Thursday, June 29, 2006

Pay System at Tip of your Finger

Pay system at tip of your finger

ROCKFORD — Not much has changed in the more than 50 years that Serrano’s Mexican Restaurant has been in business in Rockford. The restaurant’s hot sauce recipe is still the same, the limited menu contains recipes as old as the restaurant itself, and it is still a family-style, family-operated endeavor.

But some traditions aren’t always as easy to accept. Even in the modern day world of electronic debit and credit cards, the North Main Street eatery takes only cash, and it’s been that way as for as long as part-owner Anita Serrano can remember. Serrano’s stopped taking checks after hassles with a bad-check writer.

“The restaurant belonged to my mother, and she was old-fashioned. She just wouldn’t do it, and you can’t make her do something she doesn’t want to,” Serrano said in between taking lunch orders. “The big benefit is that we’re paid right then and there. You don’t have a machine you have to repair or pay fees on.” Understandably, old habits are hard to break. But it may become tougher for businesses like Serrano’s to compete as fewer people use cash and new cashless payment methods make their way into more restaurants, supermarkets, gas stations and other retailers.

Cub Foods in Loves Park, for example, not only takes payment in paper and plastic, but it accepts purchases by finger. After signing up with a biometric authentication system called Pay By Touch, customers can pay with the push of their index finger. The new payment method is in line with a growing trend: More consumers are turning to electronic forms of payment over cash.

At Cub, customers must provide a voided check and some personal information and the system verifies a customer’s bank account and identity within minutes. After that, there’s no need to show ID, pull out any credit card or even provide a signature. Customers can walk in and out of a store without carrying a wallet or purse.

Cub Foods may be an extreme example, because it’s the only retailer in the Rockford area that offers Pay By Touch, according to the San Francisco-based company’s Web site. But across the country, Pay By Touch is available in more than 2,000 stores, including at least 100 Jewel supermarkets in the Chicago area.

Cash isn’t easy

Courtney Klein, 27, of Rockford, is a check-writer more than anything else. Although some may find the practice time consuming and a hassle, Klein says it’s the only way she can really track her expenses.

“I don’t like having money in my pocket because I spend it. With checks, I know I’m writing it down and I know what I’m spending. I don’t really like debit cards for whatever reason,” she said while writing a check to Big Apple Bagels in downtown Rockford, which does not accept credit or debit cards.

Others, like Mike Fortner, 46, of Rockford, only pay with a debit card, but for reasons similar to Klein’s.

“When you’re buying gas in the wintertime, it’s easier than going inside. You don’t have to stand in line for 5 or 10 minutes,” he said. “I can go without cash for a couple of days. It just keeps better records and you don’t have to keep receipts for everything.” Still, Fortner and Klein don’t fit the statistics. According to the American Bankers Association, consumers 35 and younger are more likely to pay electronically than any other age group.

A 2005 ABA study showed that 56 percent of all payments were made electronically using debit, credit and prepaid gift cards. About 33 percent of payments were made with cash and 11 percent with checks. The first time electronic payments outpaced cash was in 2003, the ABA found.

Already, consumers can charge purchases in nearly 30 million locations, according to the association. But then there are places like Serrano’s that are no-plastic establishments. Other places include Subway restaurants at 2405 Charles St. and 1120 E. State St. that take only cash and Subway gift cards, and the downtown Big Apple Bagels, which takes only cash and checks, although manager June Mackey hopes to get a credit and debit machine in soon. The no-plastic policy can slow down business, too. Serrano said that at least once a week the restaurant loses a customer who doesn’t have any cash on them.

Costly transactions

It’s not so much that these establishments don’t want to modernize. Instead, owners like Serrano are concerned about high fees associated with accepting credit and debit transactions. Big Apple Bagels’ Mackey said checks feature a 2-cent cost a transaction for the restaurant, while credit and debit transactions can cost anywhere from 15 to 50 cents a purchase. She said the cash-only method is catching on with customers, who can use the ATM in the AMCORE Bank branch next door if need be.

“I think that if the restaurant is good enough, people will go in there whether it (accepts) check, debit or credit or not. But, you do need to be flexible so you need to offer whatever the competition is offering,” Mackey said.

Other businesses owners, like Lauri Brolund of Studio Blu at the Shops of Edgebrook, said there was no question about taking credit and debit payments. Each week, the salon’s bank, Fifth Third, withdraws 3 percent of sales to cover processing fees. The bank withdraws $20 a month to cover the fee to lease the charge machine. And when she pays each of her stylists, about 3 percent of all credit and debit card transactions accrued by each stylist is taken out of their paychecks. It all adds up to a small fee for Brolund’s business, and, she says, barely any hassle.
“It’s always more important to serve the customers and take out that little 3 percent than turn someone away because they don’t have cash with them,” she said.

Jennifer Hall, a business consultant in Rockford, agreed with Brolund’s thinking. “In comparison to the amount of business you can do, it’s really not that large of a percentage of your expenses. You want the customer to utilize the business and make it as easy as possible,” she said.

And once a customer knows a merchant takes credit or debit cards, they’re not as frugal with their money, the American Bankers Association’s Tracey Mills said. “Consumers tend to spend more when they’re not limited to the cash within their pocket,” she said.

The plastic replacement?

So just as more consumers get hooked on plastic, the payment method might be met by another competitor: the finger. At the Loves Park Cub Foods, customers can place their index finger onto a screen no larger than 2 inches wide. In seconds, Pay By Touch measures the customer’s body heat, but not their fingerprint. A screen will appear with the customer’s name on it and then a seven digit secret code chosen by the customer must be entered. A screen prompts the customer to approve payment, and the transaction is completed.

Worried about security? Bernadette Simard, a store manager, said, “It measures the ridges and pressure points on your finger and it measures body heat so you can’t cut someone else’s finger off. “Even if you’re readings are similar, it’s safeguarded with a PIN number,” she said. “It’s almost hacker proof.”

But don’t expect paper and plastic to be extinct just yet. Mills said that 90 percent of consumers don’t even know about Pay By Touch or other tap-and-go payment methods popping up in retailers.Staff writer Rowena Vergara may be reached at or 815-987-1341.

The cost of using Pay By Touch

So how much does a merchant really pay to process credit and debit transactions? Stephanie Snavely, a merchant sales representative with National City Bank in Chicago, says processing fees vary with every merchant and depend on the amount of volume a store produces. But there are some basic amounts that merchants pay:

Whereas Pay By Touch charges a flat fee of .20 cents per transaction, other forms of payment cost the retailer much more:

*Interchange fee: Visa and MasterCard charge a base rate for credit and debit transactions called the interchange. Snavely estimated that 1.59 percent of each transaction goes to credit- card companies. A 15-cent authorization fee is charged to merchants per transaction as well. The credit companies then forward that money to the merchant’s processor.

*Processor’s fee: This is the fee merchants pay to the company that processes each debit and credit transaction to deposit into a merchant’s checking account. Processing companies get about 1.75 percent off each credit-card payment plus a 23-cent authorization fee. For debit payments, it costs the merchant 1.22 percent plus 28 cents for each authorization. The authorization is when the machine dials out for clearance. Advice for merchants* Have a banker analyze your monthly bank statement to help you determine what rate you can qualify for.*

Know your credit and debit card processor. Snavely said: “You’re trusting this company with thousands of dollars with this money. Know if they’re going to go out of business next month or next year and if they are depositing your money.”* To make the processing costs worthwhile, it’s best to make about $1,000 in credit and debit transactions per month. Most credit-card processors require a monthly minimum on transactions.