Charging a Credit Surcharge Will Cost You Customers

Merchants need to think twice before charging customers a credit surcharge. Surveys show customers will take their dollars elsewhere.
October 30, 2012

In July, card issuers and banks reached a $7.25 billon settlement with merchants. As a result of the settlement, nearly seven million merchants in the U.S. will receive paid damages and lower processing interchange fees for an eight-month period. The settlement, which is viewed as a major ‘win’ for merchants, also allows merchants to surcharge the customer when they choose to pay with credit.

As a small-business owner, the question you need to ask is: Should you or shouldn't you surcharge your customers? On the surface, surcharging may seem like an obvious choice for merchants. Merchants now have the opportunity to earn the same from all customers, regardless of the payment method. Some may even consider it a convenience cost to the consumer for the ease of using credit versus cash.

From the customer perspective, surcharging will be viewed solely as an additional expense, impacting their views of the cost of goods from a merchant who surcharges versus one who doesn’t. In fact, customer feedback in New Zealand and Canada confirms that consumers are not willing to pay more for the same products or offerings.

The Customer Is Always Right

In New Zealand, restrictions on surcharging were lifted just two years ago and, in a recent survey, 90 percent of consumers indicated that they would rather leave the store than pay more due to a credit card surcharge. A similar study in Canada found that the introduction of a 3 percent surcharge would encourage 95 percent of credit card shoppers to switch stores.

And, don’t forget that word travels fast. Statistics show consumers are 26 percent more likely to share a bad experience with a friend, which means merchants could lose more customers than they even know. If a consumer is not happy with a surcharge, there’s a good chance they’ll discuss it with both their real world and "virtual" friends.

Finally, keep in mind that consumers spend more when they use credit. In fact, according to an MIT study, consumers may spend up to 100 percent more when they pay with credit rather than cash. In the end, encouraging customers to spend more on products will pay for the lost surcharges and more.

The Future Is Mobile

Recouping a few percentage points by implementing credit-card surcharges isn't going to grow any businesses. Keeping customers, attracting new ones, and embracing mobile payment and commerce is the key for successful future growth.

Mobile payment acceptance through NFC, mobile wallets and payment dongles offer customers a quicker and more convenient shopping experience. And, with the addition of integrated commerce solutions like gift, loyalty and reward programs, merchants can seamlessly deliver a compelling value proposition for new and existing customers, leading to repeat business and higher purchase amounts.

As for the fees, new integrated payment and commerce solutions are striving to relieve businesses. Most recently, LevelUp introduced a zero interchange program, which eliminates processing fees. After partnering with a merchant, LevelUp absorbs traditional processing fees in exchange for earning income on promoted consumer acquisition and retention campaigns. It will be interesting to see how other mobile solutions look to validate their offerings and consumer benefits on LevelUp’s heels. However, it is clear that mobile payments of all types have the potential to improve customer interactions and make checkouts much more valuable than a just a card swipe.

Merchants today must look to the future and the ability to leverage business value from mobile payments and mobile commerce. Rather than waste time on implementing surcharges, invest time in seeking out new customer-engagement solutions that support and capitalize on the future of payments.

Will you charge your customers a fee for using a credit card?