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Passing on Credit Card Fees to Customers – Do’s and Don’ts

Passing on Credit Card Fees to Customers – Do’s and Don’ts

Running a business comes with all kinds of costs, and credit card processing fees are one of them. These fees can quickly add up, cutting into profits and making it harder to stay competitive. To help manage these costs, more and more merchants are exploring ways to pass credit card fees on to their customers. 

While this strategy can significantly reduce processing expenses, it comes with potential risks that should be considered. In this article, we’ll break down the legalities of passing credit card fees to customers, explore various methods merchants can use, and highlight common mistakes to avoid.

QUICK TAKEAWAYS

  • Common strategies for passing on processing fees to consumers include cash discounting (dual pricing), credit card surcharging, and non-cash adjustments.
  • In the US, regulations vary from state to state, and different methods of passing on these fees come with their specific rules.
  • Common mistakes like charging excessive fees, applying fees to debit transactions, or neglecting customer feedback can harm compliance and business reputation.
  • SecureGlobalPay offers tailored solutions to help merchants implement cost-saving programs like surcharging and cash discounting.

Whether you can legally pass credit card fees on to your customers depends on where your business is located. 

In the US, regulations vary from state to state, and different methods of passing on these fees come with their own rules. For example, credit card surcharging is legal in many states but prohibited in others (like California, Colorado, Connecticut, Kansas, Maine, and Massachusetts). Meanwhile, cash discounting or dual pricing is allowed nationwide. 

Each country has its own rules for passing fees to customers. Here’s a quick overview of how regulations differ across other regions:

  • European Union: Merchants are generally prohibited from charging extra fees for using credit cards, with some exceptions in certain countries and types of cards (merchants can charge extra fees for the use of commercial/business cards).
  • Canada: While surcharging was historically banned, recent regulations now allow merchants to add surcharges under certain conditions as of 2022, but these must be clearly disclosed.
  • Australia: Merchants are allowed to add surcharges, but they must be limited to the actual cost of accepting the payment method and clearly communicated to customers.

When passing on credit card fees, it’s essential to understand the local rules and compliance guidelines to avoid fines and customer dissatisfaction.

Strategies for passing credit card fees to customers

Many merchants are choosing to pass credit card processing fees onto their customers to offset rising costs. The idea behind this is simple: when a customer pays with a credit card, they cover the processing fees instead of the business. This can help merchants protect their profit margins, especially when dealing with high transaction volumes.

There are several no-fee processing programs and methods available. However, please keep in mind that each one has a slightly different approach to implementation. Although the goal is the same—recovering processing costs—the way these programs work can differ, offering unique benefits and potential drawbacks. 

 Types of zero-fee processing programs.

In the following sections, we’ll discuss the most popular options for passing credit card fees to customers so you can find the best fit for your business.

All of these programs are very similar, and many merchants find this somewhat confusing. If you need additional clarification, reach out to SecureGlobalPay for a free consultation.

Cash discounting (a.k.a. dual pricing)

Cash discounting, also known as dual pricing, is a program where merchants offer a lower price for customers who pay with cash, while customers using a credit card pay a higher, adjusted price to account for processing fees. 

Instead of explicitly adding a fee for credit card payments, merchants present two pricing options — one for cash payments and one for card payments.

Pros:

  • Legal nationwide: Cash discounting is legal in all 50 U.S. states.
  • Transparency: Offering a discount for cash payments can feel more transparent to customers because it focuses on rewarding them for paying with cash rather than penalizing them for using a card.
  • Encourages cash payments: By incentivizing cash payments, merchants can reduce overall credit card processing fees.

Cons:

  • Customer perception: Customers who like to pay with credit cards might feel frustrated seeing a higher price for their preferred payment method.
  • Complexity in pricing: Merchants must clearly display both cash and credit card prices and use proper signage, which may require extra effort in labeling and communication at the point of sale.

Cash discounting offers a straightforward way to reduce credit card processing costs while staying compliant with legal regulations across all states.

Credit card surcharging

Credit card surcharging is when merchants add a fee to a customer’s purchase specifically for paying with a credit card. This surcharge covers most of the cost of processing the credit card transaction. In other words, customers who choose to use a card bear the added cost directly. 

Unlike cash discounting, which rewards cash payments, surcharging explicitly adds a cost for credit card use.

Pros:

  • Direct cost recovery: Surcharging allows merchants to directly recover the cost of credit card processing.
  • Transparency: When done properly, customers can see exactly what they are paying in credit card fees, which can make it easier to understand the additional cost.
  • No impact on cash customers: Customers who pay with cash or debit cards aren’t affected by the surcharge, so it doesn’t alienate those who avoid credit card use.

Cons:

  • Legality issues: Surcharging is not legal in all U.S. states. Even in places where this is legal, businesses need to comply with stringent regulations before implementing a surcharge program.
  • Customer pushback: Some customers may be unhappy with paying extra fees for using their credit card, which could negatively affect customer satisfaction and loyalty.
  • Disclosure requirements: Merchants must clearly inform customers about the surcharge before they make a purchase. Failing to do so can lead to legal issues or disputes with customers.

Adding a surcharge can be an effective method for merchants in regions where it’s allowed, but it requires careful compliance with local laws and attention to customer communication.

Non-cash adjustments

A non-cash adjustment is a method where merchants simply apply a small increase to the total amount for non-cash payments. We are including it on this list as this is typically done for credit card transactions. 

The difference with non-cash adjustments is that the increased fee isn’t listed as a “surcharge,” but rather, a higher price is applied to any non-cash payment automatically.

Pros:

  • Simple pricing structure: Merchants don’t need to present two prices for each product or service. Instead, the adjustment happens at checkout, which can be easier for businesses to implement.
  • Encourages cash payments: By slightly increasing prices for non-cash payments, customers may be encouraged to pay with cash, which reduces the overall processing fees for the merchant.

Cons:

  • Legality issues: Some states have specific regulations that restrict or prohibit this method. Merchants need to check whether their state allows non-cash adjustments and under what conditions.
  • Customer confusion: If not clearly communicated, customers may feel confused or upset when they see an unexpected increase at checkout for using a card.
  • Perception issues: Customers might still view the non-cash adjustment as a hidden fee, which could lead to frustration or complaints if it’s not clearly explained upfront.

Non-cash adjustments offer a streamlined way to pass processing fees onto customers, but they require clear communication to avoid misunderstandings and customer dissatisfaction.

Common mistakes to avoid when passing on credit card fees to customers

To make sure you’re following best practices and staying compliant, it’s important to be aware of some common mistakes merchants make when implementing these cost-reduction programs.

 A list of best practices for passing on credit card fees to customers.

1. Lack of transparency

Failing to clearly communicate the additional fees to your customers is a major mistake. Merchants must display clear and visible signage about the fees at the point of sale, whether in-store or online. Additionally, the fee should be itemized on receipts so customers are fully aware of the additional cost.

2. Technical issues

Your point-of-sale (POS) system needs to be capable of applying fees correctly. Some merchants face issues with outdated or incompatible systems that fail to apply surcharges, cash discounts, or non-cash adjustments as intended. Talk with your payment processor to ensure the technology is up-to-date and able to handle these adjustments seamlessly.

3. Charging excessive fees

There are limits to how much you can charge customers in credit card fees. Card networks like Visa and Mastercard cap surcharges at a certain percentage (usually around 4%). Charging more than the allowed limit not only risks legal penalties but can also alienate customers. Always ensure that fees are within the legal and network-allowed limits.

4. Applying fees to debit transactions

In most cases, applying surcharges or non-cash adjustments to debit card transactions is illegal. Debit cards typically have lower processing fees, and the card networks prohibit merchants from adding extra fees. 

5. Ignoring customer reactions

Implementing credit card fees without considering customer feedback can be harmful to your business. Some customers may be unhappy with the added fees and take their business elsewhere. Monitor customer reactions closely, and be flexible enough to make adjustments if you notice a significant backlash.

6. Not highlighting alternatives

Failing to promote alternative payment methods, like cash, checks, or debit cards is just a wasted opportunity. If you offer a way to avoid credit card fees, make sure customers know about it. For example, using signs or digital prompts that encourage cash payments or lower-cost options can soften the impact of the fees.

Eliminate your credit card processing costs with SecureGlobalPay

For merchants looking to reduce or even eliminate credit card processing fees, SecureGlobalPay offers a range of tailored solutions. 

Whether you’re interested in implementing credit card surcharging, cash discounting, or other cost-saving programs, SecureGlobalPay provides the tools, technology, and experience you need to implement these programs seamlessly.

Our seasoned experts will help you choose the right program for your business and support you throughout the whole implementation process.

Get in touch with our team today and let us help you stop paying exorbitant credit card processing fees.  


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