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The Pros and Cons of Credit Card Surcharging

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Surcharging offers big benefits to the merchant while also posing a few potential challenges.  Let’s look at the pros and cons of  credit card surcharging to help you decide if zero cost credit processing is right for you.

Is it legal to surcharge?

Today, the payment method of choice for many consumers is credit cards. Unfortunately, merchants pay thousands of dollars every year to process those credit card transactions. These fees put a strain on bottom-line of small to medium sized businesses. In 2013 it became legal to surcharge in the United States.

Who is already surcharging?

The practice of charging customers a small fee for the convenience of using their credit cards is widespread in many countries. For instance, surcharging became legal in Australia in 2003. Today, 42% of all Australian merchants and 60% of large Australian retailers pass on a surcharge to customers who use credit cards.  The practice is wide-spread in Australia and consumers have adapted to this way of doing business.

Why surcharge?

Today, consumers prefer to use their rewards cards when making purchases. Unfortunately, the retailer loses a significant amount of their profit in credit card transaction fees when consumers use these credit cards.  Industries with specialty products and services are hit especially hard because many of their transactions carry high ticket amounts.  These businesses are prefect candidates for the zero cost credit processing solution.

For example, one retailer in the restoration industry regularly processes credit card transactions from $100 to $35,000. The processing costs associated with those high ticket amounts add up quickly. They wanted a different payment solution to reduce overhead costs. NXGEN saved this merchant saved more than $23,000 in 2016 by switching to zero cost credit processing option.

The pros of surcharging.
  • Reduce your expenses. Applying a small fee on all credit card transactions drives your credit card transaction rates down to zero. To a lot of merchants, this is a game changer. Keep in mind the example given above.  The restoration company saved $23,000 a year by adding a small fee to every credit card transaction.  These savings provide capital for a business to grow!
  • Educate your customers about the cost of credit card acceptance. By applying a small fee to every credit card transaction merchants have the opportunity to educate customers about the high cost of credit card acceptance.
The cons of surcharging.
  • Rules & Regulations. State and Federal governments, along with the card brands (Visa, MasterCard, Discover & American Express) have specific rules and guidelines to implement surcharging in any business. It is crucial to follow these rules to avoid repercussions for processing incorrectly.
  • Consumer response. Surcharging is available for all types of business. Certain industries see higher acceptance from their customers as surcharging becomes more widespread in the United States. Industries with specialty products and services such as towing, manufacturing, law firms, auto body shops, fabricators, and the medical industry see good acceptance from their customers. Businesses with small ticket items and high competition such as coffee shops or bookstores, are not good surcharge candidates.
Weigh the pros and cons.

Surcharging presents real savings to your business’s bottom-line. Even-so, that doesn’t mean that it is right for every business. Implement surcharging if it makes sense for your business. If a customer does not want to pay for their transaction fees, cash, check or debit card is still an option.

Contact us today.

As more industries implement surcharging, consumers will become more familiar with the practice and acceptance will continue to grow. For most merchants, the ability to save thousands of dollars every year is incentive enough to switch to a surcharging payment solution. If you are still on the fence about surcharging, visit NXGEN online today. 

Contact us and let’s review your business together to see if surcharging is a great fit for you.

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