What the New Credit Card Surcharge Could Mean for Your Business

On January 27th, consumers were shocked at some of their favorite merchant checkout counters when an additional surcharge was added to their credit card purchase. Due to a settlement involving millions of retailers, merchants are able to add an additional surcharge for credit card purchases. For consumers, this means an additional charge up to 4% of their purchase price, but what does this mean for your business?

credit cards
image by Gerard Fritz

Rules for the Surcharge

Firstly, the surcharge is optional. As a business owner, you have the choice whether or not to include the surcharge. If you are in a competitive industry, this can be a weapon against your competition either by charging less of a surcharge or no surcharge at all. The rules of this surcharge are as follows :

  • The surcharge only includes credit card payments and debit card payments are exempt.
  • There are 10 states in which the surcharge is prohibited: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas.
  • If you accept American Express, you cannot charge a surcharge on any credit card purchases, as American Express cards are exempt and retailers must handle all credit card transactions the same.
    (Source: https://www.cafecredit.com/3-credit-scores)
  • The surcharge must be equal to or less than the interchange fee charged to you by your network and cannot be more than 4% of the purchase price.

Before initiating the surcharge, you must assure you are within the guidelines. The additional surcharge is an opportunity for merchants to pass on the cost of their interchange fee to the consumers rather than decreasing your profit margin to pay the fees. Customers must be made aware of the additional fee prior to paying for goods or services. You can post a sign at the door or wait until they are ready to pay at the register.

Credit Card in Wallet

Effects on Your Current Business

The biggest concern among retailers is customer backlash in response to the new surcharge. This is especially true in today’s economic climate. If you are concerned the new surcharge may cause a loss in business, it may be in your best interest to exclude your business from the charge. If you believe your customers will pay the additional charge without worry, the new surcharge may benefit your business well.

As you have already budgeted for the interchange fee on credit card purchases, this cost will return to your profit margin. The interchange fee will now be paid for by the consumer. Your business will not be charged an additional fee; you will just have the option of passing off your fee. Also, the surcharge varies depending on the customer’s card type, which means you can help your consumer save more money by suggesting which card to use, Visa or MasterCard.

As mentioned, this new surcharge can create an additional weapon against competitors. As you already compete with your prices, quality, and service, you may also compete with a lower surcharge. If you opt in for the surcharge, be sure you are properly notifying customers prior to paying and your business can see an increase in profits due to your decrease in fees.

About the Author: Tony Alvarez is a small business blogger. If your business is ready to accept credit card payments, be sure to compare various merchant service providers like Encore Payment Systems.

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