Gift Cards: Lighten the Load of Processing Small Purchases

21 Sep Gift Cards: Lighten the Load of Processing Small Purchases

As our happy clients already know, AdvoCharge goes against the industry norms by using transparent interchange pricing with a low, flat monthly fee. This approach alone helps our clients save hundreds if not thousands of dollars each month over other pricing models. On top of saving money by working with us, we have another solution for helping to lighten that monthly credit card processing bill, one that is especially advantageous to  our small ticket merchants:

Gift Cards:

As we outlined in our article, The 7 Reasons Every Business Should Accept Credit, customers prefer using plastic. It’s fast, convenient, and easier to track than cash or check. But, for those businesses running tons of small purchases, the charges can really add up. For a purchase under $5, this rate can be over 4% for each transaction and add up to hundreds of dollars in added expenses to the merchant each month. But thankfully, there is a way to mitigate those fees.

For the sake of example, let’s look at a typical small coffee shop and compare the cost of a single $3 coffee transaction paid with a debit card, compared to the same customer using that same debit card, but loading up $30 on a gift card – more importantly, let’s look at the effective rate the merchant pays in each scenario:

Cost comparison with and without gift card

As you can see, the cost per transaction drops from a whopping 7.38% to under 1% when you run a larger transaction, and shifting to the gift card saves significantly on overall fees.  For those customers who love to pay with plastic, gift cards can be a great alternative. Besides saving money to the merchant with a lower processing fee due to one-time higher ticket cost, gift cards have many other benefits to both merchant and customer:

Gift cards benefit both merchant and customer 

Customer Benefits:

• Better Budgeting: The customer can better track and budget their spending by prepaying for their purchases (in the case of a coffee or sandwich shop).

• Convenient and Eco-Friendly: They are reloadable. No need for a new card.

• Promotions: In many cases these cards can save loyalty points that can add up to some kind of promotional item for a customer (e.g. one free drink when you buy 10). Offering a customer a free drink, or bag of chips at the time they load up the the gift card creates a nice incentive as well.

 Merchant Benefits:

• Lower processing fee: Putting one larger transaction on a card incurs a much lower fee to the merchant than 10 small purchases.

• Easy Incentives: Offering a deal like “Free drink when you put $30 on a gift card” is a total win for both the merchant and the customer.  The merchant covers the cost of the drink with the savings and the customer receives an immediate bonus for loading up the card.

• Retain Purchases: Gift cards keep your money in your store and keeps your customers coming back.

• Brand Awareness: As yet another item with your logo on them, gift cards get your name out and into the hand of both current and future consumers.

• Attract Business: Cards are easy to give as gifts (hence the name…) and can attract more loyal customers.

• More Profit: While we don’t like to trump up this aspect of gift cards as many in the industry do, there is the undeniable fact that many gift cards go unused or at least aren’t used completely.  Depending on the industry, estimates run as high as 30% of all gift card credits are never redeemed.  A card gets lost, or there’s a small amount left on the card, or any of a host of reasons as to why this might be.  And the merchant holds no liability to reimburse for unmade purchases, or to convert a card back to cash.  We like to to focus on the mutually beneficial aspects of gift cards, but there’s no question that gift cards can be stacked in the merchant’s favor.

Versatility:

Gift cards can be as simple as a pre-printed piece of paper, or a plastic card tied to your merchant account that can be reused and reloaded again and again. Plastic cards also come with sophisticated reporting tools so you can track usage and know how many outstanding gift card dollars you have in circulation at any point in time.  Besides using a card in person, gift cards can even be setup to work with purchases made on your website. With so many benefits and great versatility gifts cards are a great option for many businesses.

AdvoCharge offers some great gift card options. If you’d like to learn more about how gift cards can help your business, contact AdvoCharge today!