Something occurred to me quite awhile ago. I honestly forgot all about it until I saw a promo teaser about a news story that will be on later tonight. The news was warning people about some retailers' minimum purchase requirements to use a credit or debit card. I look at this with a different view because I used to own a motorcycle shop and as a small merchant business, I felt the expenses of accepting credit cards at my shop. Many businesses (aside from mega corporations like Wal-Mart or McDonalds) pay 1.6-1.8% for a transaction run as credit (even when it's a debit/check card) and often pay $.75 for transactions run as debit. Most purchases are over $10 so the processing services make more money if the transactions are run as credit. Have you noticed that the banks encourage you to only run your debit card as credit? This is because they want to put more money into the pockets of the processing companies, which sometimes are owned by the banks. Starting to see a trend in the way the banks are padding their own pockets? Now those figures are based on Visa/Mastercard/Discover rates charged to a retailer. American Express costs many retailer merchants 3% of the purchase price. This makes it too expensive for many small businesses to accept American Express. Have you ever wondered how American Express gives such great rewards to its cardholders? The businesses that accept those cards pay the expenses of those rewards.
Now you're probably wondering how this ties into boosting the economy. Let me give you some figures. Let's say the average person spends $50 in 2 days. Nearly all of us use our debit cards to make the $50 of purchases. This puts more money into the processing companies' pockets than most people may think. If 100,000 people in any one city spend that $50 each every 2 days, processing their debit cards as credit, and assuming the processing companies are charging the lower 1.6% processing fee for each purchase, the processing companies take a total of $80,000 for their cut. This doesn't come out of our pockets as the purchasers, it comes out of the business's we're supporting. Now they take this cut for simply having computers transfer the money from the bank to the store where you made your purchase. I honestly don't see a lot of jobs being created by these processing companies. But can you imagine the number of jobs that can be created by keeping that money in the local businesses you support?
Let's put the numbers to a more national level. There are 311 million people in the U.S. Let's assume that only 100 million of those people spend $100 a week (a VERY conservative number I think) using their debit cards. Assuming that the rate of 1.6% is charged for those purchases, the processing companies are taking a total of $160,000,000 a WEEK. Yes that's $160 million dollars, each week, that is taken directly from businesses. How many jobs can be created with that $160 million each week? How much can we combat inflation with that $160 million each week? If those 100 million people used cash for 1 year, assuming the conservative figures above, it comes out to $8,320,000,000. 8.32 BILLION dollars a year could stay in our local businesses and economies.
The only thing we need to do in order to keep that 8.32 billion dollars in our local businesses and economies, is to use the ATMs or bank tellers to pull out cash for those purchases we make. If we spend cash, the processing companies and the big banks won't be taking that money from the businesses we frequent, and from the local economies we need to re-build.
I ask you this....How much greater can this nation's economy be, if we didn't force the businesses that build the economy, to pay out that 8.32 billion dollars? I bet the U.S. could return to the top of the world's economy and do much better globally if we make sure our money goes where it should be, and not into some big bank executive's pockets.
Ok, I'll get off my soap box now.