What do the experts say about electronic purchases?

In a world where online buying continues to rise and the carrying of cash, wallets and purses is decreasing, the pressure is on bricks and mortar stores to provide exceptional customer service, which includes offering payment options to suit the customer, rather than their back pocket.

“Maybe it’s because we are carrying mobile phones that we don’t need or want to carry cash,” speculates business consultant Bri Williams from People Patterns.

“Whatever the reason, businesses need to adapt to changing consumer behaviour and not put up barriers to stop people shopping with them. In any economic climate, good customer service is paramount for business success and survival.”

McKinsey & Company Australia Digital Vice President David Pountney says a straight pricing strategy removes a need for minimum spend.

“Business operators need to remove any pain points for physical shopping. They need to think through the whole design experience end to end – and this includes payment.

“Put yourself in the shopper’s shoes and think how you would respond when confronted with a barrier such as a minimum spend at checkout, when it is not necessary.”

Don’t hide behind transaction costs

Kirsty Lamont, director at comparison site MOZO, says employing a minimum card spend to recoup bank fees is misdirected, with Reserve Bank Australia data showing cash and card payments are the least expensive options at the point of sale.

“The general excuse for imposing a minimum spend is that businesses need to recover the cost of installing card payment terminals and the processing fees they incur,” says Lamont.

However, average merchant service fees for Mastercard and Visa transactions have dropped sharply over the last decade, resulting in significant cost savings for merchants to the tune of about $15 billion.

“Given the decreased cost of processing card transactions, it’s difficult for merchants to continue to justify slapping customers with minimum spend limits. Some Australian banks, such as Commonwealth Bank, have even gone so far as to restrict minimum eftpos amounts in their merchant agreement rules.”

Australian Retailers Association Russell Zimmerman says “a good retailer would look at the future” and remove barriers to shopping. This, he says, includes traders shopping around for the best financial deal from a bank or payment provider.

“Traders need consumers to support them, a sale is a sale and you need to build profit margins in to the cost of a business,” says Zimmerman.

“You need a customer for long term buying, and barriers in retail today are a concern. We encourage our members to offer the best service and this includes a choice in payment options without any barriers.”

Penalising your customers could be costing you more than them

According to Bessie Hassan, money expert at finder.com.au, a minimum card spend requirement with shoppers having to buy more items to meet a payment requirement can give a false sense of increase in turnover, and “may actually hurt your business over the long term”.

“In some cases, it could lead to a negative customer experience if consumers are required to fork out more than what they originally intended,” Hassan says. 

“Simply put, some customers may be put off by this requirement and seek to take their business elsewhere.

“Retailers selling low-cost items may have a better case for applying a minimum spend on purchases. However, at cafes for example, having a high minimum spend such as $10 where an average coffee costs $4 could be unrealistic.”

Hassan says absorbing the card fees will give a business a better chance of building loyal customer relationships.

Dump or be dumped

For MOZO’s Kirsty Lamont, the message to traders is simple: “Dump” the minimum spend policy.

“Retailers should dump minimum purchase amounts completely … it’s simply not justified when you look at how low the cost is for processing these payments.

“With credit and debit cards overtaking cash as the most frequently used payment methods last year, businesses risk alienating a large portion of customers by continuing to have minimum spend limits. For many retailers, it could be the difference between securing a sale and losing it to a competitor.”

Giving customers what they want is behind the success of Kensington Street Holdings’ food destination Spice Alley. Payment at food outlets is cashless with “tap and go” cards the most popular form of payment.

However, if a customer prefers to use cash for payment and not have a digital footprint for purchases, they can transfer funds onto a Spice Alley payment card which they can then use at restaurant checkouts.

“We are growing in popularity and we continually review customer behaviour so we are leading in offering payment options,” says Kensington Street Holdings CEO Marcus Chang.

“Employing a minimum spend? I don’t like that, it is crazy.”

“As we become a cashless society, it’s important that your business supports a diverse range of payments types,” advises Hassan.

“Whether it’s contactless card payment, ‘tap and go’ mobile payments or in-store finance, keeping up with payment trends will ensure customers are given the liberty to pay how they please.”

mastercard logo

Mastercard seeks to help as many Australian retailers as possible, to grow their businesses by embracing all forms of payment to provide customers the choice to make transactions whichever way they want to, with no restrictions.

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