Not many merchants are doing it yet, but surcharging credit card transactions will soon gain more acceptance as businesses do whatever they can to reduce their card-acceptance costs. That’s the expectation of merchant-processing executives who participated in a panel Tuesday at the Southeast Acquirers Association annual conference in Orlando, Fla.
“This is the wave of the future in our industry, it just is,” said panelist Michelle Geraci, vice president of sales at Transaction Services, a Newark, Del.-based independent sales organization that began offering a credit card surcharge program to its merchants in 2015.
Geraci drew a parallel with fees passengers now pay to airlines. “Twenty years ago we didn’t pay for luggage,” she said, adding that “merchants are sick of paying for everybody’s vacations” through high interchange on rewards cards.
A San Diego parking garage that paid $4,000 per month in card-related fees before joining the Transaction Services surcharge program now has costs of only $400 monthly, she said. “We didn’t get any complaints from the [garage’s] consumers,” Geraci added.
Surcharging, however, can be complicated to implement and requires careful attention to state laws and card-network rules. Basic requirements set by Visa and Mastercard limit surcharging to the lower of 4% of the sale on credit card transactions or the actual acceptance costs; no surcharging on debit purchases is allowed.
Just a few years ago, as many as 10 states banned surcharging, but courts have ruled against them in Florida, California, and New York, according to CreditCards.com. Some of the challenges came on free-speech grounds in that the laws limited what merchants could tell consumers.
“It appears the states are moving in the direction of allowing surcharging,” said panelist Edward Levene, president of Norwalk, Conn.-based CardCharge, a surcharge services provider. Still, language in the remaining statutes regulating surcharges can vary among states, requiring close attention to assure compliance, according to Levene.
An alternative to surcharging is the discount for cash, which can be applied to both credit and debit card transactions, according to panel moderator Jill Miller, a payments attorney at Varnum LLP in Novi, Mich.
“The communication has to be very clear,” said panelist Erica Aranha, senior account manager at SignaPay, an Irving, Texas-based ISO that offers a discount-for-cash program called PayLo. SignaPay limits the discounts to 3.95%. The program can be adapted for e-commerce sales.
“In order for it to be considered a true cash-discount program, there has to be specific things in place,” Aranha said. Those items include signage and systems that properly calculate the discount and display it on customer receipts, she said. Another important item is employee training. Clerks and sales reps need to explain the discount to customers properly so that they don’t perceive it as a surcharge on card payments, she said.
About 30% of Transaction Services’ merchants participate in the surcharging program, Geraci tells Digital Transactions News. It’s most popular among business-to-business and other merchants with high average tickets.
Aranha said SignaPay’s discount-for-cash program is popular in certain retail sectors, including liquor stores. The program is one more service for merchants and hasn’t affected SignaPay’s overall volume, she said.