Processing Fees to Customers


by: Jack Lang

Imposing surcharges on credit card transactions is illegal, and it
will only lead to problems. The secret to beating the credit card
processing system is not charging more for credit card sales, but
instead is charging less for cash sales. It may sound like the same
thing, but there is a big difference.
The increasing costs associated with accepting credit cards are
leaving many merchants searching for ways to pass along at least a
portion of processing expenses to their customers. Card originators
such as VISA and MasterCard are becoming wary of this new trend and
are enforcing strict regulations specifically designed to hinder any
such efforts by merchants to impose surcharges on credit card
purchases.
Discount fees, transaction costs, and other expenses associated with
the acceptance of electronic bank cards (credit and debit cards) are
putting a strangle hold on to the NET profits of businesses of all
sizes. To help minimize the impact that processing costs are having
on profits, many businesses are charging a surcharge to customers
that choose to pay for products or services using a credit or debit
card.
Card originators such as VISA, MasterCard, American Express, and
Discover have a lot to lose if the practice of imposing surcharges
on credit card transactions becomes popular among merchants. When
merchants impose surcharges on credit transactions, they make
purchasing on credit a less appealing option to consumers, and many
consumers choose to avoid the additional cost by simply paying with
cash or a check. A decrease in the use of credit cards by consumers
translates directly into lost revenue for processing banks. Not only
do banks lose out on the processing fees that they would have
collected from the merchant, but they lose any finance charges that
would have been incurred by the customer as well.
You may wonder why so many businesses still choose to place a
surcharge on credit transactions, even though it is strictly
forbidden in the processing agreement they had to sign when opening
their merchant account. Quite frankly, many business people choose
to ignore this clause in their processing agreement and impose a
surcharge anyway. This approach is not recommended. When and if
these businesses are discovered, their merchant accounts will be
terminated, and they may even be placed on the Terminated Merchant
File (TMF) which will make it nearly impossible for them to acquire
another merchant account.
Card originators and banks have control over credit card (bankcard)
transactions, and they can legally ban a merchant from imposing
surcharges. However, they do not have any legal control over other
forms of payment such as cash and checks. The largest card
originator (VISA) has even published information stating that, "You
may, however, offer a discount for cash transactions, provided that
the offer is clearly disclosed to customers and the cash piece is
presented as a discount from the standard price charged for all
other forms of payment".1
Most merchant accounts operate on a tiered discount pricing grid
and, ironically, the secret to beating credit card processing fees
is to impose tiered pricing on your products and services as well.
The old saying, "if you can’t beat em’, join em’" applies perfectly.

While you can’t charge extra for credit card sales, you can charge
less for cash as long as all prices are clearly stated to customers,
and the cash price is reflected as a discount from the original
purchase price. For example: if the price tag on an item states that
the item costs $10, the cash price must be represented as a discount
from that price. The price tag for this particular item should look
something like this:
Price: $10.00
5% discount for cash payment @ $9.50
5% Discount for Check Payment @ $9.50
By utilizing a tiered pricing grid, merchants can alleviate the cost
of accepting credit cards, while still providing their customers
with the freedom to choose their preferred method of payment.
1. Published by VISA in the Card Acceptance and Chargeback
Management Guide for VISA Merchants, ©2004


About the author:
Jack Lang is the senior contributor member at
http://www.merchantcouncil.org.The Merchant Council is a free
resource dedicated to assisting businesses obtain and manage credit
card processing and merchant account services. A wealth of merchant
account information can be found at MerchantCouncil.org.