Should you charge your customers a credit card processing fee? Here’s what you need to know

PCI compliance

There’s an old adage: just because you can, doesn’t mean you should. As a business owner, you might be considering charging your customers a credit card processing fee. Charging the customer is an easy way of offsetting your own costs in that area. However, just because you can do this doesn’t mean that you should. There are different laws, card brand agreements and consumer laws that need to be followed depending on the nature of your business and where you’re located.

To help you make the right decision, here’s what you need to know about passing credit card fees onto your customer.

There’s a difference between Surcharge Fees and Convenience Fees.

First of all, it’s important to understand that Surcharge Fees and Convenience Fees are not one and the same. Surcharge Fees occur when you pass the processing fee onto the customer to help minimize the amount you as the merchant pays for processing credit cards. Whereas Convenience Fees are charged when you’re providing the customer with a payment option that may not have been available to them otherwise. (For example, when you go into your local bodega, make a purchase under a certain dollar amount and are charged an additional fee at the till.)

In the United States, there are certain states that don’t allow credit card surcharging.

If you’re operating in the United States, you’ll want to make sure that your State allows credit card surcharging. While some card brands allow surcharging if you follow the specific guidelines of their merchant agreement, at the end of the day it all comes down to where you’re located. California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, Puerto Rico, and Texas all prohibit merchants from applying surcharges. Even if you don’t reside in one of these States, it’s important to read through your merchant agreement and know the local laws.

Each card brand has slightly different guidelines.

Research each card brand and familiarize yourself with their surcharge guidelines. Each brand has slightly different rules, so it’s important you read through each of them carefully.

Visa lists its guidelines under the 5.6.1.3 US Credit Card Surcharge Requirements – US Region and US Territories. Mastercard has its own distinct set of rules for US merchants which can be found here:  5.11.2 of the MasterCard Rules. Lastly, if you’re planning on allowing customers to pay by Amex, make sure you become familiar with their US Merchant Policy.

Consider the customer experience.

Sure, tacking on a credit card surcharge to customer purchases will help you offset credit card processing fees initially, but it might not be worth it in the long run. When you’re considering adding an additional fee to credit card payments, you need to carefully consider how it will impact the customer experience — especially if you’re a new business looking to develop a loyal customer base.

Think of it this way: people don’t like to pay extra just to use their preferred payment method. It leaves a bad taste and may impact whether a customer comes back in the future. As a merchant, credit card processing fees are a reality of doing business. To minimize the impact on the customer experience, it pays to do your research and find a processing company that offers you the best deal possible.

Posted on Friday, October 19th, 2018