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Writing in opposition

January 26, 2007
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Writing in opposition
Joe Wolfinger

The pro side of accepting credit cards at your carwash usually revolves around two comments: no one uses cash anymore and, people who use cards spend more than those who use cash. Both of these comments are usually preceded by the claim, "It's a proven fact."

Just the facts

Before reviewing these two comments, let's first look at the facts involved with the down side of accepting credit cards.

  • Credit cards add expense to your business and reduce profitability;

  • Processing fees can be as high as six percent;

  • An investment in electronic equipment with specialized servicing contracts is required;

  • A designated phone line or high -speed internet connection is mandatory.

  • A recent carwash trade journal review using an economic formula for determining profitability of investments showed credit cards dead last. The investment in equipment to take cards produces a negative profitability return on that equipment; and

  • Credit card acceptance changes your just cash, no-accounts-receivable, business into one where you now rely on an electronic system from another company to account for your revenue.

Are you willing to spend the time necessary to develop a hand review of a print out and determine if every card swiped has been paid for by the company processing your charges? How expensive is it to back up your data in case that new computer processing your cards crashes?

Credit card processing can be slow. How many times have you swiped your card and then had to swipe it again several times? How many times have you waited for authorization on your card? Cards can take more time to process than cash.

Now you have additional sensitive equipment in your bay. How much damage does a high pressure wand do to a card reader when the customer sticks it in the slot and pulls the trigger?

New costs will arise due to acceptance of bad credit cards. Many of the credit card acceptance equipment use a batch transmission method for processing charges. The card is accepted at point of service and then charges are sent in a batch during off hours.

Did you know that your equipment can accept a bad card, you provide the service and then you may be out your wash revenue and incur a fee? In a recent report on this problem one internet merchant had over $10,000 in charges assessed by his card processor in one year.

Did you know that the credit card companies are lobbying the U.S. Congress to legalize a $500,000 fine for any retailer who allows card numbers to be stolen from their computer system? That means if a hacker or employee obtains card numbers from your processing system you would be on the hook for ½ a million bucks.

Unfair charges

Do you believe the banks that process VISA, MasterCard, and American Express are fair in their charges to you? The International Carwash Association (ICA) recently published an alert, "Paying the Price for your Customers to use Credit Cards." This alert outlined a recent lawsuit against U.S. banks and card companies engaged in "collusive practices to fix credit card interchange rates". These fees can range up to two percent per transaction.

A carwash trade journal reported that Master Card said it would revamp some of the fees paid by banks and merchants. Master Card faces a lawsuit over some of its fees and industry experts and advocates such as the National Association of Convenience Stores have appeared at congressional hearings on the matter.

Fees and usage

The fact is credit card fees for bad cards and chargebacks is a major profit area for card companies. "Merchants are not willing to accept this any more. They are fighting tooth and nail," said Kathleen Attinello, an executive vice president at Receivable Management Services, which fights chargebacks on behalf of retailers, but the practice persists.

Now, what about those pro credit card statements. "No one uses cash anymore." I do not feel that is accurate. When I ask car wash operators what were their results of accepting credit cards, I usually hear that between 30 - 45 percent of the sales on automatics are now paid with cards. Even with a 50 percent card usage rate, half your customers still prefer cash.

The Nilsson Report, a newsletter about credit and debit cards, reported that gasoline retailers started offering discounts for customers paying by cash. When the price of gasoline goes up the card fee per gallon increases 2 cents per gallon with every dollar increase in price. Margins per gallon do not increase but may decrease. Hal Crenshaw, who owns six gas stations in South Carolina, reported that offering a cash discount has doubled his business and his card charges dropped to 18 percent. In a new television commercial VISA tries to make customers look foolish for using cash.

Sales tax & debt

There is an effort by the card companies to eliminate cash in our society and force every retailer to pay a fee on every sales transaction. I call this a private national sales tax; added to the local sales taxes some states have on car washing services. The bankers become a partner in your business and you have very few choices in limiting the fees you are charged to process cards. How much will the card fees increase as card usage continues to increase?

"People spend more money when using a credit card vs. using cash," that appears to be very accurate. During the last 10 years, credit card debt in the U.S. has increased from $250 billion to over $800 billion dollars. Is that really good for the retailer?

Eventually, customers reach a debt load that forces them to eliminate some spending. Will they not get the car washed this week because they owe thousands of dollars on a credit card with an 18 percent interest rate?

I have never seen an unbiased report that verifies the claim your revenue and profit will increase if you accept credit cards. Some operators have told me they believe their higher profit add on services increase enough to off set the cost of processing the cards.

Bending to please a crowd

It is a fact that credit cards have been super hyped by the banking industry with great success. I recognized that some customers want to use cards and you will need to accept them at your wash. I have reluctantly made that decision and will start accepting cards in my automatic within 6 months.

My cost will go up and my profits will go down. I see no pros to my decision.

What you need to consider as a carwash operator making the decision is: what equipment and card processing service should be installed. I wish I knew the answer to that question.

Joe Wolfinger is the owner of Solar Shine Carwash for the past 24 years. He is a former board member of the Carwash Association of Pennsylvania.