Why Surcharge a Credit Card Sale?
Business owners in the United States are becoming more aware that they can pass their credit card processing fees along to their customers, and more processors are starting to offer this service as an optional feature. But, is this really a good idea make your customers pay your credit card processing fees?
Processors are marketing this new service as as “credit card surcharging” and “zero-cost credit card processing,” and it is understandably a very tempting practice to implement into your business. The cost of accepting credit cards has continually become more expensive over the last decade. This is making businesses begin to question why they should be on the hook for the cost of accepting card payments, especially considering that it has become the preferred method of payment among consumers.
The 2%-4% cost in processing fees can significantly eat into the profit margins of a business. There are also additional flat fees of 10-50 cents per transaction on top of the discount rate which can significantly the increase cost of small transactions. In some cases, business owners have reported that processing fees can cost upwards 40% of the transaction when factoring in the flat transaction fees on low-dollar sales, such as those at convenience stores where someone might just buy a pack of gum.
Why Credit Card Processing Fees are Expensive
First, it's important to understand a few things about merchant accounts. Often, it's thought that the only thing a credit card processor does is transfer money from a customer to a business during a sale and then collect a fee for doing so. However, it is much more complicated.
What Actually is a Merchant Account?
Let's use an example of sale to illustrate what happens in a typical credit card transaction. Imagine that Jack takes Jill out for an anniversary dinner at a the newest most hip sushi restaurant in town, let's call it Kyoto, and spends $300 on a meal. Kyoto runs the credit card, the sale is completed, and then 24 hours later the $300 is deposited into Kyoto's bank account. Seems straightforward enough, right? But, if we dig a little deeper, where did the $300 come from? Jack didn't pay his credit card bill immediately after dinner. In fact, he won't even get his bill for another 30 days.
There's Credit on Both Sides of a Sale
Since Jack hasn't paid his bill yet, that means that the bank that issued Jack's card paid Kyoto. If we assume that Jack pays off his credit card bill every month, what's in it for Jack's bank to loan out money for him to make purchases? That's where merchant processing fees come in. Jack's bank assumes the risk of loaning money on his behalf and Jack's bank enters into agreements with businesses like Kyoto that allow them access to these loaned out payments so that they can sell things to Jack using his preferred payment method.
Additionally, the bank that issued Jack's card also agreed to let Kyoto keep the money from the $300 loan even if Jack never pays his credit card bill and defaults on his obligations. The bank does not claw that money back from Kyoto and just accepts the loss of the $300. For the risk that the bank assumes, it charges a small loan rate of around 1.7% to Kyoto that we commonly call a processing fee. Essentially, a merchant account is a line-of-credit extended to the business because the bank pays the business before it actually collects the money from the customer.
Let's breakdown processing fees further:
Interchange Fees
There are two base fees packaged into a credit card processing fee. The first fee is the “discount rate” and it is a percentage fee of the total sale. The average cost of this fee is around 1.7%. The second fee is known as the “transaction fee” and is a flat cost of around $0.20, on average. These fees can vary depending on several reasons which we will cover below. The combination of the discount rate and transaction fee together is known as the “Interchange rate” in the credit card processing industry. The interchange rate is charged by the bank that issued the customer's credit card. Banks determine this rate based primarily on three factors:
1. Business Type
First, the industry of business that is accepting the credit card. For example, a grocery store may pay a different Interchange rate than a yoga studio. Online businesses typically have higher interchange rates then face-to-face businesses due to a higher risk of fraudulent transactions and chargebacks.
2. Collection Method
Second, how the credit card is being accepted. For instance, a card number that is manually keyed into a terminal is often more expensive that one that is swiped or dipped into a credit card terminal.
3. Card Type
And third, the type of credit card the customer is using. In this last case, numerous banks offer customers rewards for using their credit card. These rewards most commonly come in the form of cash back or points that can be used to redeem flights or merchandise. Essentially, the Interchange fees that a business incurs for accepting a credit card pay for the customer's rewards, which makes the processing fees more expensive. This might seem unfair at first, but there are tradeoffs to accepting cards versus only accepting cash that we'll cover below.
Merchant Account Provider Markups
On top of the Interchange rate, the companies that manage your merchant account also bake in their own profit margins on top of the Interchange fee in the form of both a percentage and flat fee. These markups are determined by the company that you use for your merchant services. Some companies offer transparent markups on top of Interchange (known as Interchange-plus) and others hide their markups in murky tiered pricing buckets, or as a single flat-rate for all transactions. Choosing the wrong merchant account provider can severely impact your processing costs, so you should take great care to fully understand your pricing before entering into any service agreements.
Monthly, Annual and Other Junk Fees
In addition to transaction fees, most merchant account providers charge additional monthly and annual fees. Again, these fees can vary widely depending on the company that is providing the merchant account. Most, if not all, of these fees are junk fees that can be avoided by selecting providers that do not charge them. Such junk fees are often labeled with obscure industry jargon, but the most common junk fee that businesses experience is the nearly ubiquitous “PCI Compliance” fee. This fee is often touted as a non-optional fee, but several providers have opted to do away with it altogether which clearly makes it nothing more than a profit driver for merchant account providers that do impose them.
Equipment Costs
In most cases where the sale is taking place in a face-to-face environment, such as a retail store, businesses need equipment in order to accept the credit card payment. Some businesses require sophisticated point-of-sale systems that track numerous processes, such as inventory levels, while others only need a device that can read the customer's credit card. Equipment costs can range from completely free to thousands of dollars depending on the agreement you enter into. Credit card processing hardware can be also leased like you would with a car. In most cases, we strongly discourage businesses from leasing equipment as the lease terms are often predatory and expensive.
At the end of the month, accepting credit cards can cost businesses thousands of dollars so it isn't surprising that some would want to offset this cost by passing it along the customer as a surcharge during the sale. But is it a good idea to do this?
The Risks of Surcharging Credit Card Payments
Surcharging Compliance
Is it legal to surcharge a customer for paying with a credit card? The short answer is that it depends. Each state has its own laws regarding surcharging credit card transactions. In some states, it has been banned altogether (See: Each State's Law on Charging for Credit Card Purchases). Additionally, if your customers are in different states than your own business, it can get even more complicated. Do you comply with your state's laws or the customer's? In most cases, the answer is unclear. In nearly all states, the fee for surcharging a customer's credit card cannot exceed the actual cost of the fee incurred by the business owner.
Card Brand Policies
Visa's policy states that the maximum fee must be the actual cost to the merchant or a maximum of 3%, whichever is less. Violating this policy can cost a business owner $5,000 for the just first offense, with fines increasing if the business doesn't come into compliance. Mastercard allows businesses to charge up to 4% with no other stipulations, while American Express and Discover offer little to no guidance. Businesses must also inform the card brands of their intent to surcharge 30 days before the begin the practice. Failing to do so could have costly consequences.
Non-Compliant Credit Card Surcharges
Calculating a surcharge correctly can be difficult. In nearly all cases where we've researched credit card processing companies that offer surcharging services, the surcharge is not being calculated correctly. In most cases, these processors are adding a flat surcharge of 4%-5% even if the actual fee is only 2%. So what happens to the difference of the fee if the processor is adding a surcharge above the actual cost to the business? The processor is pocketing it, which is often undisclosed to either the business or the customer. Surcharging can be very profitable to processing companies in the short-term, which is why some narrowminded companies are promoting it. However, surcharging discourages credit card use among consumers and will ultimately damage the entire industry in the long-term, along with the businesses that are engaging in it.
Signage
Businesses are required to post signage at their entrances and the point of sale stating that they will charge a fee if a customer pays with a credit card. The sales receipt must also be clearly labeled as a fee for paying with their card. Not only can this signage cause a customer to take their purchase elsewhere, but if it is not done correctly, it could result in legal actions and fines.
Debit Card Surcharging
Surcharging debit card transactions is prohibited by both Visa and Mastercard as well as by most legal jurisdictions. Despite this, we have seen several cases wherein processors are still adding surcharge fees to a businesses' transactions despite the customers paying with a debit card. Failing to add surcharges correctly can result in fines being levied on the business by Visa and Mastercard, potential legal actions by states and cities, and even result in the business losing its ability to accept card payments permanently. See Visa's rules about card surcharging and Mastercard's surcharging rules. American Express doesn't issue debit cards and encourages businesses to comply with state laws. See the American Express Merchant Guide for more information regarding policies regarding accepting Amex cards.
Drastic Impact to Customer Loyalty
By far, the biggest danger posed to a business that charges customers for using credit cards is the negative impact on customer loyalty and repeat business. According to a survey conducted by American Express in 2021, 78% of consumers agreed that getting surcharged makes them feel like a business does not appreciate their patronage or value them as a customer. Another 77% stated that they would take their purchase to competitor who does not charge a such a fee. Have you noticed that chain restaurants do not add surcharges? Enterprise level retail organizations have spent millions running studies to figure out if they can add credit card surcharges, but in the end they have determined that the risk of losing customers outweighs the risk of adding surcharges.
Negative Customer Reviews
Consumers hate getting surprised by a credit card surcharge fee after they have paid for a purchase. This sentiment can be even more exaggerated at restaurants if the fee is only noticed at the end of the meal. Businesses risk substantial cost to their online reputations by adding surcharges and negative reviews can result in lost business that far outweighs the costs of credit card processing fees. Do believe us? Just check out this Reddit post with over 300 comments stating how they will be taking there business elsewhere after a restaurant started surcharging.
Reduced Consumer Spending and Smaller Sales
By implementing credit card surcharging, you may be hoping to encourage your customers to use cash. However, research has shown that consumers are more likely to spend higher dollar amounts when using credit cards over cash. A Federal Reserve Bank of Boston survey found that the average value of card transactions was $112 as compared to $22 for cash transactions. A Dun & Bradstreet study corroborates this data finding that consumers are likely to spend 12%-18% more when paying with a credit card.
There are several factors that contribute to this phenomenon of higher spending with credit cards. First, psychological factors play a role because credit card users lose a concrete sense of how much they are spending since the money is not immediately deducted from their checking account. Secondly, rewards programs incentivize users to spend more in order to earn rewards, which is especially true for purchases made with company or corporate credit cards. Speaking of corporate cards, most employees can only be reimbursed for spending done on their company cards. They don't have the option to pay in cash.
Thirdly, credit cards are more convenient than cash and allow people to make larger impulse purchases. In fact, consumers are likely to have less than $30 of cash on their person at any given time according the Federal Reserve Bank of Boston survey mentioned in the previous paragraph. Lastly, many people consider cash to be a medium of spreading germs. In fact, numerous studies have shown that almost all cash is contaminated with trace amounts of fecal matter.
Next time you are shopping at a large corporate retailer, like Target or a grocery store chain, check your receipt to see if they are adding a surcharge. It is unlikely that they are. Consider that these companies have dedicated analysts who have researched and vetted adding credit card surcharges. If they are not adding them, its because they have determined that doing so would harm their sales.
Cash Management Costs
They say that cash is king, but managing cash comes with its owns costs and risks. First, many banks charge businesses for depositing large amounts of cash as it requires more time and resources for the bank to manage cash. In some cases, cash management fees may be less than credit card processing fees but a business also needs to secure the cash at their place of business. Such costs can come in the form of requiring expensive safes as well as added security personnel or equipment.
Robbery and Burglary
Businesses that are known for accepting high amounts of cash put themselves at a significant risk of robbery and burglary. Not only does it pose a danger to the life and limb of owners and employees, but one robbery could result in losses that far exceed all processing fees that a business would ever incur. If an employee is harmed during a robbery, this could also result in legal actions and all the costs associated with such an event. Accepting card payments greatly reduces the liability associated criminals targeting a business for nefarious gain.
Employee Theft
Businesses that encourage cash transactions as a method for customers to avoid credit card surcharges will almost certainly experience losses from employee theft. This not only results in lost revenue from sales but also the loss of the merchandise. It is an unfortunate and sad fact that some employees will be give into the temptation to pocket cash from sales. In the event that an employee is stealing card payments through their own device, such transactions are recorded and trackable. This not only deters employees from stealing, but can provide a paper trail for business owners should they need to take legal action against a thieving employee.
Bottom Line
Businesses that choose to charge customers for using a card for payment put themselves and their businesses at significant risk. Not only can it result an immediate loss of a sale, but can cause the permanent loss of a potentially loyal customer. Futhermore, a business must comply with policies and laws to avoid costly fines and legal actions. These policies and laws may change without an owner's knowledge, posing even a greater risk of running afoul with compliance.
Many merchant account providers are also failing to add surcharges correctly of which the liability may fall on the business owner. A business could even lose its ability to accept card payments for incorrect surcharging, which could spell the end of its operation. Lastly, opting to accept cash over card poses costs that are often overlooked and greatly increases the danger to employees and owners in the event of a robbery. Although credit card processing costs are annoying, it's a cost that can be greatly reduced by choosing a reputable merchant account provider. See our article comparing the best credit card processors to find a highly rated low cost merchant service provider.
Processors that Offer Credit Card Surcharging
If you plan to add surcharging in spite of the information above, this is the only processor we recommend for credit card surcharging at this time due to the company's stellar reputation, pricing, and support.
Melody
I own a business and I started surcharging 14 months ago. It has had no negative impact on my sales. The biggest reason I started passing the fees on is how often I find that my customers have the cash on them, they just want their points. I have a unique business model and there are factors that play out differently for me than most, but I couldn’t stomach paying $600 in fees for two days of sales as a small business. I am flexible with my customers, I offer to hold items for them if they want to run around the corner to the atm or home to get cash. I also worry less about chargebacks with the surcharge in place.
In 14 months and thousands of transactions, I have had very few complaints. Most customers accept it as something that is becoming the norm. They know to bring cash to shop with me and it saves me thousands of dollars.
I agree that accepting cards increases sales, but in my experience, surcharges do not decrease them. If someone really wants something and isn’t willing to pay a few extra dollars, they’ll go get the cash or pull it out of their wallet when it’s already there.
Gary
I will generally not go to a business that accepts cards but charges me extra for their use. If they truly believe credit cards are bad for business, then they should stop accepting them in the first place. They won’t do that because it would indeed hurt their business if credit cards were turned away. Instead, they penalize the people who buy the most and give the most generous tips. It’s baffling to me how so many small business owners could think this is a good business strategy. Next I guess they’ll be charging me extra if I bring in a sale coupon to help cover their cost of advertising and discounts.
Greg
Spoken like someone who never owned a business.
Jared
Indeed. They have no concept that at some point their ‘business’ becomes unprofitable and may as well not be had.
Gary
Your assumption is mistaken, though understandable since I posted from my point of view as a customer. I own two LLC’s, deal with the public, and was raised up in a family retail business from a young age. I’ve had to pay lots of credit card processing fees over the decades, along with power bills, phone bills, mortgage on the building, rent, wages, and whatever else. It’s a cost of doing business that you have to have a sufficient margin to cover. It’s not about getting angry with your customers and sticking it to them when they come in and give you money. That’s a good way to hand them over to your competitors who understand this. It’s about doing whatever it takes to keep those customers feeling happy that they chose you. If it takes raising your margin by a couple of points to make that happen then do so. If a couple of margin points will make you go broke then it’s you who’s doing something else wrong – not your customers, not the company providing the card service. If you’re paying too much for card processing then choose another service, but if you’re not willing to pay for the service then you shouldn’t be accepting credit cards. If you try to make some customers pay more than others to get out of paying it yourself, then you’re not doing yourself any favors. It makes the customer feel unappreciated, and I’ll bet you have competitors who make them and their money feel welcome.
Greg
“…you have to have a sufficient margin to cover”; Isn’t that rather presumptuous of you? Is an 8-10% gross margin sufficient to absorb the 3-5% of extortion imposed by the fat cat banks and CC syndicates? In my case, the entirety of ALL my overhead and costs of doing business take about 2.5% of my profit margin. Suggesting that a business raise its prices to hide CC fees is as honest as raising prices the same percentage as sales tax and claiming everything is tax-free. It would also impose an unfair burden on anyone paying by cash, check or pay app, subsidizing those trapped in the plastic world of 20th century spending and debt-building habits.
I’ve never had a complaint from a customer for being transparent about taxes and fees. Most are smart enough about the reality of what the banks are doing and can do their own math. If a 3% shared burden is too much to to cancel out their “free” card points (on top of the 13-21% interest rate on revolving debt and annual fees they incur) their chosen convenience of not paying for a product at the time of acquisition needs to be reconsidered by them.
Gary
Ever thought about not accepting credit cards? I’m serious. My first retail business back in the early nineties was cash and carry. It went well and was relatively stress-free. Full disclosure- I eventually closed it because of my trusting employees with sticky fingers, but at least customers knew not to pull out their cards.
Greg
Since the price of my products ranges from $300-2000, I’m sympathetic with some peoples’ need to finance. I certainly encourage use of cash or no-fee cash apps. For plastic, I’ve solved the lion’s share of the problem: I split the processor’s fees with my customers, and that is working very well for both parties.
Jared
I pay a fee for selling you products you want. Then I pay that fee on in the taxes the government charges on that transaction. Then I pay that fee on any tips that may have been given. Then I pay that fee on any associated shipping costs. By the time all is said and done I would have to charge in the vicinity of 4.5% just to recover my processor costs. If you don’t want to support a business that wants to recover the cost of your choice, that is fine. I can do without customers like you who cost me that much. Really, I can. You have choices. So have I.
Anthony
I love people that think that surcharging for taking credit cards is a negative for a business owner. We have looked at volumes for business before and after adding surcharging and we see no difference. In many instances the volume is higher for the business owner. A real world example is a 27 location liquor store. They tried it out at a couple locations and said they had a couple upset customers. On average a liquor store makes 10 to 15 percent profit. If 5 customers who spent $100 each don’t come back to each store then they would lose about $75 to $100 a month in profit per store . Each store is saving $3000 a month in merchant fees by surcharging. Who cares about the 5 people that take their business somewhere else. The 27 location is positive $75 thousand per month. I can show this same thing in 100’s of different business types. It’s good not bad for the business owner.
Phillip CPO
Hi Anthony, considering that you specifically sell this service, I take what you are saying with a grain of salt because you can pick and choose businesses where it doesn’t seemed to have harmed them yet. Feel free to send me the data you have.
It’s a foolish service to offer from your side. If surcharging becomes more commonplace, it removes the incentive for customers to use their credit cards because the surcharge fees negate the rewards they receive from their card. They will switch to non-surcharged options like debit cards and Venmo. You are contributing to the downfall of your own industry.
Doug
I refuse to spend money at any business that wants to charge me just to pay with a card. That’s all that I carry! You deserve to go out of business if you do this!
Greg Wangler
You should go into business and see how a little real-world experience changes your perspective. Do these honest, benevolent credit card companies deserve to extort 3-4% of a business that averages a 9% gross profit margin? What value do they add that entitles them to pilfer 33-44% percent of a small business’ livelihood?
Phillip CPO
Hi Greg,
If you read the entire article you will see that I cite studies that show that people spend more on purchases when using a credit card. I’m not advocating that it should cost a business as much as it currently does; however, it will affect your customer loyalty if you add it. Personally, I refuse to pay a fee just to pay a business for products or services. I believe that it is part of the cost of doing business and that they should bake it into their pricing. If you choose to surcharge anyway, this is who I recommend for it.
Greg
Phillip,
Why would you be so condescending by starting with “If you read the entire article…”? Sorry to put you on the defensive so spontaneously.
If you inquired about the nature of my business, you’d discover that my customers come to me to buy one specific item. I’m not upselling them on unnecessary, unneeded trinkets or candy bars at the checkout lane. I of course, have to play the credit card game, even though it siphons my money and that of my customers into a huge, artificial scheme designed to do just that on behalf of the CC fat cats who never get dirt under their manicured fingernails.
Fortunately, because of the woke-justice agenda of the legacy economy, tracking and coding (and likely reporting) CC transactions, far fewer of my customers are comfortable using plastic. Cash is king, at least until the next phase; a cashless currency system is implemented.
Phillip CPO
Hi Greg, I wasn’t being condescending or defensive, but it’s interesting that you took it that way. I’m simply stating facts according to my research as well as my own opinion of businesses attempting to charge their customers a fee for giving them money. If you look at nearly any large enterprise retail or restaurant organization, they don’t implement credit card surcharge fees because they have done their due diligence and concluded that it will hurt customer loyalty and put them at a disadvantage to competitors who do not charge credit card surcharges. There’s no doubt that they would do it if they could get away with it.
Greg
It would be interesting to me what your intention was by gratuitously asserting I didn’t read your entire article.
Tell me why I should be so sanguine about CC companies charging me to give MY money to my customers, minus what they pilfer.
Phillip CPO
I was basing the idea that you didn’t read the whole article because you were making points in contrast to what I wrote about. My point is that you are providing products to your customers and you want to charge them to pay you because you incur fees for accepting their payment if they use a card. Merchant accounts are actually a line of credit extended to you every time you accept a card payment. This is because you are paid by the bank before it actually collects the money from the customer when they pay their credit card bill. Due to this, banks assume the risk that the cardholder could default on their credit card payments, which would cause the bank a financial loss. If the customer does not pay their credit card bill, the credit card processor does not claw that money back from the business. The business keeps the money the bank provided to complete the sale. Banks charge a processing fee for this service. In addition to that, many banks offer points and miles programs to maintain customer loyalty. This further increases the costs to businesses because the banks use your processing fees to fund these programs. I’m not advocating that this is fair to the business but there is good data to show that businesses that take credit cards see higher ticket sales, which greatly offset the costs associated in processing fees versus only accepting cash. Consumer facing businesses that have competitors put themselves at a disadvantage if they incorporate surcharges and their competitors do not. Not only that, it results in destruction of customer loyalty and future sales. The best way to recover processing costs is to bake into your pricing.
Another way to think about it is when you consider that there are other costs with running your business, such as shipping costs for obtaining merchandise or marketing. I have never seen a retail business consider adding their own shipping fees as a line item expense passed to the customer on their receipt. It simply doesn’t make sense to do that. Instead, those costs are factored into the price of the merchandise. Most businesses that add credit card surcharging do so out of an emotional decision based in anger, not because it makes rational sense to do so. My article is attempting to help businesses understand that surcharging will ultimately hurt their sales.
Greg
Well now, it sounds like you’re saying the quiet part out loud, in your truncated list of the schemes the credit cards implement, that I pay for. You admit, “I’m not advocating that this is fair to the business…” and it isn’t. Nor are annual fees and usury interest rates imposed on card holders who are emotionally obsessed with scraping up a few more points, when in the aggregate they are losing money.
How is my transparency in adding a charge to partially cover the CC fees IMPOSED on me any different than adding sales tax? Should I bury both of those in the price and claim there is no tax or CC fee?
Phillip CPO
The biggest difference is that every business adds sales tax. It has been a common practice in the U.S. for decades. Adding credit card surcharges has not been and will upset your customers.
Greg
Every business adds sales tax. Not every business is transparent enough to let their customers know they’ve hidden CC costs in their inflated prices.
Phillip CPO
The facts are facts. If you want to implement surcharges, it is your business. However, you unlikely to be an exception to clearly documented results. Good luck!
Greg
How likely are you to be an exception to the reputation of the modern money-changer industry?
Anthony ziegler
Phillip I would love to see these documented results. What I can tell you is we have thousands of business owners using our surcharge program and we have seen less then 2% switch back to traditional processing. If the business owners aren’t happy with the results wouldnt they be leaving. Looks like you have listed a credit card company at the end of the article if someone wants to surcharge. Either you make money from them or make money from any deal they close thru the article. This article was just written to drive traffic. Nothing more. No real results to back anything up
Phillip CPO
Australia is a the best example of a comparable market. Surcharging was allowed in 2003 and negatively impacted the credit card processing industry. Pay special attention to “Graph 5” in this report and then come back and assert that it was good for your industry. Keep in mind that businesses still had the option of adding surcharges, so it only had partial adoption. Additionally, Australia recently revised the rules to penalize surcharging anything over the actual Interchange cost. This has caused numerous businesses to cease surcharging and credit card usage has seen a subsequent jump of 10%. You accuse me of writing for clicks, but how about you enlighten us as to what percentage of the surcharges you are keeping for yourself instead of giving back to the businesses. Most processors that are marketing surcharging are doing simply out of greed. The company that I recommend for those who want to surcharge despite warnings against doing so is a processor I trust will do it ethically.
Anthony ziegler
Well of course that depends on average ticket size and the types of the cards the business is seeing. On average we are making 20 to 30 basis points on an account. Yes I know many of the programs are at 100 to 150 basis points but we value the long term commitment from are customers. We also have month to month contracts and no monthly or annual fees at all. $2 to $3 for every thousand dollars processed for anyone who doesn’t understand a basis point. I would say that’s pretty ethical. Now I would agree that many companies are gouging business owners with this program but we look at longevity.
Phillip CPO
There not just gouging business owners, but they are gouging consumers with excessive surcharges.
Greg
Did the business owners come up with this scheme to “gouge consumers with ‘excessive’ surcharges”? What makes them “excessive” when passed along to the consumer, but perfectly reasonable when imposed by the CC/banking cabal?
Consumers have options, unless they’re slaves to the plastic, as your industry would have it.
Phillip CPO
Hi Greg, you are misunderstanding the purpose of my website if you are calling it “my industry.” I have been a critic of this industry for nearly 15 years and have been a major driver of its change towards transparency. I have spent hundreds of thousands of dollars fending off frivolous lawsuits brought by shady merchant account providers attempting to silence me. My cases have been used precedents in subsequent lawsuits to defend the right to criticize this industry. I’m an advocate for small businesses and have directly saved businesses tens of millions in processing fees. Look to Australia to find out if surcharging works there. It didn’t, and it has become an area where businesses compete against each other. The Australian Government has also recently stepped on to regulate excessive surcharges where businesses and processors weere using it for profit, not to offset costs. I encourage you to add surcharging and then benchmark your revenue for a few years after. Then come back to share your data. That said, this appears to be more of a political and ideology issue for you. If you feel it’s worth the risk to your revenue to promote your own agenda regarding these things, it is your right to do so.
Greg
Philip,
Thank you for your work to control processing fees on behalf of otherwise helpless business owners. And forgive me for the misunderstanding that you might be a shill for the all-powerful CC machine. I took your advocacy of a lay-down-and-take-it approach to accepting their artificial processing rates as your being their protector against anyone who would expose and push back against their money-grubbing schemes. In your expert opinion, what would be an excessive rate of fees by the processors, if not 4%? I understand that their flawed business model incurs the myriad risks you’ve catalogued previously, but that’s 0K for them, as long as the costs of that risk can be ultimately passed along to the consumer.
As for my cohorts down under, they may be compelled to live up to their penal pedigree with fraudulent surcharges, but who here could get away with that, unless they bury the charges into inflated prices and claim there are no surcharges? In my case, in spite of my processor’s encouragement to add 4% to each card transaction to cover all my CC fees (as well as adequately line their pockets), I chose to split the fees with my customers; they pay 2.5%, I pay 1.5%. I implemented that policy just over a year ago and have had no one walk away from a purchase, nor complain about my excessive greed and dishonesty. What should I think of my customers; stupid, careless, dupes… or more aware than you’d like them to be of what this arcane method of financing really encompasses? Do they like a surcharge? No. Do they blame me? NO! I’m in competition, surrounded by my competitors. The final price is the final price, no matter how it’s derived. My customers operate in a semblance of a free market (albeit in extremis) and can shop wherever they choose, compare prices at their fingertips, and weigh the other benefits/disadvantages of patronizing my business over others.
You’re trying to defend a definitive assertion that Charging Customers For Using Credit Cards Will Kill Your Business. One exception defeats any universal statement. Maybe you’d like to modify your headline.
Jared
“Personally, I refuse to pay a fee just to pay a business for products or services.”
That’s the point. You’re not paying a fee to a business for a product or service. You are paying a fee for choosing a debt instrument that adds costs to the merchant. Personally, I think that surcharging should become so prevalent that people give up on spending money they don’t have. Ultimately it will be better for the economy for people to spend ‘honest money’ instead of the illusion that they are doing better economically than they actually are.
Phillip CPO
Hi Jared, you are conflating the reason that businesses charge surcharge fees. They don’t do it provide financial guidance for the consumer or U.S. economy. They do it because they don’t think they should have to pay fees for the service.
Jared
Yes, sure, of course. But consumer debt is ultimately a curse. While I offer the payment option in my business, I offer several other free alternatives to CC’s. In addition, processing charges are not the only cost to the business, but there is also the occasional credit card fraud even by the cardholder itself where processors will ‘approve’ a transaction and then later let the client steal hundreds of dollars worth of goods with no recourse by claiming they did not order or did not receive the goods, even though evidence of both was provided. I would not even offer to accept CC’s as a payment option at all if I could, but in the meantime, a surcharge to recover my costs will do.
Jared
Unfortunately you are clearly oblivious to how much it actually costs to accept cards from these predator banks who ‘reward’ you by stealing from my margins. Why should people who pay cash or debit pay the same as you, when you are offloading immense costs onto the business? Often credit card fees can be 15-20% or the entire profit margin. And for what? For an electronically processed payment no human touches? If you don’t care about whether the business survives or not, you may as well go elsewhere, because your business is already worth significantly less. Small businesses are struggling and pay the highest processing fees. And then someone ‘entitled’ like you comes along, as if your inability to manage your own finances should be their problem. Well, ultimately it does become their problem, as more and more economically illiterates drown themselves in debt and blame retailers for protecting themselves against predatory banks, as you have just done.
Greg
Another voice of experience, broadcasting from behind enemy lines. Thanks for reinforcing the reality perspective, and exposing the crass banking/credit extortionists.
Jared
I charge a “payment module fee” to any customer paying by a means that costs me money, because I am not their bank and I am not the one who is going to extend them credit or let them ‘collect points’ at my expense, other than points I reward in the course of transactions everyone received. The banks have a nice racket going on whereby they distribute ‘rewards’ they charge to my margin. Nah-ah. Not going to happen. If I wanted lower margins, I’d set my prices accordingly. I am not going to get forced into lower margins by bank fees.
I am also specifically no longer accepting Amex, because Amex is a regular party to credit card fraud first by approving a transaction until after delivery has been made, and then doing a chargeback. This has happened more than once despite me providing evidence of the receipt of goods by the client. So yea, I am not going to play that game. It contains risks I am not willing to be burdened with. Over the last 6 years most of my customers have opted to pay with e-transfer instead. Instant money. No fees to me.
Not playing the games may cost me some business, sure, but it’s business not worth having. I had a long time customer complain how she can get the same products delivered cheaper. Ok. Go for it. People don’t care that a slave delivers their order who gets paid a flat fee that doesn’t cover his vehicle expenses and time. These outfits take advantage of people’s desperation, and in the end when their vehicle breaks, these people are done.
Also, I am also not going to penalize my cash, e-transfer and debit customers by baking hiding the CC fees in the price of my goods, and making them pay for other people’s choices to live on credit.