Business transactions have evolved from exclusively using physical money to going entirely digital. Credit card payments are one of the most convenient ways customers can pay, especially if they have no cash on hand.
However, despite the convenience that credit card payments bring to customers and business owners, one of its downsides is its processing fees. It is also one of the reasons why some businesses opt to have minimum purchase amounts for customer transactions to avoid losing sales income.
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Minimum purchase amounts are the lowest price a customer must reach when buying products from a business to move forward with their transaction. Most businesses have a base amount because every time customers pay via a credit card, banks require a percentage of the total transaction price, deducting capital from merchants.
The interchange fees, or the banks’ processing fee when using their credit card, are paid by the merchants who handle the transactions. Whether the credit card payment is less than ten dollars or more than a hundred, interchange fees do not have a fixed price but do have a fixed percentage to deduct.
For business owners, minimum purchase requirements serve as protection from losing profit because of credit card transaction fees. For example, one of the most commonly used payment processors is Paypal, which takes 3.5% of the total transaction price. If most of your customers use credit cards as their payment method and do not set credit card processing fees, the total amount of deducted fees you get as a merchant may add up in the future and may cut a big portion of your monthly profit.
Even if you ask credit card users for an additional 1 to 3% of the total fee, it is still a necessary precaution for you as a merchant to safeguard the financial growth of your business. Setting a credit card minimum amount saves you from gradually losing profit of customer-client transaction fee follow-up.
Since different banks have different conditions and requirements, their service fees also differ. This means that the higher the interchange fee, the lower the profit for merchants if they don’t ask for a transaction fee. After H.R. 4173-698 took into effect in 2010 about the limitation on restrictions of setting transaction minimums or maximums, businesses were given the right to impose a maximum of $10 credit card minimum purchase to their customers as this is the maximum amount allowed by the U.S. government.
Despite the necessity of imposing minimum purchase amounts for the convenience of both businesses and customers, the weight of its advantages and disadvantages should still be considered.
| Pros | Cons |
| Businesses can conveniently and easily track their cash flows since they won’t need to compute the deducted percentage from their inventory manually. They don’t have to worry about losing profit if a customer purchases below the minimum amount since they will shoulder the interchange fee. Even if the purchase price is large, businesses will not handle the big deduction that comes with it. | As minimum purchase amounts are targeted for credit card payments, those who want to purchase only a few items may be discouraged from buying products. If a business’ products range below $10, imposing a minimum purchase amount equal to or more than $10 may reduce your number of sales. |
The most common way to encourage people to buy your products despite your increased purchase amount is by incentivizing their purchases. This means that the higher price and quantity they transact, the more discounts, deals, and other benefits they will gain from you. Once customers see they can relatively save more money if they buy in bulk or a wider variety, chances are they will prefer to buy from your business over other competitors.
Business owners often overlook quality over quantity purchases when it comes to minimum purchase amounts. Although more customers may follow your minimum purchase accounts, you should still see that their purchase behavior is not targeted only to products that total barely more than the minimum.
In the US, merchants can ask for credit card minimum amounts for their customers with a maximum of $10, according to H.R. 4173-698.
According to the Merchant Agreement, debit card transactions should not be under the minimum purchase amount rule of businesses which means that this imposition does not apply to debit card payments.
No, you can’t. The maximum amount is determined by the bank, and no business is allowed to overrule that unless they are under the government or an educational institution.
Merchants set minimum purchase amounts for credit cards to protect the financial stability and growth of their businesses. Although it means that customers may need to add a few dollars more to their total price if they use credit cards, it saves both parties time and effort.
If you are a business owner interested in integrating your brand into online payments, check out Processing Card’s article covering credit card processors.
