Operations – Charging a Premium to Credit Card Customers

by Daniel Thor, Bellissimo Foods

For many operators, credit card merchant fees can put a larger than expected dent in your net return. A recent class action lawsuit against Visa and MasterCard resulted in a settlement that allows merchants to start charging their customers a fee for using credit cards, which would nullify the merchant per transaction fee. Is charging the customers that use credit cards the merchant surcharge, or checkout fee the right thing for your business?

In January 2013 a class action lawsuit was passed that would allow merchants to start charging their customers a fee for using credit cards, and in theory would reduce the impact that credit card processing fees had on your bottom line. Ten states have already put in place laws to prohibit the surcharging of credit card user, so if you live in CA, CO, CT, FL, KS, ME, MA, NY, OK, TX, charging a premium for card users is not an option for you.

There are many pros and cons of adding a checkout fee to credit transactions, and they should be carefully reviewed before deciding what is best for your business. The benefits are straightforward. It would help your bottom line, and would leave you in a more competitive environment, with greater cash flow. The negatives are more obscure, and harder to predict. First, most (around 80%) of your business’ transactions will be with credit, and depending on your location and customer demographic, customers might order less or stop frequenting your operation all together. Multiple reports have shown that consumers purchase more with credit cards, so it’s entirely possible that your credit customers could start spending less. This would be a larger impact if you service mostly lower-income consumers, or there are a number of restaurant alternatives nearby. A good tool in deciding to implement a surcharge fee would be to consider the charge if you had to pay it. How would you feel about it?

Merchants in any state who wonder if they can add surcharges to credit and debit card purchases should first review the contracts they’ve signed with the card issuers. That’s about as much fun as reading the phone book, but you really need to know what these documents say. Many merchant agreements have a 30 day written notice requirement, and many forms to fill out before you can begin adding a surcharge. Take your time and do the research before changing anything.

For those in a state that does not allow surcharging or you are looking for less obtrusive way to account for merchant service fees, there are some options. In California for example, it is common to add a discount for those customers that use cash. The other option to raise your prices for both cash and credit paying customers.

Paying attention to what your customers want is one of the most important things you can do to build your business. Don’t be afraid to ask some of them how they would feel if you added a premium to accepting credit cards. You don’t want to find out later that they’ve voted with their feet.

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