Surcharging: What Is It and Why Now?
Let’s face it. Credit card processing can be expensive. After a decade of litigation, card associations have finally changed the rules to allow merchants to offset the cost of processing credit cards through what’s known as surcharging.
What is Surcharging?
Surcharging allows you to pass on a portion of the cost of accepting credit cards to your customers. In other words, it’s an additional fee that a merchant adds to a consumer’s bill when he or she uses a Credit card for payment. You’ll still be responsible for paying your processor, but surcharging allows you to essentially collect a portion of the fees from your customers and pass it on to your processor instead of having to eat the cost yourself.
Why Now?
While surcharging has been frowned upon in the past, the Covid-19 pandemic has made it an increasingly appealing option for businesses who may be looking for ways to cut costs. In addition, most consumers recognize the struggle many SMBs are facing and are more willing to eat added costs in order to help their favorite local businesses stay afloat. Lastly, the industry is seeing a continued upward trend in the use of alternative payment methods like credit cards and a continued downward trend in the use of cash, so offering credit cards as a payment method is a must if you want to increase sales.
What Are the Rules?
Blueswipe will help you implement the program easily and stay in compliance, but here’s the high level:
Location: Over the past several years, the number of jurisdictions that prohibit credit card surcharging has diminished. As of early 2022, the only jurisdictions that do not allow surcharging are Connecticut, Massachusetts, and Puerto Rico. If you operate in one of these locations and are handling card present transactions, you will not be able to offer surcharging and could face steep fines if you do so. Additionally, if processing a card-not-present transaction and the customer has a credit card whose zip code traces to one of these locations, the transaction will be declined.
Credit Only: Due to laws around debit transactions (see the Durbin Ammendment), surcharging is only allowed on credit transactions. This restriction applies to all types of debit transactions (signature, pin debit, and pinless debit) as well as prepaid cards.
Inform the Customer: You must notify customers that you are surcharging by posting signage at the entrance to your business and near the POS or register. The sign must also include the percentage you’re surcharging. You must also display the surcharging amount on the customer receipt (your device will do this automatically). Surcharging is capped at 4% (our current rate is 3.5%).
Register with the Card Brands: You’ll need to register with Mastercard and Visa, who require a 30-day waiting period before you can begin surcharging. If you work with Blueswipe as your processor, we will do this on your behalf.
Only Approved Devices: To offer surcharging, you must have an approved device that is programmed for surcharging. If you work with Blueswipe as your processor, we will help get you set up with this.
No Amex Direct: Surcharging is available on Visa, MC, and Discover. In order to surcharge on American Express cards, the merchant must be eligible for the American Express OptBlue program.
Cannot Profit: If offering surcharging, the rules stipulate that you cannot profit from it. If you work with Blueswipe as your processor, we will set you up with the correct rates so you avoid any compliance issues around this.
If you want help setting up a surcharging program for your business or want to learn more about whether it’s a good choice for you, give us a call at 804.977.1797 option 1 or click here to fill out a quick and easy form and we’ll reach out to you.
By Norah Hazelgrove, Chief Client Officer at Blueswipe