Credit Cards Surcharges Impact on Consumers and Business

Credit cards surcharges can have a significant impact on consumers and businesses alike. In some states, businesses are prohibited from charging surcharges, but in others, they're allowed to pass on the cost to customers.

For consumers, this can mean paying more for goods and services, which can be a burden, especially for those living paycheck to paycheck. The average consumer may not even notice the extra fee, but it can add up over time.

Businesses, on the other hand, may see surcharges as a way to recoup the costs of accepting credit card payments, which can be as high as 2-3% per transaction. In some cases, businesses may even use surcharges to incentivize customers to pay with cash or other forms of payment.

Credit card surcharges are regulated by both state law and card brand rules, such as those published by Visa and Mastercard. This means that laws regarding surcharges can change over time.

In four states, surcharging is effectively outlawed as an anti-consumer practice: Connecticut, Maine, Massachusetts, and New York, as well as Puerto Rico. This means that merchants in these areas cannot charge customers a fee for using credit cards.

Here's a breakdown of the laws by state:

In Washington state, counties have the specific authority to accept electronic forms of payment like credit and debit cards for all types of payments. This is outlined in RCW 36.29.190.

Counties can set their own policies regarding the recovery of costs for electronic payments, as long as they don't exceed the additional direct costs incurred by the county. The county treasurer determines the transaction cost based on the costs incurred by the treasurer.

RCW 36.29.190(1)(b) requires payers to pay the transaction processing cost, unless certain circumstances apply. These circumstances include fees related to electronic payments for taxes, which may be absorbed by the county treasurer's banking services budget.

In some cases, counties can choose not to charge transaction processing costs for non-tax payments. However, this decision must be made by the county legislative authority or the legislative authority of a district where the county treasurer serves as ex officio treasurer. If costs are absorbed, they may be absorbed by the county department or taxing district assessing the payment transactions.

Here are the specific circumstances under which counties may not charge transaction processing costs:

The ACCC has its limitations when it comes to handling issues related to payment surcharges. They don't resolve individual complaints about payment surcharges.

You can't rely on the ACCC to set surcharge amounts or give legal advice to businesses about the surcharge amounts they can charge. This means businesses need to figure it out on their own.

The Reserve Bank of Australia Standards dictate the costs that businesses can include when determining their costs for accepting surcharge payments. This is a specific rule that businesses need to follow.

To avoid overcharging customers, businesses can't surcharge more than the cost of their processing fee. This rule is in place to prevent businesses from profiting from surcharging.

Merchants must provide clear disclosure to their customers about surcharging practices at the point of interaction, including the amount of the surcharge and the dollar amount on the transaction receipt.

Merchants should refer to the specific rule for additional consumer disclosure obligations, and comply with applicable state or federal laws, including those that may prohibit or restrict surcharging of credit transactions.

Merchants must also notify the card brand of their intention to surcharge, and provide a written letter to their account representative or fill out a form available on the card brand's website.

You need to be aware of the merchant requirements to implement surcharging effectively.

Surcharges can benefit your business in several ways, including offsetting the costs of processing credit cards.

In today's digital-first world, most consumers expect to be able to use credit cards for payments, and refusing to accept them can cost you clients.

Consumers are 63% more likely to shop with merchants that offer their preferred payment options.

You can automate payment processes with surcharging, allowing you to focus on building customer relations and scaling operations.

Providing a great customer experience means allowing customers to use their preferred payment method, and 68 percent of consumers prefer using a credit card for in-person payments.

The maximum surcharge cap is 4%.

Merchant Disclosure is a crucial aspect of merchant requirements. Merchants must provide clear disclosure to their customers about surcharging practices at the point of interaction.

This disclosure must include the amount of the surcharge and the dollar amount of the surcharge on the transaction receipt provided to customers. Merchants should refer to the specific rule for additional consumer disclosure obligations.

Merchants are also required to notify the card brand of their intention to surcharge, which typically involves filling out a form available on the card brand's website or providing a written letter to their account representative.

To display surcharges clearly, merchants can display the full price for a credit card purchase, the amount of the different surcharge, or the increment between the two surcharges. This helps customers understand the additional costs before making a payment.

Merchants have the flexibility to choose between a percentage or flat fee surcharge. However, the flat fee surcharge must not be more than what it costs the business to use that payment type.

Here's a summary of the key points to keep in mind:

By following these merchant disclosure requirements, businesses can ensure they are transparent and fair in their surcharging practices, which is essential for building trust with their customers.

Local governments have two main options for processing payments: creating their own merchant account or contracting with a third-party payment processing vendor.

The size of a local government will play a significant role in determining which option is best for them. Local governments with more complex services may find it more feasible to contract with a third-party processor.

Transaction charges for merchant accounts vary depending on the type of transaction and payment method used. For example, in-person swiped or chip reader transactions may result in different charges than those that are manually keyed in or entered through a phone or website.

Municipalities should gain a thorough understanding of the fees charged by their merchant services bank. This will help them make informed decisions about how to process payments.

Setting a minimum purchase amount can be a smart move for your business. This can encourage customers to use cash for smaller purchases, reducing the number of transactions that incur processing fees.

Requiring a minimum purchase amount can also lead to customers buying more, which can be beneficial for businesses that want to increase their average transaction value.

For businesses with a credit card processor that charges a percentage plus a flat fee for each transaction, excluding small purchases from credit card payments can significantly reduce overall processing fees.

There are several types of surcharges that businesses can apply to credit card transactions. A brand-level surcharge is one where the merchant charges the same percentage on all Mastercard credit cards.

Businesses can also use a product-level surcharge, where a surcharge is imposed on a particular Mastercard credit product. The level of the surcharge is subject to a cap in both cases.

Here are some common types of surcharges:

Businesses need to be careful not to call a payment surcharge something else, as the ban on excessive surcharges still applies.

Merchants are allowed to apply a brand-level surcharge, where the same percentage is charged on all Mastercard credit cards.

A brand-level surcharge is one where the merchant charges the same percentage on all Mastercard credit cards.

Businesses can also use a product-level surcharge, where a surcharge is imposed on a particular Mastercard credit product.

The level of the surcharge is subject to a cap, regardless of whether it's a brand-level or product-level surcharge.

Businesses need to be careful not to impose a flat fee surcharge on relatively small cost transactions, as this can be excessive.

In the US, brand rules limit surcharges to 3%.

Businesses incur costs when accepting different payment types, and it's essential to know these costs to determine if a surcharge is justified. The Reserve Bank of Australia has estimated average costs for different payment types.

Eftpos costs are less than 0.5%, while Visa and Mastercard debit costs range between 0.5% and 1%. Visa and Mastercard credit costs range between 1% and 1.5%. These costs can vary depending on the business and its payment processor plan.

To give you a better idea, here are some estimated average costs for different payment types:

Keep in mind that these are general estimates and actual costs may vary depending on the business and its payment processor plan.

Assessing the impact of surcharging is crucial to avoid alienating customers and hurting your bottom line. To do this, track and analyze all variables once you begin surcharging and compare sales totals before and after the surcharge.

If you experience adverse effects, you can reverse the decision and stop surcharging, but it can be hard to change a customer's negative perception. Carefully weigh the pros and cons of surcharging and consider all angles before deciding.

Surcharging isn't the only way to reduce credit card processing fees. According to a Federal Reserve report, 68 percent of consumers prefer using a credit card for in-person payments, making it a convenient option for customers.

Assessing the impact of surcharging requires tracking and analyzing all variables once you begin surcharging. This involves comparing sales totals before and after the surcharge to ensure you're not unintentionally alienating customers and hurting your bottom line.

If you start surcharging and experience adverse effects, you can reverse the decision and stop surcharging. However, it can be difficult to change a customer's negative perception.

Carefully weigh the pros and cons of surcharging, and consider all angles before deciding. This will help you make an informed decision and avoid potential problems.

Surcharging isn't the only way to reduce credit card processing fees. Consider the following alternatives.

One of the most effective alternatives is to negotiate a better rate with your credit card processor. This can be done by shopping around for a new processor or by asking your current one for a better deal.

Implementing a flat fee per transaction can also help reduce costs. This approach can be more predictable and easier to budget for than the variable fees associated with surcharging.

Another option is to consider a tiered pricing structure, where fees are lower for higher-volume merchants. This can be a good choice for businesses that process a lot of transactions.

Some businesses also choose to absorb the credit card processing fees themselves, rather than passing them on to customers through surcharging. This approach can help maintain a positive customer experience.

Providing customer convenience without breaking the bank is a delicate balance. Surcharging isn't the only way to achieve this balance, and it's worth considering alternatives.

According to a Federal Reserve report, 68 percent of consumers prefer using a credit card for in-person payments. This is a significant number, and it highlights the importance of accommodating customers' preferred payment methods.

Businesses can charge a convenience fee when customers use a nonstandard payment form or pay differently. This can be a viable alternative to surcharging, but it's essential to follow the rules set by card issuers.

Here are the rules for convenience fees for different card types:

Convenience fees are typically between 1.3 and 3.5 percent, and businesses must disclose them to customers before completing the purchase. By understanding the rules and regulations surrounding convenience fees, businesses can provide customer convenience without shouldering the cost.

A surcharge can make your business less competitive by raising your effective prices. This can be a problem if most of your customers pay with a credit card.

If you compete in a price-sensitive market, customers may decide to buy from your competition instead. This can hurt your bottom line.

You need to consider whether you're alienating your customers by adding a surcharge. Are there other businesses nearby that offer the same goods or services you do?

If you're competing against online retailers that offer free shipping and fast delivery, you could be costing yourself business by adding an obstacle to purchasing from you.

Here are some things to think about: