Feature article: No minimum—the way of the future


EFTPOS credit card machine being swiped with a blank credit card and Australian money.

Gouging extra money from customers is not something that will gain retailers favour with their customers, retailers should be re-thinking their point of sales system strategy in 2018, to ensure they reach their maximum potential with sales.

As cash is becoming a less common staple in wallets, retailer

s are seeing more and more credit cards and Eftpos transactions. However ditching cash from the equation can create some problems for the customer when making a purchase. Aside from facing possible surcharges just to pay on a credit card or via Eftpos, they might find themselves faced with a minimum spend amount.

When customers are in a shop for a quick on-the-go purchase, the last thing they want is to be told there’s an Eftpos minimum purchase requirement that they need to meet before they can finalise their purchase.

These minimum purchase requirements can have a real impact on businesses and it’s almost always, negative.

So why does this happen?

Enforcing a minimum spend limit is not something that the banks enforce on retailers; it is instead a way for retailers to make money.

This practice is commonly known as the ‘chewing gum’ tax, because it is a cost enforced on customers who try to purchase a small value item from the store.

If the purchase price is lower than the retailer would like it to be, they can tell the customer that they will not sell them the product unless they purchase something else to go along with it, thus increasing the value of their purchase.

The retailer wins and the customer, if they follow through— loses out, having just spent more money than they were anticipating to.

What does this mean?

Essentially, the more often a retailer can ‘trap’ the customer with this technique, the more money the retailer makes per sale.

This often results in many customers choosing to make their small purchases elsewhere, at a store that won’t make them purchase more than they came in for. Herein lies the negative impact on retailers, instead of making money they are losing it along with the chance for repeat customers to their C-store.

MasterCard said that retailers will lose up to 40 percent of their business if they impose restrictions on low-value transactions.

“Such businesses [who don’t accept cards] are already losing out, although they may not know it. MasterCard research undertaken by Ipsos revealed that two in five Australian cardholders already avoid businesses that don’t allow them to use cards for small transactions. By accepting cash or cards for all transactions, their businesses could be 40 percent bigger,” the MasterCard website stated.

MasterCard $0 minimum

MasterCard recently introduced a card system intending to “transform the way people can choose to pay for goods”.

According to the MasterCard website, “The Zero Minimum campaign encourages retailers to provide customers the choice to make cashless transactions with no restrictions”.

In recent research commissioned by MasterCard amongst Australian cardholders:

  • 62% find it frustrating when they can’t use cards for smaller transactions
  • 2 in 5 (44%) already avoid shops that don’t allow cards for smaller transactions
  • 61% prefer to pay with cards over cash for smaller transactions (over dealing with small change)
  • 84% resent paying a fee for smaller transactions

The benefits of enabling customers to use their cards for low value transactions are the speed, convenience and seamless experience that allows them to pick and choose who they buy from, and what they buy. Card transactions offer convenience and are more safe and hygienic than cash.

Avoiding the charges

When it comes to avoiding paying extra, a customer’s response may vary. Some may opt to pay with cash, others, depending on what they are purchasing will walk away. A customer has the right to ask for alternative methods of payment, instead of feeling boxed-in to purchase more products to meet the minimum.

Is this legal?

So what’s the deal here legally? Is it necessary for retailers to charge their customers extra on card transactions or is it just another way to make money?

Minimum spend requirements are generally regarded as unprofessional and many larger franchises decline to treat their customers in such a way.

While retailers are legally allowed to impose the minimum purchase rule, it’s not reasonable at all. In some cases, businesses and retailers can take this process a step further, by saying that if a customer does not meet the minimum spend requirement that they can instead pay an extra 30-50 cents, so their payment can go ahead.

Eftpos Australia CEO Bruce Mansfield told News.com.au: “Eftpos would prefer to see no minimum limits applied to eftpos cheque and savings transactions. It’s about convenience because having no limits makes it easier for consumers. However, merchants have the choice to set their own limits. It is a matter between them and their customers”.

Moving forward

As recently as last year, MasterCard was campaigning to put an end to the minimum purchase restrictions. This is when their Zero Minimum campaign came into effect, that encouraged merchants to sign up and support the campaign.

According to finder.com.au, the minimums are usually enforced to cover the fees that banks charge to process payments.

These fees could include:

  • One-time fees such as terminal establishing fee, closure fee and on-site installation.
  • Ongoing fees like credit card transactions, which are usually a percentage of 0.5-3% of the transaction amount.
  • Merchant service fees on credit card transactions.
  • A standard fee per Eftpos transaction, which tends to be around 10c to 50c.

However, these fees do not necessarily warrant such an excessive minimum spend.

MasterCard market development and innovation head Garry Duursma told RetaiBiz online: “Australia leads the world in contactless payments with now 7 out of 10 MasterCard transactions being done in this way”.

“This has changed consumer expectation and behaviour on card payments,” Mr Duursma said.

“Consumers have now found that a card payment is faster and more convenient than alternative payment methods

“With this reality in their minds, consumers don’t understand why a retailer would restrict card payments for low value transactions. They make their frustration felt by voting with their feet.”

Australian Retailers Association (ARA) executive director Russell Zimmerman told RetailBiz online it was important to maintain consumer and merchant choice across payment channels.





9 thoughts on “Feature article: No minimum—the way of the future”

  1. What an absurd article from a publication whose audience are retailers..
    I’m sure that Eftpos Australia CEO Bruce Mansfield would like to see no minimum spend. How about Bruce enforce a reduction in Acquirer Debit Card fees for micropayments?
    20c for a Debit Card authorisation on a $2.00 purchase is 10% of the sale price. On a $10 sale it’s 2%.
    When retailers price their GP they do it by %. They certainly don’t want to lose 1/3 or more of their GP$ in acquirer fees.
    The point of applying minimum is to make the sale viable in terms of GP$ for the retailer.
    The retailer is running their business for their benefit, not the benefit of an acquiring institution.
    I’m sure if the author spoke to retailers she would understand why minimum spends are enforced, why some apply surcharges (both fixed and variable amounts) and the impact acquiring merchant fees have on small businesses.

  2. I agree with Dave, it is all well and good for the institutions to not want a Minimum Spend or a Surcharge on Small Purchase Transactions, they are still getting their fees no matter what and the retailer looses, especially if you are a small retailer.
    If we charge a surcharge – we are the bad guys, if we have a minimum spend – we are the bad guys.
    Maybe it should be explained to the consumer that Retailers have to pay for the privilege of allowing them the convenience of paying by credit card or eftpos, as most customers are unaware of this fact, they think that the retailer is just making money by doing this.
    Cut out merchant fees altogether, as merchants already pay a monthly fee on machines, then there would be no need for a minimum spend or surcharge.
    It amazes me that the Government bodies (ATO, Australia Post, Transport) all charge a surcharge when you pay by Credit Card – which you have to do when paying accounts online.

  3. I think the main thrust of the article is, that by enforcing a minimum spend, you are probably losing customers. Yes, a certain percentage of low value transactions will become marginal from a profit point of view (Dave’s 10% of a $2 sale example), but the long term value of repeat business should generate greater profit overall.

  4. Disappointing to see such a hyperbolic, one-sided article here. Using terms like “trap the customer” and claiming that minimums are “a way for retailers to make money” is very over the top.
    The “chewing gum tax” is mentioned early but that section does not point out that the cost of processing an EFTPOS payment is often higher than the retailer’s markup on the “chewing gum”.

  5. Thanks for your feedback everyone. I’m interested in hearing your side of the story if anyone would like to talk me through it.
    The office number is (02) 9660 2113 and ask to speak the editor of C&I.

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