Should You Pass Your Checkout Fee on to Consumers?

Posted by on February 14, 2013 in Credit Card Processing [ 0 Comments ]

Last July, Visa, MasterCard, and other defendants settled a case brought by retailers claiming their payment platforms used anti-competitive methods when setting credit card swipe fees.

While retailers wanted banks to lower credit card swipe fees (which range from 1.5% to 3%), the settlement instead makes it OK for retailers to recoup credit card processing fees by passing along a surcharge to consumers. The rule went into effect January 27, 2013, and does not apply to debit card purchases. Retailers that want to implement the surcharge for credit card purchases have to notify consumers of the fee and make the surcharge a separate line item on the receipt.

Which Retailers Are Doing This?

In short? No one. Here’s why…

      Big retailers like Target have expressed their displeasure with the settlement and have said they’ll continue absorbing the costs of credit card processing. Another reason retailers aren’t adding the fees is that state laws prohibiting checkout fees exist in California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas. These states account for 40% of all US credit card transactions.

Another problem with the rule is it allows merchants to add the surcharge on premium credit cards that have the highest swipe fees, but doesn’t give retailers a way to identify those cards. Furthermore, getting permission to institute the surcharge requires merchants to take several time-consuming and expensive steps. Plus, merchants could have to pay swipe fees on the surcharge itself, ultimately increasing the fees card issuers collect.

The settlement also contains the strange provision that merchants who implement the surcharge on MasterCard and Visa must also add the surcharge on American Express transactions. However, merchants who accept American Express are prohibited by their agreement with American Express from surcharging transactions made with their cards. Therefore, retailers that accept American Express could not implement the surcharge even if they wanted to.

Mallory Duncan, National Retail Federation Senior Vice President and General Counsel stated, “We have discussed the settlement with many of our members and other merchants, and not a single one has said they will surcharge.”

Are There Benefits to Trying to Recoup Some Credit Card Processing Fees?

Credit card swipe fees can be a lot to absorb for small, independent retailers, and being able to recoup those costs could help these businesses. However, the complex procedure involved in getting permission to add this surcharge (assuming the retailer is in a state that allows them), along with the ill will they could receive from customers outweigh the advantages for most retailers. The independent businesses that could benefit from recouping swipe fees generally rely on the good will of local customers and don’t want to jeopardize that.

For Most Businesses, the Drawbacks Far Outweigh the Advantages

What started out as a plea to card issuers to lower swipe fees ended as a settlement that did nothing to lighten the burden of these fees on retailers. Most retailers feel as if they’re faced with a dilemma that has no good answer. They can continue to absorb swipe fees, raising prices when necessary to cover them, or they can add the surcharge, potentially alienating customers who pay with credit cards. The end result so far is that the advantages of accepting credit cards are great enough to put up with the settlement terms.

Credit card swipe fees have tripled in the past ten years, but retailers are limited in how they cover these costs. While some merchants offer a cash discount, which is legal, this often has the effect of alienating valuable customers.

The only realistic approach for retailers is to consider their credit card processing companies and choose one with the lowest fees. The only alternative is to not accept credit cards, and that could be the death knell for a small business.

Photo Credit: o0o0xmods0o0o

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