For Some, No Purchase Is Too Small For Plastic

Barbara Levi, left, and sister Marcia co-own Chocolate Moose on L Street NW. Marcia says credit and debit card fees can erase more than half the profit on small purchases. (Marvin Joseph -- The Washington Post)

That swipe triggers an electronic exchange between the bank that issued the card and the merchant bank that processes it for the store. As the banks work to authorize the purchase, they tap into a multibillion-dollar infrastructure. To help pay for that, banks assess retailers a fixed and variable fees per credit card transaction.

Also factored into those fees are the risks card companies assume by guaranteeing payments to the merchants, even in cases of fraud.

Levi said she easily pays 55 cents in fees on a $2.25 greeting card, depending on the brand of credit card used. That's more than half of her $1 profit margin, she said. For debit cards, she pays a flat fee of 35 to 45 cents per transaction.

"It may not sound like much, but if you do that 100 to 200 times a day, that really eats into your profit margin," Levi said. Her best hope is that the larger purchases offset losses on the smaller ones.

Visa and MasterCard -- joint ventures made of up of thousands of banks that issue credit and debit cards -- prohibit merchants from setting minimum payments. American Express, which issues it own credit cards, discourages minimums but allows them if the merchants apply the same limits to other cards they accept.

Card company executives recognize that the fee structure is a deal-breaker for many of the cash-based merchants they're pursuing.

"We know what the stumbling blocks are," said Carl F. Pascarella, president and chief executive of Visa U.S.A. Inc., which has the largest number of cards in use, about 458 million. "We get it."

But Pascarella said he's confident that Visa can overcome resistance from merchants, as it did when it first rolled out credit cards decades ago, and then debit cards, which gained popularity in the mid-'90s and helped spur card transactions for low-value items.

"This is something that is really in an embryonic stage," Pascarella said. "We have a lot of merchant education to do, and we have a lot of fine-tuning to do with our pricing."

That fine-tuning has begun.