Does your small business face challenges with credit card processing fees? Are credit card fees impacting your profits and growth? Surcharging credit card transactions is a potential solution that can help small business owners like yourself offset these costs and boost revenue. However, it is crucial for business owners to understand the regulations related to surcharging to prevent penalties and ensure compliance.
This article will examine the advantages and disadvantages of compliant surcharging, providing small business owners with important considerations before deciding whether or not to implement it in their business.
What is Credit Card Surcharging?
Credit card surcharging is the practice of adding a fee to a customer's credit card transaction as a way to offset the processing costs associated with accepting credit cards. Surcharging is not the same as a convenience fee, which is a fee charged for the convenience of using a particular payment method. Surcharging is only allowed in most states and is subject to various regulations and restrictions.
Is Credit Card Surcharging Legal?
As of 2021, surcharging is allowed in most states, but it is best to confirm your state’s specific regulations. Additionally, businesses that surcharge must comply with the regulations set forth by the credit card networks, including *Visa, Mastercard, and Discover.
Pros of Surcharging
Reduced costs: Surcharging allows you to offset the cost of credit card processing fees, which can add up quickly for small businesses.
Transparency: By clearly disclosing the surcharge, you're being transparent with your customers about the true cost of credit card processing.
Increased revenue: The additional revenue generated by surcharging can help you reinvest in your business, hire more employees, or improve your product or service offerings.
Cons of Surcharging
Customer pushback: When it comes to surcharging credit card transactions, some customers may not be familiar with the added fee, potentially leading to negative reviews or decreased customer loyalty. Clear and transparent communication around how surcharging works will help small business owners keep pushback to a minimum.
Compliance issues: Surcharging is regulated at both state and federal levels, and non-compliance can result in penalties and legal issues. However, as of April 15th, VISA is taking a much stronger stance in policing the use of surcharging and enforcing their regulations to prevent businesses from passing fees non-compliantly. With VISA being a major player in the credit card industry, small business owners must ensure that they comply with their regulations to avoid any negative consequences.
Competitive disadvantage: Compliant surcharging for credit card transactions can be a competitive disadvantage for small businesses. Often, businesses that lead in surcharging often see competitors follow suit. To mitigate negative impact, ensure compliance, disclose fees transparently, and offer alternative payment methods.
To ensure you're surcharging compliantly, here are some key things to keep in mind:
Check your state's regulations: Surcharging is legal in some states but prohibited in others, so it's important to check your state's regulations before implementing surcharging.
Disclose the surcharge clearly: The surcharge must be clearly disclosed to customers at the point of sale, and the amount of the surcharge must be reasonable and not exceed the cost of processing the transaction.
Use proper signage: In addition to disclosing the surcharge at the point of sale, you should also use proper signage to inform customers of the surcharge before they make a purchase.
Don't surcharge on all credit card transactions: You can only surcharge on credit card transactions, not debit card transactions.
*Recent actions by Visa have lowered the cap rate to 3% which will go into effect on April 15, 2023. Click here to learn more about this change and the potential fines associated with not adhering to these new regulations.
In conclusion, surcharging can be a viable option for small business owners to offset credit card processing fees and generate additional revenue. However, it's important to be aware of the rules and regulations around surcharging and to ensure you're compliant to avoid penalties and legal issues.
For additional guidance and support on how to implement and benefit from a compliant surcharging program, contact Reliable Payments at info@reliablepayments or Toll-Free at 1-800-591-5696.