We all love our rewards cards. Famous models advertise them on TV, and who doesn’t like getting a Visa gift card or cash back at the end of a year of purchasing? How do they do it, we wonder?

Visa, MasterCard, Discover and American Express, along with the host of other credit cards gather this reward money for their customers from the retail merchants where the purchases are made. They charge retailers for the right to use credit cards and the quick deposit of funds that goes with them.

Retailers like it because it’s a quick turnaround on purchases, and those dollars are mostly guaranteed by the credit card processor. Customers love it because they don’t need to carry cash and can defer payments to the end of the month while gaining reward points or dollars back.

Visa and the other credit card companies (we will use the term ‘Visa’ from now on as a reference to all credit cards) openly publish their rates to merchants on the internet under a group of charges called ‘interchange.’

All merchants pay interchange as the base of charges to their credit card processor. Then, the processor adds a fee to make a profit and remits the interchange to the Visas of the world. It’s up to the merchant to negotiate with the processors for the lowest fee charged in addition to interchange (these add-on fees are minimal compared to interchange). Interchange rates are charged depending upon the type of Visa card used at purchase (debit, credit, rewards credit, business, gas rewards, cash back etc.).

Only 5 years ago, these rates varied from a tenth of a percent on debit cards to 1.5% on reward credit cards ($0.10 or $1.50 on $100 worth of purchases). However, those times have changed. Here is a list of 2022 interchange merchant charges per $100 worth of purchases from various credit cards and types:

  • Visa Debit Card – $0.40
  • Master Card Debit – $0.40
  • Discover Debit Card – $1.36
  • Visa Business Card – $2.62
  • Master Card Business Card – $2.95
  • Discover Business Card – $2.40
  • Visa Rewards Card – $2.30
  • Master Card Rewards Card – $2.30
  • Discover Standard Rewards – $1.81
  • Amex Standard Card – $2.45
  • Amex Gold/Platinum Card – $2.65

Outside of labor and rent, credit card processing represents the third largest overhead expense for Joe’s. The fourth largest overhead expense is not even within 50% of the costs affiliated with credit card fees. As you can imagine, credit card processing expenses can represent 25% or more of net income for many small businesses. As recent at 5 years ago, that expense was less than 10% of net income.

Obviously, this increased cost is not limited to just Joe’s but all retailers who accept credit cards. In the past, retailers have increased the price of goods for consumers and passed this cost on to them to cover. However, recently, with the cost of inflation reflecting a minimum of 7% increase in consumer costs, retailers have started to pass credit card processing costs on to consumers in the form of convenience fees.

While you won’t see this convenience charge at the retail cashiers stand at Joe’s, it’s starting to become the norm at convenience stores and gas stations where the customers are increasingly offered a debit/cash or credit price for their purchases. It’s become commonplace standard to see this charge on online retail purchases where the credit card is not present and therefore, cannot be completely validated. Unqualified charges for online credit card purchases can cost the online merchant up to $3.50 per $100 of purchases (3.5%).

We have no intention of putting a convenience charge on top of your retail purchases at Joe’s. We will continue to wrap credit card expenses into your purchase so that you do not see a unique fee. However, you will see new signs at Joe’s encouraging customers and thanking them for using debit cards for their purchase to help us keep your prices lower. Lower prices help not only our guests, but help us stay in business by improving our competitive position compared to grocery stores and wholesale clubs.