Fighting high card processing fees with store debit cards

Fighting high card processing fees with store debit cards

Credit card processing fees have been eating away at merchants' profits for years, but change is in the air. Business owners are starting to find alternative ways to combat high interchange fees by providing their customers with store debit cards.

Customers receive an offer to apply for a store debit card that gets linked to a checking account they already have. They confirm their account by verifying small deposit amounts and then receive advertised discounts.

Parker's, a convenience store chain in Savannah, Ga., offers a discount of up to 10 cents a gallon when customer's use their store debit cards. The chain had 3,000 activated cards within two weeks of offering this promotion, according to Savannah Now.

Parker's isn't the only merchant who is offering a store debit card. Target currently has a Target Debit Card program that saves customers an additional 5 percent every time they use their cards in stores. The program is free for customers, and the additional savings makes it hard to refuse.

This program may take off with a variety of merchants if the Federal Reserve's proposal to reduce debit card processing fees is passed. Visa and MasterCard currently charge merchants an average of 1 percent of the purchase price and also pay the banks that issue their cards. The Federal Reserve's proposal would significantly cut fees from the average 44 cents to 7 cents for each debit card transaction.

A store debit card is a way that merchants can save money on fees that they would normally pay per transaction to Visa or MasterCard. One of the potential risks to this promotion is if banks decide to increase the cost of their checking account fees. Consumers may shy away from the program in that instance.

A store debit card has incentives for both customers and merchants. This program appeals to customers who do not want to take on any additional debt with a new credit card. It only takes a few minutes of their time to sign up and is easier to consistently save money without having to clip coupons.

Merchants can enjoy the benefits of collecting additional information about their customers during the credit card application process. They can also sell this information to a third party. The information collected from transactions will help merchants with future direct marketing purposes and the card increases customer loyalty.

Article by Stephanie Armstrong

Published: March 3,2023