Payment Systems — Does Credit Card Acceptance Make Sense?
By David B. Wilcox
At the end of 2004, the Federal Reserve noted that, for the first time, transactions on credit cards surpassed transactions made with cash and checks. Almost three years have gone by since then, and credit card purchase volume has grown by double-digit percentages every year.
In deciding whether credit card acceptance would be right for your self-serve wash, you should consider what type of neighborhood you are in. If it’s middle to upper class, credit card use will be high because most people in this demographic carry less than $10 in cash, and prefer to use a credit or check card whenever possible. For this group, cash and coins are actually an inconvenience. Is the wash reasonably busy? If so, accepting credit cards will mean less idle bay time while customers are traveling back and forth to the bill changers; large washes will especially benefit. Did I mention all the quarters you won’t have to count — the money is already in your bank account?
If the demographics fit, you should perform a feasibility calculation. I’ll use numbers that illustrate a typical or under-performing three-bay self-serve wash, grossing $50,000 annually. Assuming an increase in sales of 10 percent due to credit cards, your direct cost of those new sales will be about 9 percent of your annual soap and water costs. You will also have the cost of merchant fees associated with credit card sales. Credit card usage will actually account for closer to 25 percent of future sales rather than just the 10 percent increase in sales; use that number when projecting the cost of merchant fees. Aggregate merchant fees are typically 4 percent — as long as you’re not using a card-processing gateway.
Merchant Fees = (50,000 x 1.1 x .25) x .04 which is $550 annually. Let’s also assume that extra wash time costs you 9 percent of extra sales in costs of goods sold. $5,000 x .09 = $450 annually. The costs of these new sales will be $1,000 annually. See the table, below.
Would the net on this 10 percent increase in sales pay for the system in 24 months or less? If so, the numbers work. In most cases with “count up” the increase will be closer to 20 percent in self-service bays. I’ll explain what count up means shortly, but for now you can establish a budget as follows: Budget = (annual cash sales x .08) x 2 which is $8,000 in our example. The credit card system in our example would cost around $6,150 plus installation.
With your budget of $8000 established, you can move on to selecting a system. Overall theory of operation, system cost, and installation requirements will all be a factor. The two main differences in basic operation are whether the system counts up or down during a transaction and whether it uses Internet or dial-up to process credit cards.
Count up allows the customer to wash until the stop button is pressed. Count down works just like a traditional coin transaction, but equates the number of card swipes to an amount of money, such as $1/swipe. Industry web sites indicate that the choice is pretty much an open-and-shut case. Count up is producing increases of eight to 10 times that of count down.
Your preference when it comes to dial-up or Internet will depend more on your demographics than anything else. Dial-up is generally used to process credit cards in batches in the middle of the night. Internet will allow authorization prior to service. You should contrast the monthly cost of a broadband Internet connection with your site’s risk of declined cards when choosing a connection method. System cost should always be contrasted with the difficulty and cost of installation and the value of system features. Installation considerations include:
- Size of conduits currently running to coin boxes
- Size of the meter box
- Phone line or Internet installation requirements
Most systems require a communication cable about 1/4” in diameter between each coin box and the equipment room.
Every system requires a merchant account. Within the merchant-account industry there are many credit
card processing platforms. These include TSYS (Formerly Vital), Global Payments, FDMS, Paymentech, and Nova, to name a few. Every manufacturer has different platform requirements and preferences, so it’s wise to get this information as soon as you decide to purchase a system. You can then work within those constraints to find the best merchant provider.
Of course, you are looking for the best price here, but it has been my experience that a provider that has no account cancellation fees will continue to earn your business; they know you can leave any time you like. Be cautious of cancellation contingencies in merchant contracts because they can be quite sizable. Check with your car wash association. Many of them have merchant services tailored to the industry as a benefit of being a member.
It’s very important to set up the merchant account well in advance of equipment installation; the turnaround time is two days to eight weeks, depending on the merchant provider. This ensures that
the distributor can properly test your system while still on site, which is key to a smooth installation.
David B. Wilcox is president of Grand Junction, CO-based WashGear LLC. You can reach him via e-mail at firstname.lastname@example.org.