How Merchants Can Take Control of Card Processing Fees

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As merchants know, accepting credit and debit cards at their business, is not without costs. Protecting their margins in the midst of supply-chain delays, staffing issues, and inflation increases is tough enough without the addition of payment processing costs.

The good news is that merchants have options. It’s possible to accept credit cards without taking the hit for credit card fees. Below are some options that can really make a difference:

Dual Pricing Program

With a dual pricing program, a merchant can build credit and debit card fees into their product or service pricing. Then when customers pay with cash, merchants provide them a discount—usually 3-5%—that is shown on the receipt. Businesses are required to display signage notifying customers of this pricing model and many times the signage is provided to the merchant.

Dual pricing programs are legal in all 50 states. In addition to protecting margins, dual pricing programs can become a marketing tool. Giving customers a choice—pay the stated price (which is what they expect) or pay a lower price by using cash – is enticing to the end user. Gas stations commonly offer these discounts, for example.

Surcharge Fee Program

Surcharges are fees that merchants can add to credit card (but not debit card) transactions and are capped at 3% as of April 15, 2023. Like dual pricing, this option adds a surcharge to payments made by credit card. Also as of April 15, 2023, a merchant must register with the card brands before surcharging on credit card transactions. Merchants most also comply with specific customer notification and disclosure practices required by the Card Brands (which may include posting a notice of the surcharge at the main entrance of the store and at the checkout location for face-to-face transactions and on specific pages of the transaction process for electronic transactions). A merchant’s point-of-sale system must also itemize the surcharge on the receipt. Note: currently surcharges are prohibited by state law in Connecticut, Massachusetts, and Puerto Rico, where only government entities are allowed to surcharge, and capped at 2% in Colorado.

Convenience Fees

Convenience fees are similar to surcharges but apply only in cases where the consumer is choosing to pay online or by phone versus the standard method of payment for that transaction. For example, movie theaters can charge convenience fees for online ticket purchases because they operate brick-and-mortar box offices for customers to buy tickets in person. Since the online purchase option is ostensibly for the convenience of the customer, the business can charge a convenience fee to cover their costs.

The credit card networks (Visa, Mastercard, etc.) limit convenience fees to a select list of payment circumstances, but they are legal in all 50 states. Convenience fees are fixed amounts rather than percentages of a transaction. Again, proper disclosure is required.

Which is Right for Your Business?

Offsetting credit card fees with one of these three programs might yield just the extra margin a business needs to survive and grow. How does a business know which one is the best to use?

  1. Talk to a credit card processor about the programs they offer. Not all provide their customers with the full range of options. A merchant’s software must be set up to automate the process and abide by all federal and credit card network regulations, and point-of-sale terminals also have to be equipped.
  2. Merchants need to understand that convenience fees apply only in limited circumstances, so they may not work for every business.
  3. Merchants should consider if they would offer customers a discount (for paying with cash) or charge them an extra fee (a surcharge). While a surcharge program might be the right choice in some situations, dual pricing is typically more palatable to consumers.

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