Credit Card Surcharges. Is a Napkin Surcharge Next?

If you operate a business and charge customers a credit card surcharge to offset processor fees, this Newsday Article, should be of interest to you.

I'm curious though. What makes credit card processor fees different than the other costs of running a business? Why is it that this expense is special and business owners are being encouraged by payment processors and POS providers, to add the in-your-face surcharge to be “passed on to the customer”?

Where is the payroll processing surcharge to cover the expense of processing wage payment for the person who makes the deli sandwich, or the salt surcharge for those customers who add a little extra brine to their meal, or how about a bathroom surcharge for the diligent pre-meal handwasher? If those costs of doing business aren’t surcharges, then why is the cost of processing a credit card payment the one expense that is boldly added to the customers’ tally of goods or services purchased?

This surcharge-to-cover-expense approach becomes even more perplexing when you consider the potential and likely impact on the customer experience for those who choose to pay with plastic. One may think it’s no big deal to customers. Think again. Credit card distribution among all tenders is now 60%-80% or more, with cash distribution only in the 12%-20% range. Why risk the assumably great experience of 60%-80% of your business with an unpleasant ending in the form of a surcharge? How much does a business owner invest to get each customer in the door in the first place? To then rely on hope that their customers won’t be put off by a surcharge and will return. What’s the financial impact if they don’t? Is there a surcharge for that?

Also consider that the sour taste for the customer doesn’t stop at the surcharge itself. In most cases, the surcharge is taxable. So yes, dear customer, we’re going to add that extra surcharge to cover our expense of doing business and then collect tax on the surcharge amount from you as well. Thanks for being so understanding.

Business owners who offer tippable services might ask: Do customers who are unhappy about the surcharge tip as they would without the surcharge? Not likely, just ask your employees. And by the way, the surcharge isn’t applied to those tips paid by credit card, so business owners aren’t fully covering all the processing costs with the surcharge anyway.

Now add in the additional operational expense of following the state’s requirements for these surcharges and it further chips away at what seemed like an even trade, surcharge for processing fee. Ignore the states requirements and take a chance with a small print surcharge mention at the bottom of a product or services menu, and you can expect chargeback expense and potential fines to take another piece of your profit.

I’m not defending credit card processing fees, but there are benefits businesses derive from offering credit cards as a payment option. Some of those benefits include more customers, competitive parity, and in many cases a higher average sale for credit card sales versus cash sales. If the goal is specifically to eradicate processing fee costs on the business, those fees can be offset with a price increase and if so inclined, businesses may opt to offer a discount to those who pay cash. Also consider that other unrelated expenses may have room for improvement to offset the fees while maintaining the desired margin outcome.

Credit card processing fees aren’t new, but product costs and inflation are top of mind for business owners who are looking for ways to bolster diminishing margins. While the surcharge option is an attractive means to offset the rising costs of doing business in today’s economy, it may insult the customers’ intelligence when they ask the same question: What makes credit card processing fees different than the other costs of running a business? In my opinion, the answer is nothing.