Since surcharging was allowed on Sunday, there are a lot of questions we have been receiving about how this will work and how it will be regulated. Now, these questions that have been raised towards us have provided us with not only answers, but new questions as well. That’s why I’m not going to pretend to understand how the surcharging will work, and instead will review a post made by our Merchant Services partner, Clearent, covering some of the key questions raised about surcharging. Here we go!
Should Merchants Impose a Surcharge?
This is a two-sided coin. On the one side, merchants hate the credit card processing fee, and charging a surcharge to cover some of this cost will definitely help increase your revenue. On the other side, your customers might not be too keen on having to pay an additional fee to your site and might decide to look elsewhere.
To put this in perspective, I’ll use the example that the Clearent post provided:
Say a merchant is considering adding a 2% surcharge to all payments made through his/her credit card transaction processing service. Yes, the merchant will see additional revenue, and if credit card payments make up 60% of his/her total sales, the merchant would see a 1.2% increase.
However, if just 2% of a merchant’s customers choose to shop elsewhere because of the surcharge, he/she is already worse off simply by deciding to impose a surcharge.
Can All Merchants Add a Surcharge?
No, not all merchants can impose a surcharge. There are currently 10 states that have imposed a law that strictly prohibits surcharging any order regardless of what Visa and MasterCard’s rules say. Those states are California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas.
If you live in one of those states, it is still illegal to surcharge.
Which Card Brands can be Surcharged?
All of them. The credit card companies, namely Visa, Mastercard, American Express, and Discover, have done a lot of work to make sure that their particular credit cards are treated fairly. That’s why the rules of surcharging require a merchant to treat all card brands equally.
However, since there are so many rules and regulations to surcharging, it may be difficult for a merchant to provide what they call a “level playing field”, especially when it would be possible to surcharge a particular card brand but not the others.
Exactly How Much Should the Surcharge Be?
That amount is ultimately up to you and your business model, though there are a couple of restrictions. They are as follows:
- The surcharge cannot be more than the merchant’s cost of acceptance
- The surcharge may not exceed 4% under any circumstance
As you can see, surcharging is a bigger beast to handle than one would originally think. That’s why Clearent, and subsequently Cart32, will continue to follow the rules of surcharging. Clearent has already launched a page on their site that is constantly updated with new information that they have received.
So, is surcharging right for you? If you’re not sure, I suggest taking it slow. Wait until you can see what some of your top competitors have done and use that as a base for your decision.