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ATM Cards More Expensive to Process than Credit?

September 8, 2005, 1:23 pm

Does this make any sense:  It costs us a lot more, for small transactions, to process an ATM / debit card with the pin pad than a credit card.  Bank of America charges a flat 60 cents per ATM card / PIN pad transaction in our stores but charges 10 cents plus 2% on credit cards.  So, on a typical $5 convenience store purchase, BofA charges $0.60 or 12% to process a ATM / debit card but $0.20 or 4% for the credit card.

I understand the difference between value- and cost-based pricing, but in an economy of scale transaction processing business with a lot of competitors, I would think debit would be cheaper to process, even without the credit risk issues. 

Customers give me feedback that I am a neanderthal for not accepting ATM cards with a pin pad at the registers.  This is the reason.  Its cheaper for me to provide an ATM and then have them pay cash - that way they pay the fee, not me.  Also, their fee is lower.  Even if they only take out $20 and pay a $1.50 fee, they are still only paying 7.5% vs. the 12% typical I would be paying.  If anyone knows a company that offers a better deal, the comment section is wide open!

Update:  A couple of notes based on the comments.  First, I do indeed understand that prices are not cost-based.  The notion that pricing should be cost-based is one of the worst economic misconceptions held by the average person (behind the commerce is zero-sum myth).  When prices don't make sense to me, I don't run to the government asking for Senate hearings so corporations can "justify" their pricing, I just don't buy from them. 

Second, to another commenter's point, most card processing agreements and some state laws prevent merchants from passing card processing fees onto consumers in a discriminatory way - ie they can be built into the general pricing but you can't charge one person one price and another a different price for the same item based on what kind of payment they use.

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Category: General Business
  • Max Lybbert

    When I was a teller, I never understood why many of our policies existed. The banks often do everything in their power to encourage customers to say they're using a credit card (eg., "fee reduced for every month in which debit card is used as a credit card"), when the fees for using a credit card go to Visa or Mastercard, not the bank (at least that's how I understood things). It seemed to me to make more sense to create policies encouraging ATM card use.

    Perhaps the banks just don't want to do the work necessary to collect the money, or have some way of offloading risk to Visa/Mastercard. I really don't know.

  • http://www.linesinthesand.net Doug Murray

    On the first day of Marketing 101, many decades ago, my professor told us,"If you learn nothing else this semester, remember one thing - cost has nothing whatever to do with price." I always disagreed, holding that cost can establish a price floor, but above that, he was absolutely right.

    Your response, not taking debit cards, is the right one. As long as people pay the asking price, it won't change, but with enough similarly-minded neanderthals, BofA might rethink things a little.

  • Mark Horn

    Why not just pass the cost on to the customer? Let them pay with an ATM card w/pin pad, but add the extra expense in when they use it. That will allow them to make the decision to incur the extra charge instead of you having to eat it.

    If you get too many questions, stick a sign next to the PIN pad explaining the charge.

  • Vicki

    Why is it that Costco only lets one use their debit card, with the exception of their American Express?

    Mark has a point about letting the consumer pay the charges; I believe that's what Carl's Jr. does.

  • Matthew Brown

    In California, at least, an extra charge for ATM use is commonplace. Almost all fast-food chains do so, as do ARCO gas stations, 7-Eleven convenience stores, and other such places. However, there seems to be something, whether it's law or card processing agreements, which makes them not charge extra for credit card purchases (although a credit-card purchase minimum amount is commonplace).

  • http://low-apr-credit-card.valueprep.com/business_credit_cards.html business credit cards dude

    Wow, what a crock and a kick in the pants where it hurts for the merchants. This I did not know but it just goes to show how capatilistic these card companies can be when they know they have the merchants back slammed up against the wall.
    They must have it to run their respective business seamlessly and these people know it.
    Legislation should be enforced so that this fee can be tapered waaaay back to under the reg. credit card fees.
    Excuse me while I go puke!
    Cheers,
    Brian

  • http://www.swipeit.com jerry

    You can always get a better deal when it comes to the flat fee for pin entered debit transactions. We set clients up with these accounts all of the time - and in your case - I would have never let you set up the pin pad - you are probably better off pulling it out of the back of the machine and just telling your clients that you will run their debit card as a credit transaction - your debit % is typically much lower than your swiped credit % - if you insist on still using a pin pad - you should be able to get a rate closer to $.45.

  • Gary

    Re: Arco Debit Card Fee.

    Until the very recent requirement that you accept a debit card fee at the initial swiping of your debit card, I remember Arco's practice as being one in which you did not know you were being charged a fee for using your debit card until you printed out your receipt from the pay island at the conclusion of the sale.

    Do you recall this practice?

    Do you recall when Arco started informing you of the debit card charge?

    Thanks, Gary

  • Gary

    Re: Arco Debit Card Fee.

    Until the very recent requirement that you accept a debit card fee at the initial swiping of your debit card, I remember Arco's practice as being one in which you did not know you were being charged a fee for using your debit card until you printed out your receipt from the pay island at the conclusion of the sale.

    Do you recall this practice?

    Do you recall when Arco started informing you of the debit card charge?

    Thanks, Gary

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