Using a credit card to buy goods and services provides numerous advantages to buyers and sellers alike. Customers can use these purchases to enhance their credit scores, earn rewards, and avoid the inconvenience of carrying cash. Meanwhile, merchants realize greater security and more streamlined inventory management and accounting. Even so, allowing customers to pay with credit cards means that merchants are forced to pony up per-transaction payment processing rates that can add up over time. Three strategies have gained popularity in recent years that help to offset these costs.
Credit card surcharges.
One way to keep transaction fees down is to pass them onto the customer through credit card surcharges. Representing no more than what the seller is charged per transaction by their payment processor, these costs are added to the bill at the time of checkout.
Stores are required to register the surcharge with the payment network at least 30 days in advance. Notice of the surcharge must be displayed in-store at the entrance and the point of sale, and on the checkout page of an ecommerce site. The receipt must reflect the surcharge in a separate line item. Just be sure that surcharging is allowed in your particular state.
Credit card convenience fees.
Credit card convenience fees are sometimes charged if a customer chooses to use a credit card instead of making their payment in the standard form. For instance, a business might impose this fee on customers who elect to pay using their credit card over the phone instead of via the usual by-mail method. These fees differ from the surcharges we discussed above in that surcharges can be added at any time or in any situation for the privilege of using a credit card. By contrast, convenience fees can only be levied when a consumer uses a nonstandard payment method.
Minimum purchase requirements.
Credit card transactions are often not cost-effective when shoppers make tiny purchases. Therefore, many businesses implement a minimum purchase threshold. This policy prohibits buyers from paying with a card unless their purchase costs at least $10.
The pros and cons of credit card surcharges.
As a merchant, you have probably come to grudgingly accept the per-transaction fees your credit card processing company imposes each time one of your customers swipes or taps their smartphone or card. Now that you know some alternative options could cushion these blows for your business, you may be asking yourself if it makes sense for you to impose surcharges, convenience fees, or minimum purchase requirements.
Assuming that doing so is legal in your jurisdiction, the answer comes down to doing the right thing for your particular business and customers. Ask yourself how shoppers would respond to a fee. Would they accept it, or do you have hungry competitors offering lower prices that would steal your best buyers? Are there other steps you can take to lower costs that don’t require charging your customers more such as changing from tiered or flat-rate pricing to interchange-plus with your merchant account provider?
In today’s difficult economic conditions, every penny counts for all parties in the commercial landscape. Take the time to make the most cost-effective decision for both you and your customers, and together you may be able to share the burden of those inevitable costs.
