As a consumer, you have probably noticed the increase in the number of businesses that are charging a surcharge for using a credit card as the chosen payment option. You’ve probably also noticed that a lot of these businesses don’t mention anything about the surcharges until you go to pay for your chosen items. In some cases, such as petrol stations, where you have already filled up your tank, you no longer have the option to not purchase if you don’t want to pay the surcharge.
When a credit card transaction takes place, the banking institution that processes the transaction takes a fee to cover the costs involved in them providing that service. That’s fair; after all they are a business. This fee is usually in the form a flag fall – a set amount per transaction – and a percentage of the total sale, which usually falls in the range from 1.2% to 3.5%.
Some businesses are choosing to pass this fee directly on to their customer. The benefit of this is the business no longer has to lose that small percent of every sale that is paid for by a credit card. It’s now the consumer that pays for it when choosing to use their credit card.
Is it actually beneficial
For me, when I visit a business that charges a surcharge, especially those who don’t tell you in some form before you make your product selection, I’m left with a sour feeling and generally prefer not to return to that business if I have a viable alternative option. I assumed I may not be alone in this sentiment so I took a brief survey to see if the results identified any trend. The sample size for the survey was quite small, only 500 people; however, there was a quite diverse demographic representation.
A couple of interesting statistics showed themselves. Firstly, 84% of the people surveyed suggested that they weren’t happy about being charged a surcharge. I actually expected this to be closer to 95%. The remaining 16% either didn’t notice that a surcharge was charged; didn’t know what they meant by a surcharge; or, just weren’t concerned about it.
A more concerning statistic that we noticed was that roughly 65% of those surveyed were less likely to return to or recommend that business. Returning customers and developing strong brand advocates are two of the most important things that help navigate towards success. If a business is recovering their bank transaction costs at the expense of losing repeat business, is it worth charging that fee? No.
What we have found to be the better alternative is to work those credit card fees charged by the banks into your general operating expenses. It may mean you have to factor these fees into your overall product pricing module and, as such, those paying cash are helping to pay those credit card fees. However, the benefit here is that you are being completely upfront with your pricing and the consumer pays the amount that the product is marked at. No extra hidden costs.
In turn this results in customers leaving the business’ premises with a positive experience rather than on a negative. It results in an increased chance of repeat business, which is extremely important, and increases the frequency at which your customers recommend your business to others. Long term it’s actually more profitable to absorb those credit card fees than it is to directly pass them on to your customers as a point of sale transaction fee.