Using Credit Cards for Small Purchases

If you have a credit card you probably are using it more and more. Most people are, and some of those purchases are for relatively small amounts of money. In the credit card business these small purchases are referred to as micropayments. A significant volume of micropayments is for internet transactions, primarily for music. Online music vendors sell individual songs for $.99 or less. But the greater significance of these micropayments is that they teach credit card holders the behavior of using their cards for small amounts. Once you’ve used the card to buy a song, it suddenly seems normal to buy a pack of gum in a convenience store or a milkshake in a fast food restaurant. The numbers of these small purchases is booming yearly, and it creates problems for both consumers and retailers. For a retailer the increased use of credit cards is in some ways a godsend since it is fair to assume that some of these sales would not be made if the credit card couldn’t be used. On the other hand, credit cards cost retailers money because they have to pay fees to Visa or Mastercard for each transaction, and for very small transactions these transaction costs can eat up all of their profits. In the extremely competitive retail store arena, profit margins are already constantly getting squeezed lower and lower. So, retailers often impose a minimum purchase, often $5, for anyone using a credit card. One day you go out and want some gum, and you want it so badly that you forget to go to the cash station first. You end up at the convenience store but learn you have to spend at least $5 to use your card. So you get a can of soda and a bag of chips and you still need to spend more, and when you see that box of a dozen donuts and you get that, but by now you’ve spent $7 instead of the $1 you intended to spend, and you are also going to swallow a thousand calories of junk food. Ugh. You can debate this idea, but it’s likely that you’ll spend more money if you can use a credit card for small purchases. Spending more money is good for retailers. They want more money. However, there is that transaction cost and on top of that it’s often more labor intensive to take in all that money and process the card, the signature, and the paperwork. Pressure is on the credit card processors to come up with less expensive ways for retailers to take small payments, and eventually they will. In the short term, they’re happy to collect the processing fees and let the retailers worry about the cost. Retailers, especially online retailers, often try to aggregate sales in order to avoid individual fees on small transactions. They can do this because there are two parts to each transaction, the authorization and then the actual transfer. They authorize your payment, but they may hold up the transfer in the hope that you will make another purchase soon that can be paired up or aggregated with your earlier purchase. With literally billions of small transactions happening annually, everyone will eventually be asked to pay a fair amount to support the process. Until then, it’s probably smart to scrounge around under the seat of your car for a dollar rather than pay $7 for a pack of gum.