What people think about minimum card spend restrictions – a SmartCompany report

The term ‘disruption’ is bandied around so often, it feels like it has lost its true meaning. However, as a term for the retail industry, it is very relevant, with the industry arguably facing its toughest period in modern history. Increased competition from online retailers and a new breed of omni-channel businesses means that traditional bricks and mortar retailers are faced with changing customer behaviour in the form of service expectations.

A major bugbear for consumers is businesses applying minimum spends and surcharges on card transactions. In the era of the electronic transactions we are moving closer to becoming a cashless society. This SmartCompany investigative series, brought to you by Mastercard, delves deep into grassroots retail, the types of businesses resisting change, key characteristics of these business owners, their rationalisation for policies and their understanding of consumer sentiment.  

According to SmartCompany’s investigation, some traders believe what they’re doing – in their words, “recouping bank fees” – is good practice, while others believe requiring cash for small spends equates to poor customer service and highlights a lack of understanding of an effective pricing structure. Many consumers agree with the latter, stating that the practice is “demanding” and questioning why customers should “carry the burden” of a business’s merchant fees.  

Across the country, in a variety of stores, such as newsagents, bakeries, takeaway shops and cafes, signs advising customers that card transactions will only be accepted for purchases above a certain amount sit beside the register. Some state a surcharge is required for purchases under $10, while others might advise that a $10 minimum spend is required to use a card. At one takeaway outlet in south-west Victoria the minimum spend for a card transaction is a whopping $20. What is evident it that the issue of minimum spends and surcharges are not mutually exclusive, with both being tactics employed by businesses to maintain an element of control of their business.

SmartCompany surveyed businesses on minimum spends, whether existing within the business or otherwise. Feedback from business owners was mixed, with many of those surveyed unclear as to why existing minimum spend transactions were adopted in their business, with some stating the policy was a legacy from previous managers and owners – a key indicator of change resistance.

Understanding your fees

While some businesses blamed their minimum spend policies on bank fees for card transactions below their minimum amount, many traders were actually unsure of the merchant fee structure they were operating under.

A party supply manager, who does not want to be named, says she believes her store’s minimum spend policy is to cover bank fees that “are applied to every card transaction”.

Business development manager Julia Brown, who works for an agriculture supplier, says that staying relevant means regularly reviewing merchant fees should be part of business practice.

“A business owner should know what their merchant fees are,” she says.

“We don’t know the card that the shopper will use until it comes time to pay. Fees do vary across types of cards, so rather than openly passing that onto the consumer – which can often have a detrimental effect to the business – absorb the fee into pricing so the transaction removes any potential customer confusion and they have a better shopping experience.”

The rise of the cashless society

Another emerging – or some may argue current – trend is the cashless society. Cash is becoming less prevalent in daily transactions, leading many consumers, and some business operators, to call out minimum spend policies as questionable and a misguided practice. Some business owners say that in an age of online shopping, traders should be doing all they can to encourage bricks and mortar shopping, which means making the checkout experience more customer-focused.

“We live in a cashless society and smarter businesses know they have to have more effective pricing structures that takes the perceived burden of payment off a consumer,” says Julia.

Creating a better customer experience

For Lisa Boland, a homewares retailer in Central Victoria, minimum spends seem, in her words, silly. “You have to question the reasons behind [a minimum spend] as it is not offering a good customer experience and could be detrimental in the long term. A minimum spend is not part of our business strategy, as we want customers to come back because they enjoyed their shopping experience with us and we feel they shouldn’t be penalised for shopping with us.”

However, Gary Kirwan, owner of The Sherlock Holmes in Melbourne, says his minimum spend policy of $15 is “very flexible” and was brought in because of the nature of his trade.

“We are a busy bar in the centre of Melbourne and if someone wants to pay by card for one pot of beer it really does slow down trade,” he says.

“Especially when you have a line of people behind them with cash in their hand. When I explain it to customers they are understanding, but if someone’s tally comes to just $12.70 it’s close enough and we’ll swipe it. We try to be as flexible as possible.”

John Loomes, whose business Moama Steel supplies agricultural fencing and steel supplies to farmers in lower New South Wales, says he opted not to have a minimum spend on card transactions.

“Some days there will be smaller transactions because someone may only want one thing, but the next week that same person may come back and buy more product. The merchant fees are percentage based so the net percentage loss of turnover is the same for any purchase.”

Regardless of the reason for employing a minimum spend, reviewing merchant fee structure could be one way to stay in step with consumer behaviour. Ultimately the consumer will choose to shop where it is fastest and most convenient for them, and increasingly that appears to be at a shop where they can choose to use their card without any restrictions.