The Typical Credit Transaction
For example, if I buy an item that costs $100, the merchant is actually getting $96. This is because the merchant pays $4 if the there was a 4% processing fee every time a customer uses their card at the merchant’s store.
Although the percentage varies among card issuers, it does suck for the small business merchant. Although many small business owners do not like it, they realize the importance of accepting credit cards because it brings convenience to their customers.
The Credit Card Discount Hack
Now this is where you can use a credit card as a discount card. However so, I recommend this tip only for certain types of purchases (i.e. luxury) over a $200 and you need to have the actual cash-on-hand. It takes a little negotiating skill but it will make the merchant consider the offer.
So let’s say I’m at a dress shoe store and I’m really interested with a pair of oxfords that cost around $300.
I would usually use my credit card to make such purchases but let’s say this is my very first credit card and the card I have doesn’t really offer any beneficial rewards (e.g. 1% cash back or no rewards at all).
Now here’s my question: Would it be wise for both parties to continue this particular credit card transaction if the merchant pays a 4% processing fee and I get a 1% cash back reward? Hell no! Why?
The Breakdown of Costs
The merchant in this example has to pay a 4% processing credit card fee for a customer buying a pair oxford shoes that costs $300.
So this means the merchant will have to pay $12 to the credit card company for the transaction. I on the other hand will have to pay the actual $300, which I will have to pay back at a later date to the bank.
However, if I negotiate with the merchant to pay in cash instead of with my credit card and figure a discount of $10 off, I pay $290 for the shoes instead of $300, and the merchant saves $2 with this deal. This is a win-win for both the merchant and myself. The small business merchant saves $2, while I get $10 off.
This is a decent “service” discount that is way better compared to the $3 I would have gotten from the 1% cash back reward my credit card would have offered.
You see how having credit cards can be valuable at times?
The Chances are better at Small Businesses
Keep in mind that this technique will probably not work with big department stores. Reason is because many managers almost always have no power to negotiate due to the company’s corporate system.
The chances of negotiating are way better with small businesses owners. This is one of many reasons why I continue to support and buy from small businesses. More importantly, I love stepping into a niche store and meet an owner who really knows their stuff!