Reduce Credit Cards Fees with These Programs
Increasingly, credit and debit card payments are more than just convenient for consumers and businesses—they’ve become the default method of payment. As merchants know, they’re not without costs. And today with the supply-chain, staffing, and inflationary headwinds that businesses are facing, protecting margins is more difficult than ever.
The good news is that merchants have options. It’s possible to accept credit cards without taking the hit for credit card fees. Here are some options:
Cash Discount Program
With a cash discount program, a merchant can build credit and debit card fees into their product or service pricing. Then when customers pay with cash, merchants provide them a discount—usually 3-5%—that is shown on the receipt. Businesses are required to display signage notifying customers of this pricing model and many times the signage is provided to the merchant.
Cash discount programs are legal in all 50 states. In addition to protecting margins, cash discount programs can become a marketing tool. Giving customers a choice—pay the stated price (which is what they expect) or pay a lower price by using cash – is enticing to the end user. Gas stations commonly offer cash discounts, for example.
Surcharge Fee Program
Surcharges are fees—generally up to 4%—that merchants can add to credit card (but not debit card) transactions. Proper disclosure is required by law. A merchant must post notices at the store’s entrance and register that they impose a surcharge on credit card transactions. A merchant’s point-of-sale system must also itemize the surcharge on the receipt. This option is legal in 40 states.
Convenience fees are similar to surcharges but apply only in cases where the consumer is choosing to pay online or by phone versus the standard method of payment for that transaction. For example, movie theaters can charge convenience fees for online ticket purchases because they operate brick-and-mortar box offices for customers to buy tickets in person. Since the online purchase option is ostensibly for the convenience of the customer, the business can charge a convenience fee to cover their costs.
The credit card networks (Visa, Mastercard, etc.) limit convenience fees to a select list of payment circumstances, but they are legal in all 50 states. Convenience fees are fixed amounts rather than percentages of a transaction. Again, proper disclosure is required.
Which is Right for You?
Offsetting credit card fees with one of these three programs might yield just the extra margin a business needs to survive and grow. How does a business know which one is the best to use?
First, talk to a credit card processor about the programs they offer. Not all provide their customers with the full range of options. A merchant’s software must be set up to automate the process and abide by all federal and credit card network regulations, and point-of-sale terminals also have to be equipped.
Second, understand that convenience fees apply only in limited circumstances, so they may not work for every business.
Third, merchants should consider if they would offer customers a discount (for paying with cash) or charge them an extra fee (a surcharge). While a surcharge program might be the right choice in some situations, a cash discount is typically more palatable to consumers.
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