The Nation's Pulse

Credit Crunch

Plastic isn't always so convenient for mom-and-pop businesses.

By 10.9.07

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Early last year, Visa scrapped its musty 20-year-old slogan "Everywhere you want to be" and launched a new "Life Takes Visa" advertising campaign. The new ads would be fresh, touching, humorous -- they would capture those "little universal truth moments" that warm our hearts and hopefully put us in a spending mood.

This summer, in a commercial known as "Lawn & Garden," a bright and cheery day at the Willy Wonka greenhouse unfolds. Buyers whirl by like dancers in a Busby Berkeley number, colorful merchandise flies off the shelves, and hoses sprout skyward like fountain jets. As grinning customers cheerfully chug through the check-out line, a shaggy-haired employee swipes their credit cards, and they sail on out without missing a beat. But when a middle-aged woman puts a few items on the counter and opens her purse, the music grinds to a stop. All goes cold, all becomes dark, as she makes out a check. The check-out man frowns. The camera lingers on a mournful stone garden cherub, head in hands at this unforgivable gaffe. (Although I submit that the main problem lies with the woman filling out her check before the employee has rung a single thing up. Look close.)

Swing around to another commercial's scene: "Morning in Manhattan." As Gotham begins to stir, her citizens flood down sidewalks and course out of subway maws, credit cards in hand as they search for their morning sustenance. They're shown swiping their way to breakfast at small magazine stands, tiny tea shops, and finally at the local "Donut Hub." In the retro store, with all of TWO PEOPLE behind him, a man fumbles to pull out enough change to cover his coffee. The action again freezes in horror, and the cashier gives him a shaming look that melts into tolerance. She'll let this one pass. But the message is clear: The Hub wants the card, bucko. Using anything other than the fastest possible payment method will clearly blast the created order to bits, or bring the workings of a major metropolis to a halt.

While the choreographed commercials are a catchy way to introduce the efficiency of new Blink card technology -- a contact-free credit card interface -- it is ironic that Visa chooses in its commercials to showcase all the plastic action in small businesses, for tiny purchases. These local scenes, all aprons and coziness, stir up the warm fuzzies Visa's ad team is seeking, but the vignettes belie the fact that many small merchants probably prefer customers refrain from using credit cards for incidentals. Mastercard, Visa, American Express: they charge merchants fees for statements, equipment rental, Internet processing, applications, customer support, and per item "interchange" fees.

Interchange fees in America average 2 or 3% of a given purchase's value but vary, depending on the merchant and the type of card. That doesn't seem like much, but it is twice the rate charged in the United Kingdom and four times Australia. Some companies claim to have been driven out of business by the rising costs of offering customers a speedy payment.

It's not that credit cards are necessarily bad for small businesses. Obviously the expediency of a credit card (not to mention the deferred consequences) encourages people to buy goods that they otherwise would not, and this is a plus for the old economy.

But interchange fees have doubled in the last ten years, and the dollars rack up quickly, which accounts for the occasional "minimum credit card" purchase amount at your local gift store or Chinese restaurant. With the possible exception of a Donut Hub waitress, you won't get a frown from a mom and pop shop for paying with a few dollar bills, but you may if you pull out a credit card.

Try it the next time you pick up a creme soda at your favorite local enterprise: ask which form of payment management prefers. It's an easy answer: cash or check, especially on items where the profit margin is a few pennies on the dollar. Recently, the strapped state of Michigan has forbidden credit card payments in its Secretary of State offices. They couldn't justify payment of thousands in kickback charges. The only card allowed is Discover, which lets state employees ask customers to add a "convenience charge" to their bills in exchange for the card usage.

Small business owners can impart two pearls of wisdom: If something is everywhere you want to be, then it is probably not free. And don't believe everything you see on television.

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