MORE STRINGENT CREDIT guidelines and the increasing use of check cards are changing the way consumers make purchases at dealerships. Looking to cut costs but don't want to reduce staff or services? Then take a look at your credit card processing fees. A powersports processing program from the MIC might let you save as much as $5,000 annually.
More than 6,000 dealers are participating in the organization's BankCard offering, reports Matt Tanzy, managing director for the program. "More dealers are looking for ways to save money," he says.
Small processing percentages may not sound like much, but the pennies add up: dealers spent an estimated $1.1 billion in processing fees during 2007, Tanzy claims. Under BankCard, participating dealers pay 1.23 percent plus $0.20 for each check card and credit card transaction, compared to 2 percent and $0.25 per transaction now charged by other credit card processing programs last year, Tanzy says. He claims dealers will drop $100 to their bottom line for every $10,000 in card charges made through the BankCard system this year.
Tanzy negotiates the processing fees on behalf of the BankCard program. "Since all of the dealers are concentrated in the powersports industry, we're able to negotiate better rates with the banks," he explains, "and we're able to zero in on different rate categories."
With all the uncertainty in the credit markets, banks have looked to their plastic business to boost their profits. That new revenue comes from card users (consumers) and card processors (retailers). Tanzy has spotted a few trends:
- Fewer credit cards. As banks tighten their lending standards and fewer customers are able to meet the new guidelines, banks issue fewer cards. That reduces the pool of prospective customers who will spend money at a dealership, he says.
- More competition. Banks are signing up more retailers to make up for the decline in new cardholder prospects and existing customers. This means that a dealership's customers and prospects are charging more on their cards because they have more places to use their cards — supermarkets, gas stations, Internet shopping sites, for example. Even major monthly expenses, such as rent, can be charged on a credit card in some instances. What that means is now the dealer is competing with more retailers for that limited available balance on the consumer's credit card.
- More check cards. Banks are pushing hard to issue more non-PIN activated check cards. These products work like online debit cards, for a transaction draws money directly out of the user's account. But since there's no PIN required to use them, they act as a credit card when used to make a purchase. The banks benefit from check cards, because there's no float for the consumer, and it still charges the retailer a processing fee.
The Wall Street Journal reports that in 1985 only 3 percent of all transactions involved credit cards. That number grew to 25 percent by 2000, and 40 percent in 2005. Financial analysts predict that credit card purchases will make up 56 percent of all transactions by 2010.
"People are using cards for many more kinds of purchases today," and that's not good news for powersports dealers, Tanzy says. "That means they have to find alternative sources to fund purchases for machines. And that means there probably will have to be an in crease in financing programs from OEMs. You'll probably see that later this year."
And then there are fraudulent international transactions, which can stick the dealer with the debt should the offshore purchaser default. As e-commerce continues to grow and the weakness of the dollar fuels demand for U.S. products by offshore buyers, this becomes a serious problem for dealers using card-processing programs: there is no foreign verification of the purchaser's identification by address and ZIP code, as there is in the United States.
"We tell dealers to have the customer photocopy both front and back sides of both the credit card and a valid, government-issued ID," Tanzy says. "Then the dealer should have the delivery service get a valid signature at the time of delivery. That way, they protect themselves."