It’s “the cost of doing business”. Credit card processing fees are a fact of life for millions of businesses, especially for e-commerce and online businesses. Those fees can quickly add up, but the tide may be turning for merchants and those who focus on B-to-B clientele. As the practice of charging a surcharge is now legal in all but two states (Connecticut and Massachusetts), several courts have struck down laws that banned the practice of charging customers a fee – or surcharge – to use a credit card for a purchase. The landmark case came in 2018 over a New York state law banning surcharges. The U.S. Supreme Court effectively struck down that law, enabling companies to legally add a surcharge to credit card purchases.
This is good news as credit card use continues to grow, especially during the pandemics. They are a way of life for most consumers.
- There are 1.06 billion credit cards in use in the United States
- 70% of people have at least one credit card
- Americans are 40% likely to use a credit card on a purchase
Source: Federal Reserve Bank
Here’s how it works.
When a business wants to accept credit cards from its customers, they must pay fees to the credit card processor. These fees are typically between 2% and 3.5%, depending on the type of card, the data provided by the consumer and if the card is “present” during the purchase. There can be additional fees as well such as transaction fees, authorization fees and statement fees. The amount may sound low at first, but it can add up quickly. For example, for every $10,000 in credit card charges, a merchant or company could easily pay between $200 – $400 in fees.
Some companies already charge a “service” or convenience fee to recoup some of their costs and that practice has been going on for several years. However, that type of fee must be a flat fee and must be the same amount for every purchase, regardless of how much money the consumer or client spends. This is something you may see when purchasing tickets online.
Demand is on the Rise
For many years, it was illegal to pass those credit card fees onto customers. However now that it is legal in nearly every state coupled with the fact that millions of small businesses have suffered financially due to the pandemic, it is becoming more acceptable to pass the surcharge onto customers and clients and more businesses are exploring the options to do such.
“We are definitely seeing an increase in our customers who want to start charging a surcharge and we believe that will continue to grow in 2022,” explains Patrick Hodo, CTO of Red Maple.
Hodo says they are getting requests nearly every day from businesses and organizations that want more information about surcharges, how they work, and how they can integrate them into their current processing systems.
“We have had more requests for credit card surcharges in the past six months than during the 18 years we have been in the credit card space,” added Hodo. Hodo adds that about 30% of its new customers rolling out their payment systems this year will be adding the surcharge to their clients’ credit card purchases.
Hodo says when they are working with a client to set up a surcharge option, they recommend choosing a flat rate that is equal to or less than what they pay in processing fees. Legally, companies cannot charge more than what they pay for credit card processing fees. They also cannot add a surcharge fee to purchases made with debit cards or prepaid cards. Red Maple works with Microsoft D365 and they offer flexibility and options for businesses:
- Red Maple can set up merchants to adjust their surcharge fees for each state.
- While they do recommend a flat percentage rate, they can set up companies to use a sliding scale for surcharges.
- Red Maple can set up the process so it does NOT add a surcharge to purchases made with a debit card or a prepaid card.
As with any software change, there are pros and cons for merchants.
- Businesses and organization will recoup some of their fees and charges.
- It helps with cash flow.
- It can potentially be contentious with some customers who now have to pay more to use a credit card.
- It could potentially keep some customers from using a credit card for a purchase.
Hodo says because of that, they recommend that their clients who are adding a surcharge to credit card purchases should also offer alternative ways for clients and customers to pay.
- E-check is an easy alternative to credit card purchases
- Red Maple can also help with an e-check or an option for ACH from a bank account.
Hodo adds that when it comes to companies who offer business-to-business products or services, most do not mind paying the small surcharge as long as it is under 2 %. The main reason is many small businesses use a credit card as their main line of credit so they consider it low interest financing for their business.
Easy to Get Started at Red Maple
It is typically a simple process for businesses to add in the surcharge option. Red Maple says their clients have been able to get up and running with a few simple steps:
- Red Maple provides the latest update from Microsoft D365
- The company notifies its credit card processor in writing that they are adding a surcharge
- Companies can also enable the surcharge in D365 F&O/AX2012 as well as the portal and Red Maple provides detailed instructions to make this happen.
- A company can use any supported credit card processor.
- There is no additional license fee to set up a surcharge.
Hodo says a company can be up and running with the new surcharge option within five business days. For more information, contact email@example.com