Credit card minimum transaction

blue.peter

This morning, I used a credit card for a small transaction - buying a hot drink. For no particular reason, it got me thinking about a conversation that I had with my father a long time ago. He used to reckon it inappropriate to use a credit card for anything less than £10. For smaller transactions, he'd always use cash.

Is there any good reason to choose not to use a credit card for small amounts?

As far as I know, the transaction size is irrelevant to me. But is it relevant to (a) the retailer or (b) the card issuer? Do either of them care? I've never had an adverse reaction from counter staff, but they might not be aware of issues that affect the business owner. Similarly, no card issuer has ever said anything to me on the subject. My statements are typically a mixture of small and larger transactions - anything from a hot drink (once or twice a week) to a year's motor insurance premium, with a week's supermarket shop being typical. Very rarely, there'll be something bigger, like some hi-fi kit.

MorningcoffeeIV

A retailer would generally prefer debit cards due to the lower costs, but there is no reason for you not to use your credit card.

400ixl

Let the retailer decide, they will usually have a sign if they don't accept credit cards for transactions under a certain value.

Brie

I've seen lots of businesses over the years that have signs saying "no credit card transactions under £5". 

They get charged a percentage of the total but I suspect there's a minimum charge as well.    So if they're being charged 2% or 10p minimum for each card use then every transaction under £5 would get a 10p charge.  So buy a pack of gum for 60p they lose 10p for the card.  That's a big loss on a small item.  

I must admit I do try to use cash for small businesses to save them charges - hopefully it balances out against what it costs for them to get the cash to the bank.

400ixl

Cash is often worse for small businesses. 1) they have the cost of getting it to the bank and 2) they get charged a fee by the bank for depositing it.

Debit card is likely their preferred option.

blue.peter

Brie said:

I've seen lots of businesses over the years that have signs saying "no credit card transactions under £5". 

Yes, I've seen those occasionally, but not in recent years.

Brie said:

They get charged a percentage of the total but I suspect there's a minimum charge as well.    So if they're being charged 2% or 10p minimum for each card use then every transaction under £5 would get a 10p charge.  So buy a pack of gum for 60p they lose 10p for the card.  That's a big loss on a small item. 

That's the sort of thing I was getting at. It might be helpful if anyone knows the actual numbers for certain. Though perhaps the actual numbers vary from one business to the next.

born_again

Smallest I have ever seen is 1p. No idea what is was for though. 

Nifty_Purse

Retailer's are charged a rate by Visa/Mastercard/American Express to handle each card transaction. 
If what you are purchasing is less than the transaction charge then the transaction involves a loss to the retailer.
For example, your purchase was £2, the transaction charge was £3. This would involve the retailer paying the difference i. e. £1.
A few of these transactions wouldn't be an issue, but this happening frequently enough could be. So a retailer would communicate something like minimum card purchase £5. 

Now, the nature of the business is important as to how much of an impact this has to the business' finances. Bigger companies would cover the cost and not have a minimum purchase limit, but smaller businesses would find it more difficult. Also if the business sells a lot of product priced below the transaction charge rather than a mix of price points. So it was some years ago common for restaurants, cafes, independent cinemas, small retailers, etc to have minimum purchase limits. 
More recently, card payments have become so common that only very small businesses are likely to have a limit, for example, market traders. Most have factored in the cost into their overall product pricing.

The exception is American Express. They have always charged retailers higher transaction fees than Visa and Mastercard, which they use to fund the cashback they give to their card holders. This is why even today only larger businesses tend to except payment with an American Express card.

molerat

400ixl said:

Cash is often worse for small businesses. 1) they have the cost of getting it to the bank and 2) they get charged a fee by the bank for depositing it.

Debit card is likely their preferred option.

Cash can be even worse for medium / large businesses.  The amount that has to be counted & bagged.  I used to work in retail and although the card take was higher the reconciliation took a couple of minutes but could spend a good couple of hours sorting the cash.  Then there is the cost of security taking the cash away and delivering change.

grumbler

Nifty_Purse said:

If what you are purchasing is less than the transaction charge then the transaction involves a loss to the retailer.
For example, your purchase was £2, the transaction charge was £3. This would involve the retailer paying the difference i. e. £1.

What about the price the retailer paid for this item?  Do you think that they get their stock for free?

Nifty_Purse

This was a simplified example. 
I work in retail. 
The cost price of the item is not what the post is about.
The retail price of an item does not directly reflect the cost price and sometimes not even the production cost of an item.
Retailers use "loss leaders" regularly and add the shortfall to other product prices.