Credit card processing fees and interchange rates have been steadily increasing since 2003. Especially for luxury credit cards like platinum and rewards cards. Recently, Visa, Mastercard, and Discover Card announced plans to raise interchange rates.
With 73% of Americans using less cash today than they did 10 years ago, credit card processing fees are more devastating to merchants than ever.
“Credit card processing fees might not seem significant at first, but they add up fast. And they can really limit a company’s potential to grow,” said Francine Hardaway, a Phoenix entrepreneur who has consulted over 1,600 small businesses and start-ups. “Figuring out a way to deal with them effectively is paramount to a company’s success.”
Credit card processing fees have been a hindrance on merchants across the United States for years. These fees tighten margins and cut into hard-earned profits. For some merchants, high credit card processing fees can make the difference between hiring new employees or laying them off. Between having the flexibility to lower prices versus being forced to raise them in order to cover costs.
How Some Companies Are Fighting Back
Some companies, like Kroger, one of the largest supermarket chains in America, have very tight margins. High CC processing fees threaten profits to such a degree that in March of 2019, Kroger announced that it would no longer be accepting any Visa credit cards in its Smith Food and Drug Stores. A drastic move.
They might return to accepting Visa credit cards if Visa agreed to lower their rates. If that were to happen, Visa would only lower rates for Kroger in a private agreement, while other merchants would still experience the pain of high processing fees.
What Can Small Businesses Do?
For small to mid-sized companies, cutting off Visa isn’t a viable option.
In an attempt to discourage credit card use, many merchants offer cash discounts instead. Other merchants take advantage of the 2013 court settlement that allows credit card surcharging in the United States.
Surcharging is the practice of transferring CC processing fees to the customer. With each purchase, a small fee would be added to the transaction. These fees vary based on the credit card, final total of the sale, and individual merchant agreements with CC vendors.
On the surface, cash discounting might seem like a good idea—It creates an incentive for customers to pay via cash—but there is a problem with cash discounts that can’t be ignored.
In October 2018, Visa put out a bulletin stating that most cash discount policies don’t comply with Visa’s regulations. They are actually just a form of undisclosed surcharges. Getting caught could carry hefty fines or worse, a company could lose the ability to accept Visa cards altogether.
The payment processing website Digital Transactions predicts that the other major credit card companies will side with Visa on this, making most cash discounts non-compliant across the board.
Moreover, cash discounts have proven to be ineffective. Most customers no longer carry cash. Credit and debit cards are just too convenient. Plus, with bigger and better credit card rewards programs, consumers are incentivized to pay by plastic.
Surcharge to recover credit card processing fees
What is a surcharge fee? Credit card surcharging is when a merchant passes the transaction fee onto a customer who pays for goods or services using a credit card. This is called a surcharge fee. Surcharging is currently the only solution that enables merchants to recover credit card processing fees and drastically increase their net margin while also allowing them to keep their prices comparative.
With surcharging, the fee only applies to those who pay with a credit card. Debit cards do not typically incur a fee since credit card companies and banks do not saddle merchants with a fee to process them; the exception being when a purchase is made but the card is not present, such as online purchases. However, a surcharge still cannot be applied to debit cards in this instance. People who pay with cash also do not pay a credit card surcharge fee.
One small family owned seafood restaurant in Louisiana called Uncle T’s Oyster Bar can attest to just how much surcharging helps. In a Facebook statement explaining the surcharge, Uncle T’s said that, “To go from paying the amount of credit card fees we were paying each month, to not having any credit card fees at all, is an unbelievable cost savings for our small business.”
But it’s not so easy
In order to apply a surcharge, a business must follow strict rules set forth by credit card companies and state law, so it can get pretty complicated if one is attempting to do-it-yourself. Calculating the exact right surcharge for each purchase, taking into account the wide variety of credit cards with their own fees and rules is a feat. Any misstep can incur fines, or worse, loss of the ability to accept credit cards altogether.
Which is why Robert Maynard, visionary and co-founder of LifeLock, developed the idea for SurchX, a turnkey surcharging solution for businesses and merchants, completely risk free, and guarantees full compliance with all rules, state laws, and compliance regulations at all times.
Maynard identified a sore spot for businesses and knew there was a way to fix the problem. If you’re a business owner who wants to know more about surcharging and how it can benefit your company, SurchX surcharging specialists are available to answer any questions you may have.