CARRY THE LOAD

PAT NATSCHKE LENIUS

Credit cards may be more or less expensive than cash to handle. They are critical for providing customers with more convenient payment options. And they are probably a competitive necessity today simply because so many retailers accept them.

But each statement only scratches the surface when it comes to the bottom-line question of whether retailers today should accept credit cards and the many other forms of electronic payments.

The real issue is that retailers must prepare now for the emerging age of electronic commerce and build the systems expertise, including front-end payment options, necessary to drive business into the next millennium, while standing firmly in the face of bank charges and chargebacks.

"Very soon the federal government will issue benefits electronically, and if you are not set up to handle that, you will lose a lot of business," said Hank Shields, information systems director at C&K Market, Brookings, Ore., which operates Ray's Food Place stores.

"That is a substantial piece of business, especially when you factor in the Women, Infants and Children and food stamp programs. That was our primary reason for accepting credit cards in all of our stores," he said.

Indeed, the need to compete in a fast-changing business environment is prompting the vast majority of retailers to accept -- and consumers to demand -- a wide range of electronic payment options, including credit, debit and charge cards.

"There has easily been a 100% increase in usage of credit cards. We see only the upside of taking them," said Stu Denrich, vice president of MIS at Valu Food, Baltimore, a 22-store chain.

Balls Food Stores, Kansas City, Kan., accepts both credit and debit cards in all of its 21 stores. "We have been accepting credit cards since 1992 and debit cards since the end of 1994. Credit cards run about 10.5% of our total sales, while debit is a little over 2% of our sales," said Barb Ramsour, IS director.

Randalls Food Market, Houston, now accepts MasterCard, Visa, Discover and American Express, and was the first major retailer in Houston to take debit cards, according to Al Seba, the chain's manager of payment systems.

Although 75% of sales at Randalls is still paid for with checks, "the percentage paid for with credit cards is creeping up. Debit card usage alone has increased 25% in the last year," Seba said.

"Between 5% to 10% of our total sales are by debit cards. They are cheaper for us than credit cards. They are a no risk transaction. We don't have to deal with chargebacks," he added.

The surge in credit, debit and charge card use, even with the desire by retailers to compete more effectively in the increasingly electronic world of retailing, doesn't mean there aren't some wrinkles to iron out.

For example, retailers remain concerned about the processing fees associated with credit and charge card acceptance.

"The average credit card transaction is probably a little higher than with a check but not significantly more. Plus, there is a charge involved -- and therein lies the problem. The food industry makes an average net profit of one cent on the dollar," Seba said.

"When you suddenly take a form of payment that requires you to pay a percentage of sales to a credit card company, that cuts into profits. The customer may buy $2 to $3 more than someone paying by check, but there's no telling what those extra items are and whether they represent enough money to pay for the cost of the transaction," he said.

Whether or not acceptance of credit cards is helping Randalls make more money is questionable, Seba added.

Issues of chargebacks, and even increased labor expenses, were also cited by some retailers.

"The record keeping at our corporate office is increased, especially for reconciling credit. There is always a cut-off problem in timing with the bank," said C&K Market's Shields.

"The bank may be in a different time zone. There could be three hours difference. Randalls' Seba also expressed concerns.

"The impact is that [electronic payments] can be a more expensive form of payment. Chargebacks are a big problem. About 50% of chargebacks are not initiated by the customer, but by the bank," Seba said.

"If the bank can determine a retailer is not following proper procedure in verifying signature, it can chargeback. If we can't prove we were following procedure, we get stuck with the chargeback," he said.

"With credit card transactions, sometimes a customer will say he did not incur a charge," Shields' added. "The bank requires us to provide proof that it was a valid transaction. We have to provide a copy of the signed receipt. It is possible for us to lose even if we have a signed receipt, because the customer may call it a forgery."

Despite those problems, however, the future is clear: electronic forms of payment are here to stay, both because customers demand more options in how they pay for their groceries and, in the long run, it will benefit retailers.

There are two reasons retailers should accept credit cards: competitive pressure and customer convenience, said George Hood, director of electronic banking operations at Wegmans Food Markets, Rochester, N.Y.

"A lot of retailers will tell you, as a percentage of sales, the cost of cash and credit cards is the same. But many people don't realize how expensive cash is when you consider the handling costs of couriers and simply keeping cash on hand," said Hood, who is member of the Food Marketing Institute's Electronic Payment Systems Committee.

"Cash is not an inexpensive transaction vs. debit card, electronic check, or even relative to some other types of transactions," he said.

Joe Rice, MIS director at Superior Super Warehouse, Lynwood, Calif., a seven-store operator, has no problem with the fees paid to credit card companies because of the benefits gained in exchange.

"We don't have a problem with that. Our stores are in the inner city. The nice thing is, it keeps cash out of the store. The cashiers like it better. Credit cards are easier for their accountability," Rice said.

Al Van Luvender, vice president of MIS at Riser Foods, Bedford Heights, Ohio, a 36-unit chain, said that credit card usage has remained stable since the chain began accepting cards at all its stores about two and a half years ago -- but debit card transactions are soaring.

"About 5% of our transactions are paid for with credit cards. About 8% to 9% of our transactions, in comparison, are via debit cards. We assume consumers prefer the debit cards because they don't have to write a check and it is convenient to have the automatic teller machine card. They use it as a convenience," he said.

Some retailers also said that customers who pay with credit cards tend to ring up larger orders, on average.

"Credit card sales are much higher than our average sales. Our average transaction with a credit card is $60 to $73 vs. about $21," Denrich said.

Credit card customers at Superior Super Warehouse tend to spend about $10 more than those who pay with cash, Rice said.

At Balls, the average sale ranges between $20 and $21, while the average credit card sale averages $38 to $39, Ramsour said.