Should You Set a Minimum Amount for Card Payments?
As a customer, the minimum card payment amount can put you off, making a purchase entirely.
Say you don’t carry cash. You want to buy a £2 coffee, and there’s a £5 card limit. Do you spend the extra £3, or go somewhere else?
To be fair, It’s understandable why there’s a minimum payment. Card transactions have a fee, and it can seem pointless to process small value transactions.
We think it’s a bad idea to set a minimum amount for card payments. Firstly, we’re going to explain whether you’re actually allowed to set a minimum card payment, before trying to convince you that doing so is a bad idea!
Are you even allowed to set minimum card amounts?
As of 13th January 2018, it became illegal to charge extra for using a card. For instance, adding a 15p fee for using a card.
However, it’s not illegal to set a required minimum amount for customers to use their cards – this is up to you.
Every card provider is different, so you’re bound to the rules of whichever you choose to accept in your business. Here are the rules for the most popular payment cards in the UK:
- Visa and Mastercard (and Maestro): The Visa Core Rules (page 109) states that you’re not allowed to require a minimum or maximum transaction fee. Same story with MasterCard’s terms and conditions.
- American Express: American Express has no issues with businesses setting a minimum transaction fee.
Broadly speaking, unless you exclusively accept American Express (literally no business ever), then you’re not allowed to set a minimum card payment amount.
So how do businesses still do it? Because it’s not illegal, so you can get away with setting a limit. The risk is an unhappy customer reporting you to Visa/MasterCard, who may refuse to work with your business as a result. In some cases, they could even issue you a fine.
Why would a business set a minimum card amount anyway?
The logic for applying for a minimum card allowance makes sense. A smaller transaction amount will have the same amount of card fee as a large one.
So the income you receive on small transactions can be drastically less than if the customer just paid with cash. This is why many merchants have a minimum amount of £5/£10.
However, this logic is pretty flawed. This only works if you pay a fixed fee per payment.
For instance, if you pay 20p for each transaction, then it’s understandable that you don’t want to take ⅕ of your income on a £1 purchase.
However, the vast majority of merchant services now charge percentages. When charged like this, you essentially keep the same profit no matter the size of transaction – so there’s no reason to set a minimum card amount.
The impact of customer habits:
The fastest way to pay is by using a contactless card (or Apple/Google Pay). To get as many people through a queue as fastly as possible, you ought to accept card payments on small transactions.
Long story short, you will lose sales if you put a minimum card amount in place. With so many people not carrying cash, requiring customers to buy more to reach a minimum amount is a bad idea.
Many customers will have a budget – they can’t double the amount they’re spending on their morning coffee. In this case, you’re going to have a lot of walk-outs.
Creating a negative customer experience can be fatal for small businesses. Customers are spoiled for choice these days – if you don’t accept small transactions, they’re more likely to shop with your more-modern competitors who do.
Setting a minimum amount for card payment isn’t illegal, but it’s against the rules of most major card processors (Visa and MasterCard).
If you regularly deal with small transactions, you’re far better with a merchant service that charges you a percentage of a sale.
“But my card transaction fees are still too expensive!”
We hear you. Thankfully, they don’t have to be.
To find the best card processing service for you, check out CardSwitcher. We take your business information and figure out which service will give you the cheapest fees.
For only 2 minutes of work, you could save up to 40% on your card processing fees – so don’t wait!