As consumers learn more about the costs of accepting credit cards, they’re getting more comfortable with the practice of paying surcharges for the sake of convenience — as well as a chance to help small businesses stay afloat.
More and more merchants are adopting the practice, James Derby, senior vice president of enterprise sales at Payroc, told PYMNTS recently. In fact, more than a third of the new merchants his company signs on are opting to do it, aided by tech platforms that take the guesswork out of determining whether surcharges comply with local regulations.
Derby attributes this to a “dynamic change” in the culture as a result of the COVID-19 pandemic. Small and medium-sized businesses (SMBs) — particularly brick-and-mortar stores — have been forced to take a hard look at their costs. And they’ve discovered that giving customers the option to pay via credit card is probably one of their top five costs. Consumers, meanwhile, have seen local boutiques and bakeries struggling, and have decided to help out by making their purchases with debit or prepaid cards — or by paying a little extra when using credit cards to defray costs for their favorite merchants.
“I mean, you saw the devastation that was laid there [by COVID], so I think that kind of pivoted a lot of the traction that we see now,” he said. “I would say that from a cultural standpoint and an industry standpoint, I think surcharging is the greatest move in the U.S., pretty much since they started putting up major card brand logos on debit cards.”
40% of New Deals Include Surcharging
Derby has seen this growing cultural acceptance play out firsthand at Payroc, which is a full-service payment processor. Today, 40% of the deals that are coming into Payroc and the groups it works with include a form of surcharging.
But merchant acceptance still takes a bit of education, he said. Retailers need to know what they can and can’t do in different states (several don’t allow surcharges). And they need a full understanding of how much card fees are costing them. After that, learning that there are tech solutions that can determine whether a surcharge should be applied to the card that’s being used comes as a relief, Derby said.
“It’s a game-changer for merchants,” he said. “It’s a game-changer for the agents as well, because there’s a little bit more revenue there for the agent, and obviously you’re saving between 60% and 90% of someone’s statement fees every single month.”
The Percentage of Cost Passed Along Varies
Merchants can choose what percentage of the cost to pass along to consumers, up to a cap that is determined by the regulations that apply to them — often around 4%. How much they choose to pass on varies by the vertical in which they operate and the ticket average they generally see. An auto dealer might not be comfortable adding the full 4%, for instance, but might go with 2%.
“I call it an art form, not a science; it’s not rigid,” Derby said. “You can do a lot with it depending on what you’re going after, what you’re looking at, what the statement analysis looks like and, most importantly, the debit-to-credit ratio as the cards come through that merchant’s space.”
In both an eCommerce and brick-and-mortar environment, merchants are required to use legal notices to inform the customer or cardholder about the program. The customer then has a choice of whether to use a credit or a debit card.
This Is the Quarter to Consider Surcharging
With the holidays approaching, bringing the biggest quarter of the year for many merchants, this is a great time for merchants to consider surcharging, Derby said.
He advises agents: “Run that analysis, as well as the last couple of months, to see the savings that these merchants can enjoy over their busiest season. It’s a very powerful argument to make to that merchant, and once again it’s all about the education piece.”
Looking ahead, Derby said crypto is something for merchants to watch. He believes the demand for crypto will ramp up over the next six months, and then it will become mainstream within 18 months to two years.
“We are investigating how best to go to market and find that right provider to accept bitcoin,” Derby said. “I believe that’s probably going to be the next big thing.”