Contactless pay. Buy now pay later. Adding surcharges to credit card transactions. These are just a few of the many options and trends in the payment industry. With many businesses catering to four different generations of customers: Baby Boomers, Gen X, Millennials and Gen Z, you need a variety of options to fit different markets. Beginning with surcharge.
This is actually a trend that cuts across most generations, despite how they pay with a credit card, the merchant or business ends up paying fees.
If you have used a credit card recently, you may have noticed a small surcharge added to the balance.
From restaurants to retailers, more merchants are taking advantage of the option to pass their credit card fees onto their customers who choose to use plastic to pay.
This trend is growing in the payment solutions industry, allowing merchants and businesses to add a surcharge on credit card payments – up to four percent in some states. This practice is something that got the legal green light after a Supreme Court ruling in 2013. But it took time for the practice to become common place. Today all but two states- Connecticut and Massachusetts as well as Puerto, Rico allow merchants to add a surcharge. This allows merchants and businesses to pass on the card fees to their customers who choose to use a credit card to pay.
Those fees may be small on an individual basis, but collectively it can cut into profits for merchants, especially small business owners. There are some specific guidelines they must follow:
- Merchants must tell customers about the fees before they pay – Any merchant or business charging a surcharge must let customers know about the fee, prior to their purchase with a sign located at the point of purchase. It must clearly state what the fee will be if the customer pays with a credit card.
- The surcharge must be listed on the receipt – In addition to signage, the business or merchant must also list the surcharge on the receipt for the transaction with details about the percentage.
- There are limits on the surcharge – Surcharges must be capped at 4%. In some cases, the fee might be lower. In Colorado, they cap the surcharge at 2%. And recently Visa enacted a new policy capping surcharges on Visa purchases at 3%.
- Merchants cannot add a surcharge to debit card purchases – One of the exceptions is debit cards. They must be excluded from surcharges, because debit cards are linked to a bank account, so a merchant cannot add a surcharge to these transactions.
The surcharge can be big benefit to merchants helping them cover the fees that can add up quickly, as long as they follow the guidelines and rules.
For most customers, the surcharge is not an issue or barrier to making a purchase. According to a survey from PYMNTS, 85%of consumers agree to the surcharge without an issue.
Buy Now Pay Later (BNPL)
Another payment trend that has continued to grow in popularity since during the last three years is buy now – pay later. This trend really soared during the pandemic. Buy now pay later is exactly how it sounds. It allows people to buy something by making payments without a finance charge. Think of it as a type of installment plan. BNPL plans do not charge interest unless the consumer misses a payment.
There are many types of BNPL programs: Affirm, After Pay and Klarna are just a few of the BNPL apps available. Many online stores will offer this at checkout. Clothing, electronics, and furniture are the top three items people use BNPL to buy. This is a very popular option for merchants to use.
According to a report from Consumer Financial Protection Bureau, between 2019 and 2021, the number of BNPL loans from the top five lenders increase by 970 percent.
And according to Bank Rate, 60% of consumers have reported using Buy Now Pay Later to purchase an item.
Contactless Payment Solutions
This is another trend that took off during the pandemic and has just continued to grow in popularity. By definition, “contactless payment” is a no-touch form of payment with a credit card, debit card, a POS system with the right technology or a mobile app/wallet. Contactless payments will use either radio-frequency identification (RFID) or they will be near field identification which allows them to communicate with card readers (only at a distance of roughly two to four inches) which helps ensure payment is always intentional. The easiest way to offer contactless payments is to have the right card reader. Here are some facts about contactless payment options:
- Contactless debit and credit cards are also known as “tap to pay” cards. The cards have a small antenna inside that allows wireless communication with the card reader.
- Contactless cards typically also come with a magnetic strip in case a store does not have the card reader.
- This payment option is very prevalent in Europe and is becoming more popular in the United States.
Mobile Apps & Wallets
- Mobile apps and wallets are applications on mobile devices that turn your smart phone into a credit or debit card.
- You enable their device’s contactless pay capability, download the app and/or link their credit card accounts.
- You can then use the phone the same way you would use a “tap-to-pay” card – within two to four inches of a card reader.
- Two of the most popular mobile wallets in use today are Google Pay (Android) and Apple Pay (iOS phone)
- These services also offer added security by requiring users to provide authorization from the phone whether a fingerprint, face identification or code that is will be requested whenever a transaction is made.
Acquiring a combination of these payment solutions will help you cater to a wide range of customers.
Is it legal for businesses to charge a few for customers to use a credit card?
Yes, it is as long as the company follows the rules. Typically, the charge is capped at 4% and the merchant or business has to post signage informing customers about the charge.
What is Buy Now Pay Later and how does it work?
This is a payment option where the merchant offers a very short-term, no-interest loan to allow you to make payments for an item, typically in three to six months. There are several popular options available including After Pay and Affirm.
How do contactless cards work?
Also called “tap to pay” cards, contactless cards have a small antenna inside that allow them to communicate with the card reader. Most of these cards also have a magnetic strip as a back-up method.