For businesses that accept credit cards, processing fees tend to be a constant headache. Once you add the changing regulations, new technology, and confusing pricing models into the mix, you get a major hit to your bottom line.
One potential solution to this issue involves surcharging credit cards. If you’re not sure whether surcharging is the right call for your business, this article should make your decision easier.
What Is Surcharging?
In simple terms, surcharging means adding the cost of processing to customers’ purchases. Keep in mind that you can only surcharge credit cards. Surcharging debit cards, even if you choose to run them as credit, isn’t an option.
If your consumer base uses debit cards more than credit cards, surcharging is rarely going to be worth it. There are plenty of industries that still mostly rely on debit card usage, such as discount stores, supermarkets, and gas stations. Credit card usage is noticeably higher than debit card usage in online purchases and department store transactions.
Another thing to keep in mind is that surcharging isn’t legal everywhere. The only states that prohibit surcharging at this time are Colorado, Connecticut, and Massachusetts, unless it is for an educational institution or government agency.
Pros of Surcharging
The main benefit of surcharging is obvious enough: reducing your expenses. By applying a small fee on your credit card transactions, your credit card transaction rates go down to zero. For businesses with thin margins, this can be a game-changer. If your business has a large enough credit card volume, you could save thousands of dollars per month.
Applying a small fee to every credit card transaction also helps educate your customers about the costs of accepting credit cards. On top of that, your customers will still be able to choose their preferred payment type.
Cons of Surcharging
One big potential drawback to surcharging is the consumer response. In some cases, your customers may be against surcharging to the point that they stop visiting your business altogether. This is getting to be less of an issue as surcharging becomes more widespread in the United States, but it’s still worth keeping in mind.
Surcharging also comes with very specific rules and regulations, both from the state and federal government and the major card brands (Visa, MasterCard, Discover). If you don’t follow these rules, you’ll likely face repercussions.
How to Begin Surcharging
If you decide you want to start surcharging, your first move should be to contact your credit card processor to enlist their help. Other than that, it would be a good idea to familiarize yourself with the basic requirements for surcharging:
• You must inform your card issuer of your intent to surcharge at least 30 days before you start imposing surcharges
• The surcharge can’t exceed 4% of the transaction total or your card processing cost
• You must inform your customers of surcharges by posting appropriate signage
• You must place signage at the store entrance and points of sale
• You must clearly label surcharges on your receipts