Why you don’t want a minimum card spend policy

According to recent SmartCompany research into customer payment habits of more than 400 SMEs, control – or a desire for it – is a deciding factor when businesses decide to implement a minimum card spend policy in their business.

Some retailers, however, say that refusing cards for transactions below a minimum spend is a barrier to good customer service.

Business consultant Bri Williams of People Patterns agrees. “There are pros and cons to a minimum spend, but wrapping up a customer’s shopping experience with you with a negative at the end is not a good way to encourage them to return,” she says.

“It also signals that this business has poor customer service – we don’t care if we offend you and we are too miserly to absorb any fees into our cost structure or to negotiate a better transaction agreement with our financial provider.”

In a survey of consumers, financial services company Mastercard reports that 42% of customers are frustrated by not being able to use their cards for smaller transactions, going on to say that two in five Australian cardholders avoid retailers – often bakeries, newsagents, takeaway outlets and fruit and vegetable shops – that don’t provide payment options for low-value transactions.

What is best practice for payment transactions has been a healthy debate for retailers and consumers, with some businesses deliberately avoiding the practice of minimum card spend, while others have grappled with ways to oncharge their arguably disgruntled customers.

Ditching the minimum spend

Tina, manager of St Kilda cafe Dr Jekyll, says improving customer service was the reason the cafe’s minimum spend policy of $10 per card transaction was ditched.

“We decided to remove it because it was detrimental to business as some customers walked out,” she says.

“A lot of customers don’t realise that banks charge businesses fees for card transactions. When we explained this to them they said they understood, but we decided to absorb fee costs into pricing, which offers a better customer experience,” she says.

“We also understand that not everyone carries cash today, so we had to change. Our new model works, customers return and are happy.”

Getting a better deal

Traders who continue to blame excessive bank fees for their employment of the minimum spend practice, despite being confused or unaware of their existing fee agreement, are being called out by their peers. Some traders say the reasoning is “now archaic and nonsense” and have changed the way they operate to stay in step with consumer habits. And, with excessive credit card and electronic fee transfer surcharges now illegal across all Australian business, there’s no better time for small traders to review their payment option practices.

“My customer base is predominantly the small tradie or mum or dad, who want to complete a fencing or shed job at home,” says David, who prefers his business is not named.

“We have a high turnover, which means we are in the many thousands of dollars for bank fees. Our prices can vary because of the price of raw materials in the manufacturing process, which is already a concern for our customers. Adding a surcharge or keeping up a minimum spend was not a viable option for us, but I knew I had to get a better deal from my bank on the use of electronic facilities and transaction fees. In short, I changed banks and went with a provider that could support and provide my requirements.”

Reviewing financial provider options is also a consideration for Gary Kirwan, owner of Melbourne bar, The Sherlock Holmes. The inner-city establishment has a “flexible” $15 minimum card spend in an attempt to encourage quicker “pay and go” transactions.

“It’s something we are looking at, we need to stay competitive for our customer base and for our own bottom line. Our business demands that we offer quick service and we would consider payment options that offer that while also applying to a broad number of people.”

Creating a good customer experience

“Business owners need to make the process of paying for items as painless as possible,” says Williams.

“Direct customer energy to the thrill of the purchase of the product they wanted – even if it is a bottle of milk – rather than making the deal harder than it needed to be to go home with it.

“If you want repeat business, don’t create a friction in the process. Stay in step with consumer behaviour – if you don’t, you will fold. If businesses are caught napping, people will go elsewhere. You need to keep them loyal.”

Lessons in fostering loyalty

For customer behaviourist and business consultant Williams, keeping pace with consumer expectations is paramount as everyday consumer habits embrace a cashless economy.

William says businesses that waive a fee at checkout, such as delivery of furniture, a minimum spend or surcharge, can deliver more than just good service to a customer – they can also foster loyalty.

Williams looks at the recent ATM fee changes as an example.

“With Commonwealth Bank recently dropping ATM fees, they will now be seen as the good guy, even though they may not be losing money in doing that. It’s the same for a business that absorbs fees into a price point, rather than charging a customer extra at checkout. If you don’t have a minimum spend, then promote this in your store, especially if you are surrounded by similar stores,” she says.

“The perceived value of dropping things can go far with a consumer. There is a greater value in being seen as the good guy to do business with, which will far outweigh these petty little transaction costs.”

Six things to focus on once you get rid of your minimum card spend – Bri Williams

1. Understand margins and adjust pricing across product lines to effectively recoup the value of what you think you are losing in the minimum spend, and don’t forget the costs of accepting cash.
   
2. Look at the reality of how many transactions you are processing at or around that value to understand exposure. For instance, if it is $10, how many people are buying $8 items or $12 items.
3. Do your competitor research. For stores with a returns policy, some won’t publicise this in case their business is overrun with them, but studies show that the introduction of free returns can give a slight increase initially but you are also overwhelmingly increasing people’s propensity to shop with you in the first place. Psychologically, for a business to do this is quite tangible and could be painful and you will feel annoyed with a customer, which is why you need to cover your margins.
4. Think about consumer actions and habits.
5. Promote that you don’t have any minimum transaction fees, especially if your competitors have it.
6. Be a leader in going cashless, and reduce the friction for your customers.