How to Pass Credit Card Fees to Customers

As a business owner, you have options when it comes to managing credit card processing fees, including passing those costs onto customers through surcharging or cash discount programs. While these strategies can help offset expenses, it’s important to approach them carefully. With the rising cost of everyday goods, customers are already feeling the strain of higher prices, and an additional fee at checkout could lead to frustration or even lost sales. At TransAct, we help businesses navigate these decisions by offering transparent, compliant solutions that balance cost savings with customer satisfaction. Let’s find the right approach that works for your business without driving customers away.

Here are some Options:

Surcharge

When considering applying a surcharge to transactions, it’s essential to understand the guidelines. A surcharge is a percentage-based fee applied to the transaction total, but it can only be applied to credit card transactions, not debit or prepaid card transactions. Clear communication with customers is crucial, so ensure that you disclose the surcharge at the point of entry, at the point of sale, and on every receipt.

The surcharge amount typically cannot exceed 3% or the merchant’s discount rate for the applicable credit card, whichever is lower. However, this may vary depending on the card brand (e.g., Visa or Mastercard).

Please note that some states still prohibit businesses from surcharging customers, so it’s important to check with your merchant service provider to ensure compliance. Additionally, it’s crucial to avoid surcharging debit card transactions, as this is not permitted.

Convenience Fee

A convenience fee offers an alternative approach to managing payment processing costs. Unlike surcharges, convenience fees are:

• Typically, a flat fee
• Applied regardless of the transaction amount
• Often used for specific payment channels (e.g., online or phone payments)

Key Considerations:

1. Consistent Pricing: A flat convenience fee ensures all customers pay the same additional cost, regardless of their purchase amount.
2. Legal Compliance: Always verify state laws regarding convenience fees, as regulations can vary.
3. Payment Options: Clearly communicate all available payment methods to customers, such as:
   • Cash
   • Credit card (with convenience fee)
   • Check
   • E-check
   • Other electronic payment methods
4. Transparency: Prominently display your fee structure and payment options at the point of sale (POS). This allows customers to make informed decisions about their preferred payment method.
5. Card Brand Rules: Ensure your convenience fee structure complies with card brand regulations, which may differ from surcharge rules.

By implementing these best practices, you can maintain transparency, offer payment flexibility, and manage processing costs effectively while staying compliant with relevant laws and regulations.

Dual Pricing

Dual pricing is an innovative approach that allows merchants to offer different prices for credit card and cash transactions.

Understanding Dual Pricing

Dual pricing leverages technology to display two distinct prices for each item or service:

1. Credit card price (often referred to as the “List Price”)
2. Cash price (typically lower than the List Price)

Key Features

• Transparent Display: Both prices are clearly shown at the point of sale, on shelf labels, and other relevant signage.
• Customer Choice: Customers can easily see the price difference and choose their preferred payment method.
• Automated Processing: Modern payment terminals handle the calculations, simplifying the process for both merchants and customers.

Benefits of Dual Pricing

1. Cost Management: Helps offset rising merchant processing fees without increasing prices across the board.
2. Increased Profitability: Merchants can maintain consistent margins regardless of payment type.
3. Cash Incentive: Encourages cash transactions, which can be beneficial for some businesses.
4. Transparency: Improves customer relationships by providing clear pricing information upfront.

Implementation Considerations

• Compliance: Ensure your dual pricing strategy adheres to local and state laws, as well as card brand guidelines
• Proper Display: Always show the credit card (List) price or both prices. Never display only the cash price
• Consistent Application: Apply the cash discount uniformly to all customers to remain compliant
• Clear Communication: Use signage to inform customers about your dual pricing policy

Legal and Regulatory Awareness

• Dual pricing is legal in all 50 states when implemented correctly
• Stay informed about local and state regulations that may affect your ability to use dual pricing
• Consult with a payment processor like TransAct Merchant Services And/or a legal professional to ensure full compliance with all applicable laws and regulations.

By implementing dual pricing effectively, merchants can provide customers with payment flexibility while managing processing costs and maintaining profitability.