The tension between merchants and credit card providers continues to grow.
As processing fees continue to rise, especially on popular reward cards, merchants who accept them are feeling the pinch. And some are taking pretty radical action.
On March 3, 2019, Kroger, the nation’s largest supermarket chain, made headlines by announcing that its Smith’s Food and Drug Stores would no longer be accepting Visa credit cards due to excessive card processing fees.
They aren’t the only merchant whose margins suffer from high credit card processing fees either, as there are now millions of retailers, supermarkets and fuel centers in the United States that don’t accept at least one of the four major credit card providers due to their high processing fees.
Rumor has it that Starbucks, Whole Foods, and Petco are even testing cryptocurrency as another alternative. How much more dramatic does the problem have to get?
The ride-sharing company Lyft is also looking to lower its payment processing fees.
According to Digital Transactions, Lyft’s payment processing fees rose by $109.6 million last year. For a company that has accumulated $2.28 billion in losses over the past three years and must now satisfy the public markets, those processing fees pose a major cost they can’t afford to ignore.
Supermarkets like Kroger and ride-sharing services like Lyft have high costs and tight margins. A 2016 Forbes study showed that grocery stores are the 7th least profitable industry in the United States, while Lyft and Uber are not yet profitable.
For merchants like these, every dollar counts, and credit card processing fees can have a 2% to 3.5% negative impact on their overall earnings.
To counteract these credit card processing fees, merchants are often forced to take drastic measures.
Some merchants raise prices, which obviously hurts customers and drives away traffic. Others, like Kroger, decide to stop accepting certain cards. But while that may seem like a reasonable solution, it actually just delays the inevitable and hurts everyone involved.
Kroger is no longer able to accept one of the biggest credit card providers in the world, Visa is no longer able to be used at one of the biggest supermarket chains in the country, and the customers are deprived of the ability to choose how they pay. Everyone loses.
Instead, a company like Kroger could deploy a surcharging solution to seamlessly pass the processing fee to their customers, which would allow them to keep accepting Visa credit cards while increasing their margins. Customers would still have the option to use Visa credit cards, but they could also choose to use debit cards or cash to avoid the surcharge fee.
This levels the playing field. The two leading players in the surcharging space are CardX, which does POS surcharging, and SurchX, which does e-commerce.
In the ride-sharing industry, which has yet to have a profitable year, things look even more dire. For each ride in which a credit card is used as payment, Lyft and Uber lose up to 4% of their earnings. Lyft and Uber could keep hundreds of millions of dollars, instead of handing a portion of their profits to the credit card companies.
Companies have more to gain than fear.
While merchants like Kroger and Lyft may fear that opting to apply a credit card processing fee might drive customers away, they have more to gain than to fear. Multiple studies, as well as data from Australia where credit card surcharging has been legal for decades, show that customers paying their own credit card transaction fees had no material effect on sales.
Merchants who employ a credit card surcharge fee can also lower their total prices to stay competitive. Customers still have the choice to avoid a credit card fee by paying via cash or debit cards.
Surcharging is not only the best solution for Kroger and Lyft, but is a viable defense for other merchants looking to reduce their credit card processing fees or improve their net margins. As of 2019, surcharging is legal in all but six states, and with SurchX, there are no upfront costs for the merchant.