Credit card surcharging is a common situation where consumers pay more to use their credit card to make a payment.
When you purchase something from a retailer, you will usually have a choice of payment methods that you can use. Often, the basic options are cash, credit card, and debit card. These different payment types will cost retailers various amounts in fees.
When a customer pays via credit card, the retailer will pay a percentage fee for the transaction, which can vary depending on the card used and the credit card processor that the retailer is using.
What is Surcharging?
Surcharging involves charging more to the customer to cover the percentage fee that the retailer has to pay per transaction.
This is why in some stores, there may be an additional small fee to pay if you use a credit card to make a payment. This means that customers using credit cards will pay more compared to customers using debit cards or cash.
There are rules for surcharging that all retailers need to adhere to, including limits on how much they can charge per transaction. Read more on surcharging rules here.
In cases where surcharging is not possible, for example, if retailers have to accept the same price regardless of the payment method that the customer is using, then the price of the goods is often increased to recover the cost of the fees. Simply put, this means that the price set by the retailer includes a margin to cover the average cost of transactions. This saves the retailer money but does not benefit the customer in any way.
What Should Businesses Know Before Introducing a Credit Card Surcharge?
If you want to start taking surcharges from customers who pay with a credit card, then there are several rules that you will need to follow. These rules apply to all credit card networks.
You will need to provide 30 days advance notice of your intent to introduce surcharges to your merchant services provider and the credit card network. Along with this, there should be notices at the store entrance if applicable, and at the POS and online checkout page to inform customers that credit card transactions incur a surcharge.
The notice needs to be clear on the rate that customers will pay and when surcharges are applied, along with a short explanation of their purpose.
Merchants can only use surcharges to recoup costs rather than to make a profit, so surcharges should not be any more than the rate you are charged for transactions. You should also ensure that surcharges are included on the receipt.
Are There Alternatives to Surcharges?
Instead of surcharges, many retailers will use cash discounts. Effectively, this means the cost of credit card fees is included in the pricing.
But if a customer pays with a different method, like cash or a debit card, they will get the same discount.
Cash discounts are legal no matter where your business is located, and often faceless objections from consumers.
However, bear in mind that if you are going to offer cash discounts, this will mean increasing the overall prices of your products, which might not always be a wise move if your business is in a competitive market.
Benefits of Surcharges for Retailers
Surcharges cover the cost of credit card processing fees, which are passed on to the customer rather than covered by the business.
Even though some customers don’t like surcharges, statistics seem to show that the more often customers have to pay them, the less likely they are to be against it.
Along with this, since surcharges are only payable on credit cards, customers may decide to use a different payment method to avoid the surcharge, such as cash or a debit card, ultimately meaning that your business does not have to pay the credit card transaction fee.
Are There Any Disadvantages of Surcharges?
The biggest disadvantage of credit card surcharging is that these charges mean your customers are paying more. As a result, this could lead to customers being dissatisfied with your company and pushing them further toward your competitors.
Surveys have found that while more than eighty percent of customers will not object to paying surcharges when requested, they are bothered by it. Over twenty percent of customers who use credit cards say that being charged more for using a credit card will reduce their satisfaction as a customer.
Almost sixty percent of shoppers say that being asked to pay a surcharge would make it very likely that they would start looking for somewhere else to shop.
Surcharges are a way for businesses to make up for the costs they have to pay when people pay with credit cards.
There are advantages and drawbacks to introducing them, and rules that you will need to follow if you decide to use surcharges when taking payments.