Would Credit Card Surcharges Benefit Your Business?

Processing charges for credit cards cut into the profit margins of any small company. In addition, the growing popularity of rewards cards could make this expense for businesses even more. Credit Card Surcharges.

A surcharge added to the price of sales for credit card transactions could appear like the best option.

There are certain guidelines that a company has to adhere to when it comes to surcharges. Acceptance of customers as well as card network resistance to other practices of competitors should be taken into consideration prior to proceeding in implementing a surcharge strategy for your company.

Surcharges Benefit Your Business

What is a charge for credit cards?

Surcharges are fees that are paid by a client who uses a credit card in order to purchase an item or service. 

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A company adds this cost to the price advertised in order to pay for the costs of processing fees for credit cards. Surcharges are permitted in the majority of states, however, there are rules to be adhered to by businesses.

Cash discounts and convenience charges can be misunderstood as surcharges. Although they’re similar in some ways, there are obvious differences between them.

Convenience fee

A convenience fee can be described as an extra cost that allows the customer to choose a different method of payment. The payment method differs from the one that the business usually accepts. 

For instance, a business that typically accepts payments in the form of cash may charge a convenience charge for accepting a client to pay by phone. The convenience fee is legal throughout almost all U.S. states.

Cash discount program

Cash discounts are the reduction in price that is offered by a company to customers who pay in physical cash instead of credit cards and digital wallets. 

The discount is taken from the advertised cost when the client is able to pay. Discounts on cash are legally permitted all over the U.S.

Are merchant surcharges legal in my state?

Certain states ban or restrict the usage of surcharges. According to Visa, the states that are excluded include:

  • Colorado.
  • Connecticut.
  • Maine.
  • Massachusetts.
  • Oklahoma.

However, there’s ongoing litigation in certain states, which affects the surcharge rules. For instance, Colorado passed a new law allowing surcharges that will be in effect from July 1. Before you begin implementing an incentive program for your company, make sure to study the laws in your state.

What are the rules that govern surcharges?

The ability of a business to add a surcharge on credit card transactions and those rules that apply to this practice is largely the result of a settlement in a court between a variety of merchants, as well as Visa as well as Mastercard:

  • A surcharge isn’t applicable to purchases made using debit or prepaid cards.
  • The surcharge charge is not more than that of the processing cost and is set at 4 percent of the cost of purchase.
  • The notice of the surcharge has to be displayed at the entry point of the establishment and during the time of purchase. The notice of the surcharge must appear on the homepage of the business for transactions made online.
  • The dollar amount of the surcharge must be displayed on your receipt.
  • The cost of the surcharge may vary depending on the type of card that is used for Visa or Mastercard transactions.

The card networks might require additional conditions. For instance, Visa and Mastercard require at least 30 days of written notice to them as well as the payment processor prior to initiating surcharges.

Level of the brand or product surcharges

A company can implement this surcharge in one of two methods:

  • Brand-level surcharge. The same surcharge percentage can be used for all cards belonging to the brand. For instance that the surcharge on all Visa cards will be the exact percentage. 
  • The percentage cannot be greater than the processing fee that the merchant pays and is only 4percent.
  • Product level surcharge. The surcharge percentage varies depending on the kind of card. For instance, a higher surcharge percentage is imposed on rewards cards since they generally come with higher processing charges. 
  • The surcharge amount isn’t more than the processing fee that the merchant pays for the card type and is set at 4percent.

What factors should a business owner consider prior to introducing the cost of a surcharge?

On the surface, the idea of introducing a surcharge on purchases made with credit cards may seem like an easy method to reduce costs. 

There is a good chance that the extra profits generated by surcharges will help offset the cost of processing credit cards in the context of transactions. 

But, before making the decision to use surcharge fees for your business there are additional considerations to consider.

Card network opposition

The 2013 settlement permits businesses to legally assess surcharges for use of credit cards in a majority of states, card networks strongly disallow the practice. 

Visa considers surcharging to be an unfair practice that punishes cardholders. American Express goes as far as requiring cardholders to be notified of businesses that charge surcharges to their cards.

Acceptance of the customer

While card companies often have concerns regarding loyalty and satisfaction with customers the acceptance of customers will likely vary based on the business’s relationship with its customers. 

If offered the option many cardholders would prefer not to add any costs associated with a purchase. 

But that doesn’t mean they should not be willing to pay for a surcharge in particular if they’re not informed prior to the purchase in accordance with the law, and provided with the commercial reason behind the cost.

Competitors’ practices

Another thing to think about is whether your rivals have surcharge programs. It is helpful to know if you’re not the only one making changes to your customers for the use of credit cards. 

Acceptance of customers increases when something becomes common usage. Surcharges can also be more common in certain sectors like construction and medical services.

Alternatives to charge-backs

While introducing surcharge fees to purchases made with credit cards can help lower the expense of processing transaction fees, you have options that may be more acceptable for your customers:

  • Incorporate processing costs into the pricing. Businesses can boost the price of their products and services to account for the costs of transactions with cards.
  • Minimum purchase required. A company can establish a number of minimum transactions for customers using credit cards. The minimum amount cannot exceed $10, and it must remain the same across different card networks. For instance, you cannot limit your credit card to $5 for Visa and a limit of $10 for Mastercard.
  • Cash discount program. A company could offer a discount for customers who pay cash, thereby reducing the number of transactions made with credit cards.
  • Reduce processing costs. Looking around for the best rates or asking for volume discounts and negotiations with your payment processor could lead to lower processing costs.

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 Credit Card Surcharges Also Faq

Can businesses be able to charge credit cards a charge?

Credit card surcharges are charges that are imposed by merchants when customers make use of credit cards to pay for their purchases at checkout. Surcharges are legally permitted unless they are prohibited by the law of the state. Businesses that decide to include surcharges are required by law to adhere to procedures to ensure complete transparency.

Why do businesses charge fees for credit cards?

How do you know if credit card fees are charged? Credit card surcharges are the fees that are added to charge made by a credit card. Some merchants add the fee to a client’s account to cover the processing charges for credit cards, which the company has to cover. Most of the time these charges are small.

Does a business have the right to transfer credit card charges to customers?

A court settlement took effect beginning in the month of January, retail stores in several states are able to charge a surcharge on debit (but it is not applicable to debit) card transactions processed by Visa as well as Mastercard. At present, merchants can pass on fees as an additional charge equal to the amount they have to pay to take the card and up to 4 percent

Do businesses have to charge a fee to pay with the debit card?

(a) In the sale of goods or services the seller is not allowed to charge a surcharge to those who purchase using an ATM or a secured value cards as an alternative to cash checks or credit card, or any other similar method of payment.