Passing On Credit Card Processing Costs

 

I recently spoke with a retail merchant who told me that she was not too concerned about the fees that we assess. While I was detailing all relevant rates, she asked me a very interesting question: “How much do you think that I should charge my customers to make up for my credit card processing costs?” She added, “I would like to charge a surcharge.”

I had an instant flashback to the time I placed a food order with a pizzeria. When I walked into the restaurant, the aroma whetted my appetite. Immersed in the beckoning scent, I barely heard the cashier when he told me that the bill was “$24.95.” Upon seeing my credit card, however, the cashier rang up “$26.50.” At the risk of appearing frugal, I did not question this action – only taking notice that it was blatantly unfair. Apparently, the restaurant owner decided to charge a surcharge when customers presented credit cards although I’m not certain how the cashier came up with a surcharge of $1.55. (What would have been the surcharge if my bill were $100 or more?)

Sharing this experience with the retail merchant, I explained that charging a surcharge is against Visa / MasterCard rules and violates the stipulations in merchant account contracts. Indeed, if a retail merchant decided to add a credit card payment surcharge, this business owner can lose the right to process credit cards and be placed on the infamous MATCH / Terminated Merchant File (TMF) where it would be exceedingly difficult to secure credit card processing capability with anyone.

The retail merchant protested and said, “But I know some fast food restaurants charge a surcharge for debit cards.” I answered, “If they are processing pin-based debit cards over the Visa / MasterCard network and charging a surcharge, they’re violating Visa / MasterCard terms.” I explained that if a business owner uses a credit card terminal to process both credit and debit cards over the Visa / MasterCard network, the retail merchant cannot indiscriminately surcharge those debit cards.

Of course, exceptions always exist and certain government and municipalities, and even the IRS, can charge a “convenience fee,” especially when credit cards are not a traditional form of payment. Moreover, merchants who accept Discover cards can institute a surcharge. After a federal antitrust suit was brought by a group of merchants who contended that they would have to raise prices if not allowed to surcharge, Discover yielded. They now permit merchants to surcharge. It may only be a matter of time before Visa and MasterCard consent or are forced to allow merchants the right to surcharge.

But I suggested an alternative to the retail merchant. Perhaps she can offer a cash discount for non-credit card payments. “This is perfectly acceptable,” I assured her.

This retail merchant wanted to know about the surcharge rules for online merchants. I extended a simple, “I don’t know,” and committed to researching this topic. Upon investigation, I learned the following:

Internet business owners can surcharge under the following conditions: a) A fixed surcharge is assessed, not a percentage of the sale; and b) Any surcharge must be assessed for all forms of payment – not just credit cards.

Of course, as a final thought, merchants may very well factor in the costs of credit card processing to determine the fees that they should charge their customers. Moreover, as always, it is imperative for merchants to reduce the costs of doing business. Finding an affordable merchant account provider will help in this endeavor.

Andy Lax is an account manager at IntelliCollect, a low cost credit card processing provider. Please visit the following site, http://www.intelli-collect.com to obtain an affordable, merchant-friendly merchant account.