Special Feature: What retailers need to know about EFTPOS – Part 2

We continue on from last week’s installment on EFTPOS surcharging, to examine the issue from the grass roots level of a small C-store, and in the view of our peak representative body. Ben Hagemann reports.


A touchy subject

Conversations with route retailers on the subject of surcharges and minimum spends proved difficult, with few who saw fit to pass on such costs willing to enter into discussion about how the upcoming legislative changes will affect their business.

The author’s local convenience store operator, with a 50c surcharge on cigarette purchases, was reluctant to enter any conversation about the matter, especially once it became clear that the owner sometimes waived the surcharge for regular customers, a discretionary practice that could easily be construed as discriminative pricing.

Another route store owner said it was commonly understood among convenience retailers that 30c was an acceptable surcharge for use of EFTPOS, however he did not see fit to pass on that charge at point of sale, instead pricing his goods accordingly for his business while enforcing a $10 minimum spend rule.

The difficulty of canvassing for opinion among small retailers, and their broad reaching reluctance to discuss their reasons for passing on the costs of EFTPOS, demonstrates the level of guesswork some businesses use in setting a price per transaction. Industry word-of-mouth suggests 30c is fair, yet for purchases of cigarettes many who see fit to pass on the cost have no qualms about charging 50c, a rate of 2 per cent on the average price per pack of $25.

However, one route store operator said a minimum charge of $15 was imperative to their business, after revealing they believed EFTPOS was costing them around 40c per transaction.

Tap-and-Go vs Savings – A grass roots issue

A Sydney Inner West shop owner, “Rowena” spoke to C&I Retailing, insisting that customers needed to be educated about the differences between the cost of debit and credit transactions. A debit charge is incurred if the customer slides their card inside a reader and verifies the PIN, whereas the new ‘Tap-and-Go’ method incurs a credit card charge, regardless of whether the card is for debit or credit.

“If the customer is just buying smokes on their own, yes I do surcharge if it’s a credit transaction because the surcharge is higher from the banks,” she said.

“Now with the Tap-and-Go, people don’t know, most people don’t know that even if it’s just a savings account; that we’re getting charged for a credit card when they tap it; a lot of people don’t know that.”

“I try to make customers aware of that, and if they do have an actual savings card, I ask them to put in their PIN because I say, I don’t need to charge you, and you don’t know that it’s being charged as a credit card. But because of this Tap-and-Go they’re making people forget their PIN numbers.

“If it’s a big sale I don’t charge, if they’re buying groceries. But if it’s cigarettes or under the $15, it just depends, 50c, 60c, I have to charge. The profit margin is too low.”

“The thing is, we are a small convenience store, and surcharges like that add up at the end of the month for me, it makes a difference. They [customers] are used to tapping because it’s easier for them, but it’s us that are paying the price.

Rowena said that her store used around 300 to 400 transactions a month, a cost which was adding up in each billing period, and one which she felt could not be included in pricing with already stressed margins.

“I try to even it out,” she said.

“Most of my customers are regulars, and we have a really good, friendly basis with them, and I try to make them avoid, as much as I can, any fees. So if I have to use a credit card and it’s going to cost me, I’m hardly making any profit on that. And the area is pretty expensive now, my rent is pretty high, I don’t know, everything is catching up. I just try to let them know, this is your savings account, don’t let the bank take extra for credit cards, please use your PIN.”

“I feel sorry for my customers. Everything costs so much these days, and I try to save them as much as I can. We’re working on the basis of 25-30 per cent, and I don’t increase prices. I try very hard to keep them down. It’s the competition out there; you’ve got to try to keep your customers.

“We have a lot of customers that try to negotiate on the prices, you can’t blame them. But every time you try to prove yourself and how much the transactions cost, you just feel awful.”

Speaking for industry

Australia’s peak representative body for the P&C retail channel, the Australasian Association of Convenience Stores (AACS), welcomed the RBA’s new standards. CEO Jeff Rogut took a dim view of the practice of passing on transaction charges at point of sale, describing it as “unprofessional”.

“It’s not something that our industry has adopted far and wide at all,” he said.

“And it’s not [a good practice] in terms of customer service, and moreso for the image of the business, that we would necessarily recommend.”

In line with ACCC advice, Mr Rogut suggested stores should factor their costs of business into pricing, a move which could foster greater customer loyalty with removal of something seen by customers as a negative aspect of the point of sale experience.

“Obviously we don’t write policies for other organisations, but generally, in a typical organized convenience store at the larger end of the scale, customers buy what they want to buy, there’s none of this nonsense about spending $15 to use a credit or a debit card; it’s really poor customer service,” he said.

“Again, we’re not advocates of that minimum $10 spend, with a handwritten sign in Texta; it looks unprofessional and there’s no reason for it.”

For small store owners who still see separate surcharging as an advantageous form of income, or a necessary means of offsetting banking overheads, AACS’s official position was unsympathetic: “Our only advice is to obey the law, and get used to the fact that there is a new regime in place, it is what it is”.

Mr Rogut said the new laws would prompt small businesses to ween themselves off the practice of surcharging, and fall in line with more conventional pricing strategies, however there are no easy answers for businesses struggling to remain competitive.

“I don’t necessarily know that there is an advantage to [surcharging], quite honestly,” he said.

“What we find is more of the smaller stores tend to put up signs that there is a charge for using credit, debit or any other card. It’s not a practice that the industry has really been in favour of; it’s not something that has been promoted at all. We tend to try and take a more equitable approach, in which the price is the price, and customers don’t have to think about paying something on top of that.”

“Small retailers have got to look at the market when they do their pricing, and again that’s a concern for some of the operators who may not be as professional as others, but obviously when they do their pricing they’ve got to take all of those things into consideration, like costs of labour and all the overheads that affect your margins.”

AACS’s Jeff Rogut warned that increasing the retail price of products to cover banking charges may be a dangerous starategy: “To suddenly put their prices up might in fact make them uncompetitive, which means in fact that they’ll be doubly worse off and lose on what they’ve been taking off the top”.

“Customers may say ‘hang on, you’re just too expensive’. It’s very, very competitive out there, so others need to be aware of what their competitors are doing in terms of pricing and looking at offering an overall value package to customers.

“But they have to get used to the new regime and the sooner they do that is better. Then it won’t hit them with such a shock when it does come in.

“Certainly I know the ACCC and other authorities in power to monitor it will be very vigilant in this particular area.”

The cost of business

Despite the competitive difficulties anticipated by small retailers, moving away from a surcharge system may actually be a positive change for small businesses. Although it’s an image the convenience sector has worked hard to shake, the common perception that C-stores are more expensive than other types of shops means that retailers have a unique opportunity to use a shift away from surcharging to foster increased customer loyalty, especially if they make the change well in advance of the legislative effect.

Research on customer gratitude by the Queensland University of Technology Business School, published in the Journal of Retailing and Consumer Services (The role of customer gratitude in making relationship marketing investments successful, 2014) showed that customers felt more gratitude about marketing investments, or promotions, when they perceived the retailer’s action as benevolent, rather than duty bound.

“Retailers could increase gratitude by empowering store teams to more benevolently and flexibly apply relationship marketing activities; such as allowing them to adapt store policies, personalize communications, provide ‘small favours’ or even ‘bend the rules’, within set boundaries,” the report said.

“It is suggested that very structured quid pro quo programs tend to be integrated into the overall value proposition and thus lose their ability to promote relationships… Accordingly, it is recommended that programs should retain some random or discretionary elements that demonstrate to serve customers’ best interests over financial gains to increase perceptions of benevolence.”

With a proactive approach, small businesses could turn the new regime to their advantage, informing customers of the changes and building gratitude and loyalty through an early, benevolent adoption of a no-surcharge strategy.

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