Part one of a two part series
"Can I pay for my scrip with a credit card?"
If you're like most GLSC coordinators, that's a question you hear all the time. For many families, credit cards are the preferred way to shop, as they accumulate rewards, airline miles and rebates. It's difficult to convince these families to participate in your scrip program if you can't accommodate their preferred way to pay.
The problem is, the freebies that entice families to pay with credit cards, aren't really "free". Someone has to pay for the free airline tickets and rebates, and that someone is your scrip program.
The Ugly Math Of Credit Cards
Offering credit cards is a fairly simple process that begins with a Merchant bank. Your non-profit organization probably already has a relationship with a bank, and chances are your current bank can set you up as a merchant with Visa/Mastercard network. The fine print will vary from bank to bank, but most merchant agreement have some kind of nominal application fee, a fee for leased or purchased equipment, and maybe some sort of monthly minimum charge to keep your account open. But the real cost is the "discount rate".
The discount rate is simply the amount your deposits are discounted by the merchant bank. Typical discount rates range from 4% to 2%. Every time your families purchase scrip and pay with the credit card, the merchant bank will deposit those funds - less the discount - into your bank account, usually within 48 hours.
So the bank gets 2% or more of your face value scrip program sales. And that's the rate for a transaction with an actual card swipe. If you "hand key" a transaction - for instance take a credit card number from a form or verbally - the discount fee is substantially higher.
Last year, GLSC non-profit organizations averaged 5.2% rebate on face value scrip sales. That means normal merchant fees could consume 38% of non-profit organizations' scrip revenue!
Even uglier, suppose your credit card users purchase low margin products. Some retailers in very competitive categories can only offer single digit rebates. If your families buy lots of scrip with 2% discounts and pay with credit cards, your organization benefit has vanished. And if your merchant fee is higher than normal, you could very well be losing money!
High Costs For Card Users Too...
The fees we've described above are paid by your organization. But card users pay some high fees as well.
For instance, one popular reward card offers a 1% rebate and charges an annual fee of $80. That sounds reasonable... until you do the math and figure out that you need to charge $8000 to generate enough rebate to offset your annual charge! Plus, some purchases may not be eligible for rebates, and there can be caps on the amount of rebate you earn.
Many credit card users don't consider interest charges either. Reward cards typically have interest rates from 14% to 29%. So if you carry even a small balance, the interest charges you accrue dwarf the rewards earnings. Not a very smart way to borrow money when the prime rate is between 5-6%.
Not A Pretty Picture
Credit cards are a convenience for your families, to be sure. But as we've shown here, the costs can far outweigh the benefits. In our next Scrip Advisor email, we'll give you some advice on how to cope with some of these realities, and give you some tips on what to say when families ask you to accept their credit cards
©2008 Great Lakes Scrip Center, LLC