Industry Wild-Card

By Bob Nieman | Sep 28, 2011

The credit card industry statistics have been well documented:

• Approximately 85 percent of all Americans carry a debit or credit card with them at all times.

• Business owners who go from not accepting credit cards to credit card acceptance experience a 12 percent to 30 percent increase in revenues.

• Customers tend to spend more money per business visit when using credit cards than when using cash or coins.
 
Regarding self-service laundry customers in particular, it’s closer to four out of 10 people walking through your door who have plastic in their pockets, according to Ryan Carlson of WashCard Systems, Inc.

“But that 40 percent are willing to use the larger pieces of equipment due to the convenience,” Carlson said. “They have a 23.4 percent increase in average dollar per ticket spending over those that are cash rationing.

“A vast majority of the reasoning behind going with credit cards as part of your alternative payment system is to benefit the consumer. We’re now in a position as a business where we can’t just build it and assume they will come. You need to create more convenience that will draw customers away from other laundromats.”

Just like all business owners, laundry owners are looking for ways to increase revenues.

“More and more people today live their lives virtually without cash,” noted Steve Marcionetti, co-founder of Card Concepts, Inc., makers of LaundryCard and FasCard. “By accepting credit cards, you are going to attract this growing population that prefer to use their credit/debit cards. And anything you can do to attract more customers is obviously a good thing.”

“Accepting alternative payment solutions, such as credit cards, is a way to increase revenue,” added Mike Coons of Standard Change-Makers, Inc. “Another advantage often overlooked is that since credit cards are the preferred method of payment for today’s laundromat demographic, by not having card acceptance, owner’s open up their chances of loosing customers to those laundries that do. Owners need to offer every convenience they can to their customers if they hope to keep them.”

What’s more, credit card usage to start washers and dryers greatly reduces the time spent by owners collecting and counting quarters, and then taking them back and forth to the bank. If your time is important to you, anything that helps reduce your collections workload is worth investigating.

“From a store owner perspective, accepting credit cards reduces your collection time, means having daily deposits into your bank account without you having to do it and encourages larger customer expenditures,” said southern California laundry owner Art Jaeger.

“Your customers will continue to benefit using their bank cards – either credit or debit – by earning more loyalty rewards/benefits associated with their card of choice,” said Wayne Lewis of ESD, Inc. “The long-term benefits are easier accounting practices for laundry owners and continued customer convenience. Making your business easier for your customer will make them happy, and a happy customer is a repeat customer.”

But Before You Buy…

Perhaps the most noted disadvantage of credit card acceptance are the costs associated with it. These come in the form of upfront equipment costs, as well as fees such as account set-up fees, service fees, transaction fees, authorization fees, charge-back fees, etc. The fees can vary depending on the processor, and are based on costs associated with the electronic processing, how many different parties are involved in handling the transactions and what the owners expect in terms of reporting, access to reports, and how quickly they want money deposited into their accounts.

“Another challenge of credit card acceptance is fraud,” Coons explained. “Owners do not want to take a bad credit card anymore than they want to take a counterfeit bill.”

Here Are Your Options

The system options available at this time are:

• Card Only. This option consists of card readers on each washer and dryer – the only way to start the machine. There is no coin acceptance. These readers use a pre-valued store card that has a “pre-loaded” value on the card. As the card is used in the laundry, the cost of the wash or dry is deducted from the remaining value on the card. These in-store cards can be “re-valued” with a credit card or cash at a re-value station or by an attendant. That store card has no value outside the laundry.

• Credit Card Reader on Machine. Once again, a card reader is installed on each machine, and it will process credit cards for the cost of the wash or dry of that machine. This system differs from the one above in that it can work in conjunction with the existing coin mechanisms. Customers can drop quarters in the coin mech or swipe a credit card to start the washer or dryer.

This system usually requires a high-speed internet connection, and the card readers must be hard wired to the washer/dryer controller. Likewise, these readers can be hard wired to a backend computer or network hub, or may use WiFi or Bluetooth communication between the readers and a computer or host server. The computer or server is the central point of communication for the card processing.

• Central Payment Kiosk. This is a payment kiosk that is centrally located in the store that is hard-wired to each washer/dryer, and the customer uses the kiosk to choose which machines she wants to start, and pays for those machines at the kiosk. The Central Payment Kiosk also can work in conjunction with the existing coin mechs on the machines.

Central Payment Kiosks typically have a touch screen or large LCD display for customer interaction. A high-speed internet connection to process credit cards is used, and some units also can provide bill acceptance, coin acceptance and change machine functions.

Laundry owners also need to decide whether to include credit and debit card acceptance on all of their washers and dryers, or on just a percentage of the equipment in their facilities.

“Among our customers, it’s about 50/50,” said Michael Schantz of Setomatic Systems, Inc. “When we’re doing new stores, most of those owner tend to do the entire store. However, if we’re doing an existing store retrofit, they’ll tend to go with less.”

“I would advise laundry owners to make sure they utilize the system to its greatest advantage,” Lewis suggested. “I see too many owners who install credit card acceptance on only their large machines, which doesn’t provide that higher level of convenience to the user who may only have a small load of laundry. I recommend that the system be installed across a wider range of machine sizes, including the dryers.” 



What Will It Cost?

Each offering is different, so owners should be certain to ask for specific details regarding all of the costs associated with processing credit cards with the systems they are considering. Also, take note as to what fees are fixed and what fees are variable. Fixed fees are usually set-up costs and monthly service fees. The transaction fees can be either fixed or variable, such as a descending scale, where the lower the amount the higher the fee. For example, a $5 charge may have a 5 percent transaction fee, but a $10 charge may have a 4.5 percent transaction fee.

Texas laundry owner Robert Maes suggested that store operators also factor in the one to two days of “float” while the merchant bank sits on your money.

“You can spend anywhere from $200 to $900 per machine retrofitting your store,” Carlson said. “The kiosks will get you down into the $200 to $350 range, while individual readers will put you in the $500 to $900 range.

“The actual fees themselves will range from 3.5 percent to 8 percent. That’s all going to come down to your manufacturer fees, your merchant processing, and what kind of a deal you get.”

Due diligence when discussing your merchant account with the processor sales representative and reading the agreement thoroughly are the best ways to uncover “hidden” fees” before you sign the agreement.

“You will now be charged processing and transaction fees for each credit card usage,” Jaeger explained. “Given that, you want to set a minimum amount for each credit card transaction. If it’s too low, your customers will be adding $5 or $6 on their cards, and you will be paying a higher percentage transaction cost. If it’s too high, you may have upset customers who don’t want to put $20 on a card, or are upset they cannot spend a lesser amount. My original mistake was setting the minimum amount level too low and discovering that customers would ‘top off’ their value cards by one or two dollars when they realized they didn’t have enough money left for drying.

“I have settled on a minimum $10 transaction fee and encourage customers to better estimate their actual expenditures before they use their credit cards to place value. My monthly costs for accepting credit cards have been approximately 2.75 percent.

Maintaining Your Investment

Other fees associated with many credit card processing systems are recurring support fees. These fees can be monthly or annual charges that help the manufacture provide ongoing service and support, software updates, hardware upgrades, and offset continual software engineering costs. These are important because the software and service support of PC-based systems doesn’t end when the machine is purchased and installed.

Rebooting computers, taking servers offline for maintenance (which could shut the system down) and wireless or Bluetooth networks requiring a reset all can be expected from time to time. That’s just the nature of software-based operating systems.

“A reliable internet service is critical for reliable operation, so it is important to assure that there are no router problems,” Lewis explained. “There may be routine maintenance required on the card readers or swipes to assure reliability. This usually involves the use of a cleaning card – a credit-card-sized product that is usually treated with an alcohol base substance – that is swiped through the unit to keep the magnetic head device clean from any contaminants. There may also be periodic fees from the software developer for any updates that may be required to maintain the compliancy required by the payment card industry.”

Get the Word Out

First of all, be sure you’ve got signage on site, proclaiming: “We proudly accept Visa, MasterCard, Discover and American Express.”

“There is a 20 percent increase in credit card usage just by placing the credit card logos prominently on your signage,” Carlson said. “That investment is a necessary addition.”

Place signs on the front door and/or front window, around the attendant counter and throughout the store. Make it big and bold. Also, add the credit card logos to your front door, as well as within any print or online marketing you do and on your website. There aren’t many laundry owners that accept credit cards yet, so if you’re the first in your market, you need to let people know about it.

In addition, owners and attendants should be prepared to spend time telling customers in person that they can use credit or debit cards to start the equipment now. Show them how it works, how simple and convenient it is. Encourage your customers to use the credit card system. Customers that use the large-capacity frontload washers with higher vend prices will really appreciate not having to drop 24 or more quarters into those coin drops.

“I believe that the biggest mistake is the lack of aggressive marketing to advertise the new amenity to the customer,” Lewis said. “In addition, the lack of proper signage, with regard to use and pricing, can lead to a poor customer experience.”

Mistakes to Avoid

“Don’t get discouraged by the transaction fees you will be paying,” Coons said. “Remember to evaluate all fees you will be paying, not just the transaction fee. When you consider the ‘average’ vend price for your customers, the percentage will seem high because the charge is typically small.”

“People let the transaction fee get in the way of installing the system,” Schantz said. “They say they don’t want to pay the credit card companies, when in fact it’s going to drive additional business. We’ve seen store owners go up 10 percent to 20 percent in additional revenue. I’d been happy to pay 2 percent in a transaction fee to see my store go up 15 percent.

That said, it’s crucial to do your due diligence upfront and thoroughly read the merchant agreement so that you have a clear understanding of all the fees and charges that will be included in your monthly statement. Request a sample statement to evaluate how the fees are calculated.

Here are some questions you should ask any processor:

• Which fees are fixed and which are variable?

• Is there a monthly service charge?

• Are there fees for your account setup?

• How are disputes settled?

• Does the system do a real-time card authorization?

• Does the system “batch process” (approve all cards and send transaction data all at once)?

• Are transaction fees based on the amount charged per swipe? Or are all swipes aggregated and the transaction fee paid on the total charge per card?

• Does the system hold a specific amount on the cardholder’s account in escrow for a period of time? If so, how long is that money held and when is it released by the bank? This is important because it can result in unhappy customers. For example, an individual with $40 in their checking account would not be happy if the processor placed a hold for $25 on their account and did not release the funds for 48 hours.

Another important point to consider is, if the credit card system goes down, will the store be down? Can you still do business even if you’re not able to accept credit cards? As noted earlier, computer systems and networks can go down and will need to be reset. How complicated is that reboot process, and do you have to be on-site in order to do it?

“Make sure your card service works over both the internet and telephone lines to avoid losing card sales should either service go down,” Maes said.

When evaluating system installation costs, consider each system’s method and decide for yourself if the advantages of one method are more important to you in the long run over another.

“I think one of the biggest mistakes a store owner can make is charging different vend amounts for coin and credit card transactions,” Marcionetti warned. “If you charge more for credit card transactions then coins, you are essentially discouraging your customers from using credit cards. If you charge less for credit card transactions, you basically spent a lot of money to make less profit. The vend price should be the same for both cash and credit.”

What to Consider

There are several alternative payment systems on the market. Take the time to look at each one and determine which system meets you needs. Is the system customer friendly? Is audit reporting important to you? Do you want to run in-store specials?

Consider the advantages and disadvantages of systems that are installed either by wireless or hardwiring and what is most important to you in the long run.
 
Consider the long-term costs of ownership. Look at the hardware that is required to properly operate the credit card system (computers, card readers, hubs, routers, modems, etc.), and what the life expectancy of those components should be, and the cost of replacing those components.

Consider the manufacturer that is providing the system as well. How long have they been in the laundry business? Do they understand your needs as an owner and businessperson? What is their reputation for service after the sale? Do they stand behind their products?

Also, consider the ability – or lack thereof – to upgrade the system to other alternative payment methods as they become available, such as Tap & Go, RFID (Near Field Card Readers), QR Code, mobile phone apps (m-commerce) and so on. Will they require replacing or modifying the hardware? What costs will be associated with incorporating these emerging technologies?

The Game Has Changed

Take a moment to look at the way you purchase goods and services for your family. How do you pay for those goods and services? If you’re like most people, you use credit cards or debit cards more than cash. You probably have several cards in your wallet or purse. Your customers are no different.

“In the past, self-service laundries accepted coins only,” Coons said. “It was a cash-operated business and quarters dominated. Today, laundries still have coin operation available, but there is also the ability to accept bills and cards – be they credit or debit cards, or in-store cards of the mag stripe or chip variety.

“In the future, laundries will be able to add additional payment methods as alternative payment methods continue to emerge. Payment with mobile phones, RFID or QR codes are growth markets that many large technology companies are developing and investing in.”

“Eighty-three percent of our card transactions at my stores are actually debit card transactions, which suggests most customers prefer cards for their convenience,” Maes said. “Card use is the next step in the natural progression of how consumers chose to transact.”

Statistics show that the use of credit cards is growing – even government programs have converted to loading value on credit cards instead of sending monthly checks or direct deposits. The younger demographic (18-36 years old) tends to use debit/credit cards and carry little to no cash.

And laundry owners who provide the convenience of credit and debit card acceptance are more likely to land those customers over the stores that remain with the cash-only business model.

“The laundry business definitely has suffered the last few years,” Schantz noted. “There are few things you can do in your store to help build revenue, and credit cards will help to build revenue. It makes you more successful, and gives you additional money to upgrade your washers and dryers and invest in your laundry.”

“It helps modernize our industry,” Marcionetti added. “Laundromats generally have a poor reputation for various reasons. Anything we can do to make it easier for customers to use the equipment will improve that reputation, and it will help attract the growing population of cashless consumers.”