Educate business owners on their options and build stronger business relationships as a trusted advisor.
Merchants are always looking for ways to control costs and operate more profitably. However, your customers may have reached the point where they must find ways to reduce operating expenses to stay viable. One option that’s gaining some attention is adding credit card surcharges.
What is a credit card surcharge?
A surcharge is a fee that merchants add to a credit card transaction. Merchants must comply with both state laws and card brand regulations to surcharge compliantly. In 2023, Visa updated its rules for surcharging, adjusting the limit that merchants can charge up to 3% of the transaction. However, in Colorado, merchants can only surcharge up to 2% — and keep in mind that in a few states and territories (Connecticut, Massachusetts, and Puerto Rico), merchants are not permitted to surcharge at all. Also, surcharges are only permitted on credit card transactions, not on payments with debit or prepaid cards.
To stay compliant, merchants must notify their acquiring bank at least 30 days before they begin to surcharge. They must also be transparent with their customers, using signage at the door, at the point of sale, and online for ecommerce transactions. In addition, the surcharge must be distinctly noted on the sales receipt.
How do consumers feel about surcharging?
A 2023 LendingTree survey found that 69% of consumers have encountered a merchant who surcharges, and almost 60% think it should be illegal. Surprisingly, consumers who responded to the survey also say transparency is lacking. About one-third say that a merchant tacked on a fee to use a credit card but didn’t notify them before the transaction, which violates laws and regulations and could lead to expensive fines.
LendingTree also found that there are broad misconceptions about the fees merchants have to pay to process payment card transactions. Consumers know credit card companies make money from the interest they pay, but about 40% weren’t aware that credit card companies also make money from merchants on each transaction. The lack of information could be why nearly two-thirds are opposed to surcharging.
On the other hand, the perception may stem from their own finances after years of high inflation. The survey revealed that 73% of cardholders say they wouldn’t use their credit cards as much if they had to pay a surcharge every time.
But who doesn’t love a discount?
After weighing the pros and cons of credit card surcharging, your customers may not think it’s the best course for their businesses. However, they have other options. One is implementing a cash discount program. Unlike surcharging, where a merchant adds a fee for credit card transactions, a cash discount program involves charging less, often about 3% or the amount of the fees the merchant pays for payment processing.
Merchants can still benefit from lower fees — if more customers opt for the discount and pay with cash, the merchant will owe less each month. Additionally, cash discounts can enhance customer experiences rather than detract, as surcharging can do. Instead of paying more than the ticketed price, the customer pays a few percent less.
Educate your clients.
North American Bancard sales partners have the opportunity to help their customers navigate the issue of surcharges and cash discounts. You also have the ability to offer a compliant cash discount program that makes it easy to reduce payment processing costs, manage the program efficiently, and enhance customer experience with a discount instead of an added fee.
More and more, merchants are exploring whether surcharging or cash discounting could benefit their businesses. Make sure you have the answers. Contact us to learn more.
