For businesses that accept credit cards, fees to process them are a constant headache.
\r\nConfusing pricing models, changing regulations and new technology often mean expenses that eat into your bottom line.
\r\nTo help defray these costs, more businesses are turning to surcharging, or adding the cost of processing to customers’ purchases. It’s legal, and it’s picking up steam in some locations.
\r\nBut there are very real cons to consider in addition to the pros.
\r\nBefore we go any further, let’s address state law. Nine states prohibit credit card surcharges: Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas. If you do business in one of those states, you may not surcharge credit cards in that state.
\r\nRelated Article: Seeing Green: 7 Payment Processing Solutions for Small Businesses
\r\nThe first thing to know about surcharging is that you can only surcharge credit cards. You cannot surcharge debit cards, including debit “run as credit.” This is an important consideration. If your customer base utilizes debit cards more than credit cards, surcharging might not be the silver bullet you’re hoping for.
\r\nThe TSYS 2015 U.S. Consumer Payment Study provides an overview of payment types used at different businesses, summarized in this surcharging infographic. In supermarkets, gas stations (pay at the pump), discount stores, and dine-in restaurants, debit usage outweighs credit card usage. Debit is second to cash at coffee shops and fast food restaurants, but still ahead of credit cards.
\r\nOf the industries TSYS surveyed, it’s only in online purchases and department store transactions that credit card usage is higher than debit card usage.
\r\nThat’s not to say that you couldn’t surcharge the credit transactions that do take place. Just be aware that if you’re in a high-debit-use business, surcharging will help you recoup costs on a smaller number of your total transactions and may not help significantly reduce your expenses.
\r\nThe obvious benefit of surcharging is that the burden of expense for processing will no longer fall on you. By passing the merchant credit card fees to your customers, you’ll reduce your expenses while still allowing customers their choice of payment type. For businesses with thin margins, any cost reduction can be a big help.
\r\nAs you can see in the infographic linked above, one of the biggest potential drawbacks to surcharging credit cards is consumer opinion. Your customers may dislike surcharging so much that they choose to patronize other businesses instead of yours.
\r\nA creditcards.com study found that consumers overwhelmingly respond that they aren’t willing to pay fees to use credit cards. It’s possible that consumers would simply adapt after some initial complaints, but if there are convenient alternatives such as a nearby business that doesn’t surcharge, you could end up losing those customers.
\r\nRelated Article: Payments Suck: Breaking Down the Current Landscape of Payment Processing
\r\nBe honest with yourself about the competitive landscape. Ask yourself:
\r\nIt’s particularly important to consider customers’ alternatives if you’re competing against online retailers that can offer free shipping and fast delivery. If your products aren’t items that customers need to purchase in-person, you could be costing yourself business by adding an obstacle to purchasing from you.
\r\nInstead of charging more to use credit cards, you could choose to offer a cash discount for customers who choose not to pay with plastic. Price your goods or services as if everyone will pay with a credit card, and then you’ll have some wiggle room to offer a small discount for using cash.
\r\nWhile it has the same basic effect, customers are generally less averse to a discount than to a fee. By offering a cash discount, you’re essentially rewarding cash usage instead of punishing credit card usage.
\r\nIf you decide that you do want to surcharge credit cards, the first thing you'll need to do is contact your processor to enlist their help. They'll need to reprogram your credit card machine since surcharges must be listed separately on customer receipts. You'll also need to contact the credit card brands, and make sure you’re following Visa and MasterCard’s rules. Basic requirements for surcharging are as follows:
\r\nAdditional restrictions may apply. Contact your credit card processing company before you begin surcharging to inquire about additional requirements.
\r\nRelated Article: EMV 101: What You Need to Process Credit Cards Today
\r\nTo accurately assess the impact of surcharging on your business, be sure to carefully track and analyze all variables once you begin surcharging. Look at sales compared to before the surcharge to ensure you aren’t alienating customers and hurting your bottom line unintentionally.
\r\nIf you begin surcharging and find a strong negative effect, you can reverse the decision and stop surcharging but remember that it can be hard to change a customers’ negative perception. Carefully weigh the pros and cons of surcharging and consider all angles before making your decision.
\n","docType":"article","guid":"articles_72e89eb32dbc7aa77c9f338998d30158","lastModified":"2016-06-30T20:00:00.000Z","published":"2016-06-30T20:00:00.000Z","structuredData":null,"subtitle":null,"template":"legacy","title":"There's a Fee for That: Pros and Cons of Surcharging Credit Cards","type":"article","author":{"avatar":null,"bio":"Ellen Cunningham is a writer first and foremost. She loves the challenge of turning dry, complex topics into readable articles, which makes her a perfect fit for the credit card processing industry. She is the Marketing Manager for CardFellow, the leading resource for businesses seeking the right credit card processing solution. Ellen enjoys helping people understand their options for taking cards so that they can make informed decisions.\r\n\r\nWhen she's not writing about credit card processing, she can be found cycling beautiful trails in New England or hanging upside down in trapeze class.","name":"Ellen Cunningham","image":null,"slug":null,"social":{"facebook":"http://www.facebook.com/cardfellow","linkedin":"https://www.linkedin.com/company/cardfellow/","twitter":"https://twitter.com/cardfellow","website":"http://www.cardfellow.com"},"status":"enabled","title":null,"type":"Old BDC Member","user":{"imagePath":"https://staging.business.com/images/uploads/user/profile/79312a6d3da7730575991c6d9a99b6e40ca55.jpg","profile":{"company":"CardFellow.com","jobTitle":"Marketing Manager","website":"https://www.cardfellow.com"}}},"breadcrumbs":null,"channels":{"primary":{"name":"Finance","slug":"finance"},"sub":{"name":"Financial Solutions","slug":"financial-solutions"}},"meta":{"robots":"index, follow","description":"For businesses grappling with the high cost of credit card acceptance, surcharging may help defray costs. Here are the pros and cons.","title":"Pros & Cons of Surcharging Credit Cards - business.com"},"parsedContent":{"toc":[],"json":[{"component":"p","children":["For businesses that accept credit cards, fees to process them are a constant headache."]},{"component":"p","children":["Confusing pricing models, changing regulations and new technology often mean expenses that eat into your bottom line."]},{"component":"p","children":["To help defray these costs, more businesses are turning to surcharging, or adding the cost of processing to customers’ purchases. It’s legal, and it’s picking up steam in some locations."]},{"component":"p","children":["But there are very real cons to consider in addition to the pros."]},{"component":"h3","children":[{"component":"em","children":["Where Surcharges Are Prohibited"]}]},{"component":"p","children":["Before we go any further, let’s address state law. Nine states prohibit credit card surcharges: Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas. If you do business in one of those states, you may not surcharge credit cards in that state."]},{"component":"p","children":[{"component":"em","children":["Related Article:"]}," ",{"component":"Link","props":{"href":"http://www.business.com/credit-card-processing/7-payment-processing-solutions-for-small-businesses/"},"children":["Seeing Green: 7 Payment Processing Solutions for Small Businesses"]}]},{"component":"h3","children":[{"component":"em","children":["Card Usage by Industry"]}]},{"component":"p","children":["The first thing to know about surcharging is that you can only surcharge credit cards. You cannot surcharge debit cards, including debit “run as credit.” This is an important consideration. If your customer base utilizes debit cards more than credit cards, surcharging might not be the silver bullet you’re hoping for."]},{"component":"p","children":["The TSYS 2015 U.S. Consumer Payment Study provides an overview of payment types used at different businesses, summarized in this ",{"component":"a","props":{"href":"https://cardfellow.com/cardfellow-charging-fee-for-credit-cards.png","target":"_blank","rel":"nofollow"},"children":["surcharging infographic"]},". In supermarkets, gas stations (pay at the pump), discount stores, and dine-in restaurants, debit usage outweighs credit card usage. Debit is second to cash at coffee shops and fast food restaurants, but still ahead of credit cards."]},{"component":"p","children":["Of the industries TSYS surveyed, it’s only in online purchases and department store transactions that credit card usage is higher than debit card usage."]},{"component":"p","children":["That’s not to say that you couldn’t surcharge the credit transactions that do take place. Just be aware that if you’re in a high-debit-use business, surcharging will help you recoup costs on a smaller number of your total transactions and may not help significantly reduce your expenses."]},{"component":"h3","children":[{"component":"em","children":["Benefits to Surcharging"]}]},{"component":"p","children":["The obvious benefit of surcharging is that the burden of expense for processing will no longer fall on you. By passing the ",{"component":"Link","props":{"href":"https://www.business.com/articles/credit-card-processing-fees/"},"children":["merchant credit card fees"]}," to your customers, you’ll reduce your expenses while still allowing customers their choice of payment type. For businesses with thin margins, any cost reduction can be a big help."]},{"component":"h3","children":[{"component":"em","children":["Drawbacks to Surcharging"]}]},{"component":"p","children":["As you can see in the infographic linked above, one of the biggest potential drawbacks to surcharging credit cards is consumer opinion. Your customers may dislike surcharging so much that they choose to patronize other businesses instead of yours."]},{"component":"p","children":["A creditcards.com study found that consumers overwhelmingly respond that they aren’t willing to pay fees to use credit cards. It’s possible that consumers would simply adapt after some initial complaints, but if there are convenient alternatives such as a nearby business that doesn’t surcharge, you could end up losing those customers."]},{"component":"p","children":[{"component":"em","children":["Related Article:"]}," ",{"component":"Link","props":{"href":"http://www.business.com/credit-card-processing/payments-suck-breaking-down-the-current-landscape-of-payment-processing/"},"children":["Payments Suck: Breaking Down the Current Landscape of Payment Processing"]}]},{"component":"p","children":["Be honest with yourself about the competitive landscape. Ask yourself:"]},{"component":"ul","children":[{"component":"li","children":["Are there other businesses nearby that offer the same goods or services that you do?"]},{"component":"li","children":["How will you compete with those businesses if your prices are higher due to a surcharge?"]}]},{"component":"p","children":["It’s particularly important to consider customers’ alternatives if you’re competing against online retailers that can offer free shipping and fast delivery. If your products aren’t items that customers need to purchase in-person, you could be costing yourself business by adding an obstacle to purchasing from you."]},{"component":"h3","children":[{"component":"em","children":["Cash Discounts"]}]},{"component":"p","children":["Instead of charging more to use credit cards, you could choose to offer a cash discount for customers who choose not to pay with plastic. Price your goods or services as if everyone will pay with a credit card, and then you’ll have some wiggle room to offer a small discount for using cash."]},{"component":"p","children":["While it has the same basic effect, customers are generally less averse to a discount than to a fee. By offering a cash discount, you’re essentially rewarding cash usage instead of punishing credit card usage."]},{"component":"h3","children":[{"component":"em","children":["Steps to Begin Surcharging"]}]},{"component":"p","children":["If you decide that you do want to surcharge credit cards, the first thing you'll need to do is contact your processor to enlist their help. They'll need to reprogram your credit card machine since surcharges must be listed separately on customer receipts. You'll also need to contact the credit card brands, and make sure you’re following Visa and MasterCard’s rules. Basic requirements for surcharging are as follows:"]},{"component":"ul","children":[{"component":"li","children":["Surcharges may only be applied to credit cards"]},{"component":"li","children":["The surcharge cannot be more than 4% of the transaction total, or your actual cost to process cards, whichever is lower"]},{"component":"li","children":["You must inform Visa and MasterCard of your intent to surcharge cards at least 30 days before imposing surcharges"]},{"component":"li","children":["You must post signage informing customers of surcharges"]},{"component":"li","children":["Signage must be located at entrances to stores and at the points of sale"]},{"component":"li","children":["Surcharges must be clearly labeled on a receipt, as a line item"]}]},{"component":"p","children":["Additional restrictions may apply. Contact your credit card processing company before you begin surcharging to inquire about additional requirements. "]},{"component":"p","children":[{"component":"em","children":["Related Article:"]}," ",{"component":"Link","props":{"href":"http://www.business.com/credit-card-processing/emv-101-what-you-need-to-process-credit-cards-today/"},"children":["EMV 101: What You Need to Process Credit Cards Today"]}]},{"component":"h3","children":[{"component":"em","children":["Assessing the Impact"]}]},{"component":"p","children":["To accurately assess the impact of surcharging on your business, be sure to carefully track and analyze all variables once you begin surcharging. Look at sales compared to before the surcharge to ensure you aren’t alienating customers and hurting your bottom line unintentionally."]},{"component":"p","children":["If you begin surcharging and find a strong negative effect, you can reverse the decision and stop surcharging but remember that it can be hard to change a customers’ negative perception. Carefully weigh the pros and cons of surcharging and consider all angles before making your decision."]}]},"resource":null,"sponsorship":null,"thumbnail":{"path":null,"caption":"Utah778 / Getty Images","isBlurred":true},"bestPicks":null},"related":{"relatedArticles":[{"title":"There's a Fee for That: Pros and Cons of Surcharging Credit Cards","canonical":"https://www.business.com/articles/pros-and-cons-of-surcharging-credit-cards/","slug":"pros-and-cons-of-surcharging-credit-cards","thumbnail":"https://www.business.com/images/channel/finance.jpg","dek":"For businesses grappling with the high cost of credit card acceptance, surcharging may help defray costs. Here are the pros and cons.","lastModified":"2016-06-30T20:00:00Z","published":"2016-06-30T20:00:00Z","sponsored":false},{"title":"The Ultimate Small Business Guide to Credit Card Processing Fees","canonical":"https://www.business.com/articles/credit-card-processing-fees/","slug":"credit-card-processing-fees","thumbnail":"https://www.business.com/images/content/5d2/346547b437454698b4577/1500-0-","dek":"Learn about credit card processing fees and how to negotiate for lower costs.","lastModified":"2020-06-16T10:08:00Z","published":"2017-12-07T08:00:00Z","sponsored":false},{"title":"Mobile Wallet Guide: Google Pay vs. Apple Pay vs. Samsung Pay","canonical":"https://www.business.com/articles/google-pay-vs-apple-pay-vs-samsung-pay/","slug":"google-pay-vs-apple-pay-vs-samsung-pay","thumbnail":"https://www.business.com/images/content/5c5/e0a269c658a457c8b4591/1500-0-","dek":"You no longer need to carry a bulky wallet filled with numerous credit cards or cash.","lastModified":"2018-06-21T16:06:00Z","published":"2018-06-21T16:05:00Z","sponsored":false},{"title":"SBA Loan Default: A Complete Guide for 2020 and Beyond","canonical":"https://www.business.com/articles/sba-loan-default-guide/","slug":"sba-loan-default-guide","thumbnail":"https://www.business.com/images/content/5dc/047af7b437483068b4572/1500-0-","dek":"Here's comprehensive guide to all your questions about SBA loan default, forgiveness and the SBA Offer In Compromise.","lastModified":"2019-11-04T15:00:00Z","published":"2019-11-04T15:00:00Z","sponsored":false},{"title":"Considering Going Cashless? Electronic Payment Expert Discusses the Benefits","canonical":"https://www.business.com/articles/electronic-transactions-association-benefits-going-cashless/","slug":"electronic-transactions-association-benefits-going-cashless","thumbnail":"https://www.business.com/images/content/5ba/a86ba1039eb822b8b4579/1500-0-","dek":"Want to increase your customer base? This CEO says offering more payment options is key.","lastModified":"2018-09-25T20:00:00Z","published":"2018-09-25T20:00:00Z","sponsored":false},{"title":"How to Make Money in Retirement: A Guide to Turning a Hobby into a Side Business","canonical":"https://www.business.com/articles/how-make-money-retirement-hobby/","slug":"how-make-money-retirement-hobby","thumbnail":"https://www.business.com/images/content/5ba/902e01039eb26648b4572/1500-0-","dek":"Many retirees turn side interests into income. Learn how to make money in retirement.","lastModified":"2018-09-24T15:03:00Z","published":"2018-09-24T15:03:00Z","sponsored":false},{"title":"How to Choose the Best Business Loan","canonical":"https://www.business.com/articles/how-to-choose-a-business-loan/","slug":"how-to-choose-a-business-loan","thumbnail":"https://www.business.com/images/content/5db/c5c175a215e47798b456f/1500-0-","dek":"Small businesses have a lot of funding options, but choose wisely.","lastModified":"2020-02-04T14:25:00Z","published":"2020-02-04T14:25:00Z","sponsored":false},{"title":"Mobile Wallet Guide: Google Pay vs. Apple Pay vs. Samsung Pay - 08-05","canonical":"https://staging.business.com/articles/google-pay-vs-apple-pay-vs-samsung-pay/","slug":"google-pay-vs-apple-pay-vs-samsung-pay","thumbnail":"https://staging.business.com/images/content/5c5/afd7f54d26d67178b458d/1500-0-","dek":"Edit 07-24 - subtitle","lastModified":"2019-08-05T20:58:00Z","published":"2018-06-21T16:05:00Z","sponsored":null},{"title":"How to Handle Non-Paying Clients","canonical":"https://www.business.com/articles/overdue-and-over-you-what-actions-can-you-take-when-a-client-hasnt-paid/","slug":"overdue-and-over-you-what-actions-can-you-take-when-a-client-hasnt-paid","thumbnail":"https://www.business.com/images/content/5c5/e06719c658a87078b4598/1500-0-","dek":"Contracts, lawyers and collections agencies are a few places to start.","lastModified":"2018-03-16T14:00:00Z","published":"2018-03-16T14:00:00Z","sponsored":false},{"title":"Types of POS Systems","canonical":"https://www.business.com/articles/types-of-pos-systems/","slug":"types-of-pos-systems","thumbnail":"https://www.business.com/images/content/5ec/e6bc39c658a146c8b4579/1500-0-","dek":"Here's what you need to know about various types of POS systems.","lastModified":"2020-05-28T17:29:00Z","published":"2017-12-08T08:00:00Z","sponsored":false},{"title":"The Top Accounting Challenges Small Businesses Face","canonical":"https://www.business.com/articles/small-business-accounting-challenges/","slug":"small-business-accounting-challenges","thumbnail":"https://www.business.com/images/content/5b1/a96d91039eb96628b457e/1500-0-","dek":"Small business owners face a number of challenges every day, and accounting is a big one.","lastModified":"2018-06-08T16:49:00Z","published":"2018-06-08T16:49:00Z","sponsored":false},{"title":"Bank of America Executive on What It Takes to Get a Business Loan","canonical":"https://www.business.com/articles/bank-of-america-bank-loan-tips/","slug":"bank-of-america-bank-loan-tips","thumbnail":"https://www.business.com/images/content/5b2/27dcd51ee475a328b4580/1500-0-","dek":"The head of small business lending highlights the advantages of getting a bank loan.","lastModified":"2018-06-14T15:00:00Z","published":"2018-06-14T15:00:00Z","sponsored":false}],"relatedReviews":[{"doc_type":"category","thumbnail":"https://staging.business.com/images/rz/5e46e2fc5a215eab4d8b457c/taxes_pano_Prostock-Studio_getty.jpg","canonical":"https://staging.business.com/categories/best-tax-debt-relief-services/","title":"The Best Tax Debt Relief Services of 2021","dek":"Looking for the best tax debt relief service? We have easy-to-read, unbiased expert reviews and feature comparisons of the best and cheapest services.","slug":"best-tax-debt-relief-services","lastModified":"2021-03-23T20:42:00Z"},{"doc_type":"category","thumbnail":"https://staging.business.com/images/rz/5dfbca819c658adc118b4568/Payroll_AndreyPopov_Getty.jpg","canonical":"https://staging.business.com/categories/online-payroll-services/","title":"The Best Online Payroll Services of 2021","dek":"Our team has compared the best online payroll services for 2021. See up-to-date reviews and costs for the top services.","slug":"online-payroll-services","lastModified":"2021-03-19T20:05:00Z"},{"doc_type":"category","thumbnail":"https://staging.business.com/images/rz/5df3d8695a215e58428b4570/POS_GETTY_DERO2084.jpg","canonical":"https://staging.business.com/categories/best-pos-systems/","title":"The Best POS Systems of 2021","dek":"Before you choose a POS system, check out our reviews of the best picks for 2021. ","slug":"best-pos-systems","lastModified":"2021-03-17T17:33:00Z"}],"relatedSponsoredArticles":null}},"pageContext":{"displayModified":"2016-06-30T20:00:00.000Z","template":"legacy","title":"There's a Fee for That: Pros and Cons of Surcharging Credit Cards","meta":{"robots":"index, follow"},"docType":"articles","slug":"pros-and-cons-of-surcharging-credit-cards","canonical":"https://staging.business.com/articles/pros-and-cons-of-surcharging-credit-cards/","skipTOC":false}},"staticQueryHashes":[]}