If you accept plastic for payments, you may know that credit card processors charge an fee for all purchases processed by credit cards. Now the question is – what is this credit card surcharge fee? Why do some businesses apply these charges and some don’t? Here’s what you need to know about credit card surcharges.
What Are Credit Card Surcharges?
Credit card surcharges are extra charges passed onto consumers who use credit cards to process transactions. Many clients and even merchants have no idea that they are charged with credit card surcharge fees.
Several customers get surprised after seeing their purchase bill when they notice that they are paying more than the market rate for the products they are buying. It is confusing for them to understand why their paying rates are not the same as the displayed prices.
Due to the lack of knowledge related to credit card surcharge fees, several business owners and clients wonder if surcharging is even legitimate.
Is it Legal to Conduct Credit Card Surcharges?
Applying credit card surcharges is legal in most states across the US. There are a few states where it is still illegal to charge credit card processing fees. These states include Kansas, Oklahoma, Maine, Colorado, Connecticut, and Massachusetts.
However, there are strict guidelines that all merchants who accept credit card surcharges need to follow. For example, the surcharge fee cannot exceed 4% of the sales total. Also a company can not just apply a surcharge fee as they want during checkouts to make profits. The amount they charge should be the same as taken by their processor, i.e., a maximum of 4 percent.
Why is There a Surcharge Fee on Using Credit Cards for Payments?
Some merchants charge surcharges on credit card purchases to balance the processing fee that credit card processors charge them for accepting credit cards. To cover this additional fee, businesses pass these charges to customers while processing payments through their credit cards. This is how merchants offset the charge credit card processors charge them. Companies do not just apply surcharges to make extra money on credit card payments. It is the amount that a store has to pay to accept transactions from credit cards.
Debit cards or prepaid cards carry a processing fee as well, but the fee is minimal. multiple transactions than credit cards, and there are still surcharges on debit card payments. For instance, a Visa debit card – but they are rarer than credit card processing fees. On the other hand, high-reward credit cards have higher processing charges because someone has to pay for the perks that come with credit cards.
Why Do Credit Card Issuers Charge Businesses a Fee?
All businesses that accept credit card payments are charged a fee as it is how the issuing banks, credit card brands, and the processors make money. They take a percentage of all credit card payments they process from the specific business that accepts credit card payments. This is how credit card processors make money. They continue to charge a percentage on every single credit card purchase for as long as that company is processing with them.
If you want to lower these credit card surcharges, it is suggested to contact the right credit card processor. Also, make sure the credit card brand or processor you choose applies non-existent or lower charges.
Why Don’t Merchants Use a Cash Discount Program Instead?
Adding a cash discount program to your payment process is a perfect alternative to avoid paying credit card surcharges. The best part is that cash discount programs are legal in all states. They are the best pick for businesses, but most merchants are not using them, and the reason behind this is that companies are not aware of this option. Adding surcharge fees often leads to misunderstandings and complaints between businesses and customers.
The Bottom Line
Whether you’re using a debit card or credit card to make payments, if the business you’re buying from apply surcharges, be ready to pay that extra charge or consider paying via cash instead. If you’re a merchant trying to decide between a credit card surcharge program or a cash discount, base your top pick around the total amount of your credit card purchases you conduct in your business every month.
Hopefully, the information mentioned in this post will help you understand the credit card surcharges’ ins and outs.