When Visa stopped requiring signatures for purchases of $15 or less in 2003, it also relaxed the merchant fees it charged. As a result, Visa transactions at fast-food restaurants nearly doubled in dollar value between 2003 and 2004, Pascarella said. Sales of other small-ticket items jumped 25 percent, to $6.5 billion, in the same period.
Meanwhile, even without signatures, fraud remains at an all-time low of 5 cents for every $100 spent on Visa cards. The company's research shows that low-value purchases tend not to attract fraud. And even if they did, Visa guarantees its payments to merchants.
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)
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The guarantee is one of the benefits card companies highlight as they pitch their services to traditionally card-averse retailers.
Another pitch: faster transactions. Swiping cards without signing receipts is much faster than fumbling around for pocket change, they say. And now, all the major card companies are experimenting with getting rid of the swiping altogether so that transactions move even faster.
MasterCard offers PayPass, a card consumers can tap on specially equipped terminals, that McDonald's Corp. now accepts in select stores. American Express Co. is phasing in similar wave-and-go ExpressPay plastic devices at CVS Corp. stores nationwide. Though these cards were not designed to target small dollar amounts, they encourage them because customers with low-value purchases tend to be the ones who walk away most often from long lines, both companies said.
Sales with ExpressPay during test runs with various merchants were 30 percent higher than with cash, said William H. Glenn, president of the American Express merchandising network.
Wendy's International Inc., which started accepting cards in 2003 after trials in select stores the previous year, found that people who use cards at its restaurants spend $7 on average, compared with $5 for those who use cash, said Bob Bertini, a company spokesman.
In cities with parking meters that accept cards, 70 percent of drivers who pay with cards pay the maximum amount, compared with 5 percent of those who use cash, perhaps because cash users can't find the pocket change, said Mark Ralston, chief operating officer of Reino Parking Systems Inc., an Alameda, Calif., firm that makes parking meters and sells related technology.
In some cases, companies are not waiting for banks to lower fees, especially in the online world, where the phenomenon of "micropayments" first took shape. Instead, they're "aggregating" the payments they receive.
Apple Computer Inc., for example, which sells songs for 99 cents each through its online iTunes music store, combines several small payments and processes them as one transaction using its own in-house software, said Edward B. Kountz of the Tower Group advisory firm.
It made sense for Apple to do that because the entire business model depends on cost-efficiently driving high volumes of low-price songs to the company's iPod players, Kountz said. Apple needed to control the aggregating in a market where no single standard exists for bundling.
The gamble paid off. Since its launch in April 2003, iTunes has sold more than 250 million songs, roughly half of them as 99-cent singles and the rest as part of higher-priced albums, a spokeswoman said.
For merchants who don't have that kind of volume, third-party vendors have stepped in to fill the void. Among them is Peppercoin Inc., a two-year-old firm outside Boston. Two leading U.S.-based banks now promote Peppercoin's services to the merchants they work with, a sign that the bundling idea may be catching on as a mainstream concept, Kountz said.
Levi, the card shop owner, said she considered aggregating but found it prohibitively expensive. (Peppercoin, for instance, charges 5 cents per transaction for its services.)
Until the banks lower their fees, or the aggregators drop their prices, Levi copes with micropayments as best she can. She gently nudges shoppers to consider cash. Or she gives them "the look." Occasionally, if the item is particularly inexpensive, she even pays for it out of her own pocket, she said, figuring it's all the same in the end.
"People just don't have as much cash in their wallets as they used to," Levi said. "I don't have much choice."
Staff researcher Richard Drezen contributed to this story.
