With the recent passage of the financial reform bill, Visa (NYSE: V), American Express (NYSE: AXP) and MasterCard (NYSE: MA) are now allowing merchants to set a minimum dollar amount that consumers will be able to charge to credit cards in a single transaction.
Visa (NYSE: V) was the first company which allowed its merchants to set a minimum charge amount. The company’s website now states, “U.S. retailers may require a minimum purchase amount on credit card transactions. The minimum purchase amount must not exceed $10 and does not apply to transactions made with a debit card.”
American Express (NYSE: AXP)’s merchant manual said that the company’s merchants cannot impose any restrictions on cards that aren’t also placed on other payment methods, but a representative from the company confirmed to The Consumerist that the recent Dodd-Frank act allows merchants to set $10.00 minimums for credit card transactions, but can’t differentiate by issuers or payment networks, meaning that American Express-associates merchants can set a $10.00 minimum, despite the company’s merchant manual.
It was later confirmed that Discover would also be modifying its rules to allow its merchants to set a $10.00 minimum charge amount.
Merchants are financially incentivized to set higher minimum charge amounts because it encourages consumers to make larger purchases. Merchants also often pay a higher percentage of the first dollar of each transaction than subsequent dollars in the transaction, making smaller transactions less profitable than larger ones.
For example, a merchant may be charged $0.25 for the first dollar and $0.02 per dollar after that. If that merchant made 10 sales at $1.00, they would be charged $2.50 in fees. If the same company made one sale at $10.00, they would only be charged $0.41 in fees.
