappy processing arrangement? Hell, I don’t know, they all suck to me. I hate them all because no matter what rate you start with they all sneak in the extra “gotchas” every month.
I’ve now prominently posted a sign in my store that states we add 10% to any debit card sale if the customer wants me to run it as a credit. I already don’t want to pay 25 cents, I’ll be damned if I’m going to pay $6.
Yes, there was a time when taking plastic was profitable. Now, everyone pays with plastic. I never again thought I’d be happy to see someone pull out a checkbook. A check for $100 means I get to keep $100. A credit card for $100 means I get to keep about $93.
Every month when I get the statement from my credit card processing company, I don’t think, “Oh goody, let me see how much money I made this month.” I look at it and think, “Crap. How much money are these people stealing from me this month?”
I don’t know what the answer is, but there was a time when someone pulled out a credit card and I was happy. Now, when that plastic comes out I just wonder, “What happened to the cream of the crop?”
Chuck is the owner of Anthony Jewelers in Nashville, TN. Chuck also owns CMK Co., a wholesale trade shop that specializes in custom jewelry and repair services to the jewelry industry nationwide.
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