Why do many companies set a floor limit on credit card transactions?

Setting a floor limit on credit card transactions is a strategy used primarily to protect the company against fraud. When businesses establish a minimum transaction amount for credit card usage, they effectively limit the number of lower-value transactions that might be more susceptible to fraudulent activities. This measure can involve requiring identification or additional verification for transactions that fall below a certain threshold, thus facilitating greater control and scrutiny over sales.

Additionally, a floor limit enables companies to reduce transaction costs associated with processing small credit card purchases. Each transaction incurs fees, and by setting a minimum limit, businesses can minimize those fees while maintaining a focus on higher-value sales that pose a comparatively lower risk of fraud.

While other options bring up valid points about cash usage and customer loyalty or spending habits, the primary purpose of a floor limit is to bolster security and mitigate potential fraud risks that can arise with the processing of small, frequent transactions.