Why Paying by Debit may Help Keep a Small Business in Business

We have several small business owners in our extended family so we are a bit more aware of their issues than some of our friends. To stay in business, most retailers have to accept credit and debit cards as well as cash. (Although you may notice some dollar stores, like Dollarama, still do not accept credit cards.) When you pull out your wallet to pay, you may want to let your hand hover for a minute over your different pieces of plastic. The card you choose could help a small business stay in business.

Why Customers Used to Pick One Piece of Plastic Over Another

A few short years ago, most customers chose credit or debit based on a few simple factors. They chose to pay by credit card if

  • they didn’t have the money to settle the bill in their bank account now but they would before the credit card bill arrived.
  • they didn’t have the money to settle the bill in their bank account now and were consciously deciding to borrow money from the credit card issuer to buy the item.
  • they had a limited number of free debit transactions and they didn’t want to use one of them.

Why Customers Choose to Use Credit Cards Instead of Debit Cards Now

Now customers choose to pay by credit card because

  • the credit card offers reward points or cash back on their purchase.
  • the credit card offers insurance against damage or theft of the item.
  • as in the old days, they want to borrow money to make the purchase or they have a limit on how many free debit transactions they can make.

Why You Should Choose to Use Interac Debit Instead of Credit for Small Business Purchases

According to an article on the Canadian Federation of Independent Business website, an Interac debit card transaction costs the merchant less than twelve, 12, cents.

According to the same article, in March 2011, the merchant paid 1.3 to 3 PERCENT of the sale to the credit card company.

So if you are buying $25 of stuff at the local pharmacy, the merchant will have to forfeit about 12 cents of that money if you pay by debit, or about 32.5 to 75 cents if you pay by credit card.

If you buy $150 worth of stuff, the credit card fee is a whopping $1.95-4.50. The debit fee is still just 12 cents.

What Will It Cost You to Use Interac Debit Instead of Credit?

If you set up a bank chequing account with ING Direct or PC Financial you can get unlimited Interac Debit payments for free. It won’t cost you anything to pay by debit: but it will cost the merchant a lot less.

If you are buying something to use immediately (a snack, a drink, bandaids or over-the-counter pharmacy items, K-cups for your coffee maker, a model or toy, etc) you don’t need an extended warranty on it, nor are you likely to need theft insurance for it. Please pay by debit.

Yes, you will lose reward points and cash back offered only by your credit card. But many stores have their own reward points programs that do not require you to use a credit card. Join them instead or in addition. Ask yourself if you really want to come back from that free vacation flight only to find all your favourite small stores are gone.

If enough people would switch from credit to debit, retail prices would not have to increase as often to cover the rising costs. I know it’s unlikely for prices to be reduced—but I’m fairly certain that when the VISA/MasterCard/AMEX empire raises the interchange fee, most retailers automatically raise the price of every item they retail by an amount based on the increased interchange fee and the percent of store sales charged to credit cards.

At least let your hand hover for a second over the two pieces of plastic in your wallet. Then make a conscious choice for one or the other, rather than letting the credit card win without a thought.

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