Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, January 24, 1993 TAG: 9301220086
SECTION: BUSINESS PAGE: F-1 EDITION: METRO
SOURCE: Mag Poff
DATELINE: LENGTH: Medium
CREDIT CARDS MAY PRICE OUT SMALL RETAILERS
Visa U.S.A. has adopted a new rule that will affect small businesses that accept credit card charges.Those "mom-and-pop" stores and service businesses must either quit accepting credit card purchases, surrendering that portion of their revenue, or spend their limited dollars for higher technology.
The rule, slated to go into effect in October, will require direct authorization for every single credit card charge.
As things stand today, merchants need not check on any charge under a certain amount, usually $50 for a retail store. Those amounts are higher for other types of businesses such as hotels and airlines.
In practice, those limits generally apply to small merchants who use paper and simple embossing machines to serve their credit card customers.
The new policy will not affect card holders except, perhaps, for a slightly longer delay in completing a transaction.
The American Banker, the banking industry's trade paper, estimates that about 20 percent of the 3.5 million Visa merchants nationwide handle their charges in that manner.
If the rule does become final as planned, these merchants face a choice. They may:
Give up credit card charges and thus possibly lose a great deal of their revenue.
Telephone Visa for approval of every charge, a service that more banks are charging to handle. A 30- to 40-cent-per-call fee is typical among those banks that do charge.
Buy an electronic terminal, the method used by larger merchants who account for most of the transactions and most of the money that flows through Visa. Despite the initial outlay, this option is probably cheaper in the long run than continued calling. In contrast, the most simple and least expensive terminal costs about $250.
The terminal, which is attached via a telephone through Visa's electronic network to the card holder's bank, reads the encoded strips on backs of credit cards and automatically authorizes or refuses transaction.
The purpose of the rule, of course, is to greatly reduce the possibility of fraud.
Thomas Conn, senior vice president for consumer lending at Dominion Bank in Roanoke, said card thieves are well aware of the $50 floor.
That means when a card is stolen, Conn said, it's not unusual to see 15 or more charges, all for less than $50 each. You can make a lot of $50 purchases at a mall in a single day, he pointed out.
"People can $50 you to death," said William Binns, executive vice president at Signet Bank's card division in Richmond.
In addition, he said, a terminal will catch counterfeit cards along with the thefts.
Binns views the rule change from two perspectives.
As an issuer of cards, he said, he sees that it can have a negative impact on some merchants.
But as a bank manager of credit and fraud, "I'm happy to see the move."
Customers will benefit, too, Binns said, because fraud is a line in a bank's profit-and-loss statement. Anything that reduces costs also holds down prices customers pay for banking services, he explained.
Binns said the rule is a step in an evolutionary computer process. One day, he predicted, card holders will be required to enter a personal code at the terminal as an added precaution. This is similar to the procedure at an automated teller machine.
Technology is needed to beat fraud, he said, so the push toward terminals is a move in the right direction.
Some small merchants may not accept credit cards in the future, he said, but 80 percent of them already use terminals on a voluntary basis.
Annette Jones, manager of product development at Central Fidelity Bank's credit card division in Richmond, said telephone approval is much more expensive than terminals.
Merchants with many small transactions are being hustled into the computer age, she said.
Anyone in business will benefit from computerization in the long run, Jones said. Specific authorization, she said, protects merchants as well as banks from losses.
Conn of Dominion said "it's still not a sure thing that [the rule change] is going to happen."
He favors steps to fight fraud, but he wants the same rules applied to MasterCard as well as Visa. Differing rules, he said, would lead to confusion and higher training costs for the bank.
Conn guessed that 70 percent to 75 percent of Dominion's merchant customers already own terminals. That's slightly less than the national average.
Mag Poff covers banking, personal finance, insurance and advertising for the Roanoke Times & World-News.