According to the merchant agreement you agreed to when you started accepting credit cards, you were forbidden from adding a surcharge fee when customers wanted to pay using a Visa or MasterCard credit card. Thanks to a class action lawsuit settled last year with Visa and MasterCard, as of yesterday, January 27th, 2013, you no longer have that restriction.
Now you have the ability to charge credit card-paying customers up to 4% more for the convenience of using their card! In a strictly accounting perspective, this maneuver will strengthen your bottom line, which should make you very pleased.
But should you implement this new fee?
Before we can adequately answer that question, we need to look at the national picture as well as some of the details included in the settlement:
- According to Craig Sherman, spokesman for the National Retail Federation, “We have discussed the settlement with many, many merchants, and not a single merchant we have spoken to plans to surcharge.”
- Wal-Mart, Target, Sears, and Home Depot have told NBC News that they have no plans to add a credit card surcharge.
- Credit card surcharges are banned by law in California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas.
- Visa and MasterCard, in their merchant agreements, require retailers to handle credit cards the same way in all of their stores across the country. This means that chain stores in any of the states which ban surcharges cannot charge a surcharge in any of its stores.
- In the terms of the settlement, a merchant who adds a surcharge for Visa and MasterCard purchases must do the same with American Express cards. However, American Express forbids a surcharge fee, so retailers who want to add a surcharge fee cannot accept American Express.
- Even though retailers are now able to impose a surcharge, the settlement is only preliminary. The court will release its final ruling later this year. When it comes out, additional changes will most certainly be applied.
Although the additional revenue per credit card payment would be beneficial to the overall functioning of your business, it is not recommended that you include the surcharge.
However, if you decide to add the new surcharge, you may expect many problems to arise, least of all being that you will not be able to accept American Express. Some of the expected problems include:
- Discontented customers. Customers don’t like to be charged for things which were recently free. For decades, retailers included the cost of processing payments into the price of the products. It has become something which customers expect to be included with the cost and not charged separately. Adding a surcharge for using a credit card will create feelings of anger and resentment, because you will be “nickel and diming” your customers.
- Business differentiability, but not in the good way. Customers don’t like to feel like they are being taken advantage of. They want to believe that your business is fair and equitable. If a surcharge is applied to credit card purchases, customers will feel that your business is throwing aside fair and equitable for a few extra pennies. Although this may not be true, the customer will not see it that way, and they will not remain loyal to your business.
- A new non-welcoming message. A notice of the surcharges will need to be posted prominently at the store entrance. This will serve to detract customers from shopping with you. It is the same as posting a sign telling customers to go somewhere else.
The settlement was designed to benefit the credit card companies while offering an appearance of equality and competition. In my estimation, it fails miserably, and hopefully the courts will agree.
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