Options for Offsetting the Cost of Accepting Credit Cards

How to Offset the Cost of Accepting Credit Cards

As credit card issuers offer more rewards and cashless commerce becomes more popular, merchants have felt the impact. Having fewer cash transactions adds up to a higher cost of doing business, especially for small businesses with frequent small transactions that rack up percentage fees and per-transaction fees.

Fortunately, card processing has evolved to allow businesses to pass some of the merchant fee on to the customer, and banks are key partners in making this possible.

There are a couple of ways to do this:

  • Dual pricing, sometimes referred to as a cash discount, allows the customer to choose a discounted price for paying cash or make a card payment at the regular price, which includes a small fee.

  • Surcharging adds a small fee to the total for credit card transactions to reduce the business’s costs. For debit cards, the business is assessed the charge. With cash, no one pays it. With surcharging, the total amount will display on the terminal as the debit price. It will also show a credit price, which is the transaction amount plus the additional surcharge fee.

    Businesses aren’t allowed to profit from either model.

Which one is right for your business? Consider:

  • The demographics and expectations of your customer base
  • The likelihood they’d typically carry enough cash for their average purchases
  • How much of the fees you want to pass on to your customers

Dual pricing is suited for businesses with small and large ticket purchases. Paying in cash is less of an inconvenience for small transactions than for triple-digit purchases. Those with frequent large purchases can encourage customers to consider alternate forms of payment, like ACH.

Your willingness to communicate proactively to your customers is also a deciding factor because signs are required, both at the front door and at the point of sale, and customers must have the option to refuse before a card is charged. Communicating changes before you begin the new policy allows customers to plan for major purchases and save money.

An experienced merchant services advisor can analyze your statements, taking into account your input about your customer base, and offer an effective solution that’s fully compliant and easy to integrate.

Here are some questions to consider before having that conversation:

  • What payments do my customers prefer? Would they accept dual pricing?
  • Are my main competitors passing on a portion of the fees to their customers?
  • How much more do I need to earn to offset the processing fees I pay?
  • Does my state allow surcharge fees?
  • Can I adapt my existing point of sale (POS) system for surcharges?
  • Am I willing to display a sign in my business that speaks to a cash discount?
  • What is my typical sales volume and average purchase total?

While consumers are getting used to businesses passing on their processing fees, it doesn’t mean they like it. To better serve them, it's important to partner with a provider that doesn't apply fees that are higher than necessary. Dual pricing and surcharging are both good options for lowering a business's cost of accepting card payments while still being fair to customers and operating within the card issuers’ rules.

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