Surcharging

The Do’s and Don’ts of Surcharging Credit Card Transactions

When it comes to payment acceptance, being flexible to how your customers want to pay you is important for building a successful business and loyal customer base. This may, however, bring added costs to your bottom line, and if you’re operating with already narrow profit margins, these costs can further shrink the gap between your income and your expenses. As a result, you need to be creative and find new ways to compensate for these added costs. One possible way some industries employ is by surcharging your customer’s credit card transactions.

Surcharging Credit Card Transactions

For some businesses, adding a surcharge fee to credit card purchases is an effective way to make credit card acceptance more affordable. Unfortunately, however, it is not possible or acceptable for all industries and, therefore, its implementation must be carefully considered so as to ensure your customers are not being pushed away in the process, nor are you falling out of compliance.

Here are three ‘Do’s’ and ‘Don’ts’ of surcharging that will help you gauge whether such a solution would benefit your business, or if you should avoid it entirely.

The Do’s of Surcharging Your Customers

  1. DO provide customers with full disclosure of the amount you’re surcharging at the Point of Sale/Interaction.
    It is crucial for suppliers to give their customers a clear indication during the point of sale or interaction that they are being charged, and the amount of the surcharge must be explicitly stated.
  2. DO display the sale and return amount separately from the surcharge amount on the cardholder’s receipt.
    Suppliers must list the surcharge amount on the cardholder’s receipt separately from the total sale amount and the amount of the return available to customers.
  3. DO offer customers alternative payment options in case they don’t want to pay the surcharge fee.
    Be flexible! Suppliers benefit from offering alternative payment methods like cash and debit. In this way, suppliers may still complete their sale, while their customers can still pay how they want to, but without the added fees like those associated with credit cards.

The Don’ts of Surcharging Your Customers

  1. DON’T surcharge if the cost to the customer exceeds 4% of the total sales amount OR if the charge exceeds the credit card processing fee you currently pay.
    If you apply a surcharge fee to credit card transactions, you must ensure it doesn’t exceed 4% of your customers’ total purchases or the credit card processing fees you’re currently paying.
  2. DON’T surcharge on everything you sell; only surcharge on low margin items where possible to maximize profit and maintain customer loyalty.
    Surcharging is effective for those suppliers selling product with low margins and who want to maximize their profitability. By only surcharging on low margin items, your customers should remain loyal to your business as the fee will only apply to select items that you sell.
  3. DON’T engage in surcharging if your competition is high, as you may inadvertently encourage your customers to seek out alternative supplier options.
    If the market you play in is highly competitive, and your customers have strong substitute power, do not pursue surcharging! Doing so may steer your customers away and lead them to seek out alternative solutions that better suit their needs.

A Few Things to Note

In addition to our suggestions above, there are three policies which must be adhered to should you choose to pursue surcharging credit card transactions:

  1. Prohibited Card & Transaction Types
    Surcharging is prohibited on American Express credit cards, debit cards (including MasterCard, Visa, Discover Signature, and PIN or PINless cards), and pre-paid card transactions. Should your customer choose to pay you in any of these ways, you are barred from surcharging their transaction.
  2. States Where Surcharging is Prohibited
    In addition to the first point above, surcharging is barred in a number of states within the United States, including: Connecticut, Colorado, Kansas and Massachusetts. Should your business have locations in any of these states, you are prohibited from adding a surcharge to your customer’s receipt.
  3. Processing Requirements
    Lastly, if your business plans on surcharging credit card transactions, you are required to register with each card brand individually before participating. Refer to these links for more information:

 

Surcharging can be helpful for those organizations who are looking to curb the fees associated with accepting credit card payments from their customers. Your business may be a good fit for applying surcharging fees if competition in your industry is low, if your margins are thin, and/or if you have a strong customer base. For greater insight into whether your business should consider applying surcharging fees to credit card transactions, consult your 2CP representative today to learn more.