I recently came across an interesting debate about whether or not businesses should impose a credit card surcharge, both in-store and online.
This is a topic I've discussed with numerous customers over the past few years, and it remains a complex issue with no straightforward answer.
Who is Charging Surcharges?
The use of in-person surcharges is on the rise. According to a 2023 RBA report, the number of in-person payments by credit and debit card that incurred a surcharge increased by 77.5% between 2019 and 2022. Another study by Tyro found that 43% of pubs and 42% of cafes are now charging surcharges. Meanwhile, by 2022, less than 13% of in-person transactions were made with cash.
Arguments for Charging a Surcharge In-Store
Charging a surcharge in-store can be justifiable, particularly if customers have alternative payment options, such as cash. However, if your store only accepts card payments, it's crucial that any surcharge is either included in the displayed prices or clearly communicated.
Personally, I no longer carry cash—I don't even carry a wallet anymore—and I rely on my phone for tap payments. This backfired for me recently in the USA when I tried to pay a bar tab and discovered they only accepted physical card transactions, not tap-and-go!
Merchant fees can cost small businesses tens of thousands of dollars annually, which is a significant expense. Generally, most people are accustomed to paying a surcharge at places like hairdressers, cafes, or bars when they tap to pay.
Arguments Against Charging a Surcharge In-Store
On the flip side, merchant fees have long been considered part of the cost of doing business, and some argue that these costs should be incorporated into the pricing. For example, in Australia, Aldi charges a surcharge for online payments, but Coles and Woolworths do not.
What Can You Legally Charge?
According to the ACCC, businesses can only pass on the exact amount they are charged for the transaction. Furthermore, if you advertise a price in-store and don’t provide a way to purchase without the surcharge, you could be violating the law.
Will a Surcharge Drive Customers Away?
While some customers might be put off by an in-person surcharge, it's becoming increasingly normalized.
Online Surcharges: A More Complex Issue
When it comes to online transactions, the situation becomes more complicated. Many large companies, such as airlines, utility providers, and the government, charge credit card surcharges. However, except for airlines, you can usually avoid these fees by paying in person or through electronic banking.
Smaller online retailers, however, seldom impose surcharges on web orders, primarily because there’s no option to pay in cash without incurring the fee.
Afterpay and Other Platforms Restrict Surcharges
Some payment platforms, like Afterpay, explicitly prohibit retailers from charging surcharges on their transactions.
No Clear Consensus on Online Surcharging
Due to the relatively low incidence of online surcharges in certain sectors, such as online floristry, it’s challenging to gauge consumer sentiment on this practice. We generally advise against online credit card surcharging, especially in competitive markets where customers can easily switch to a competitor’s website if they’re put off by a surcharge.
One of the broader arguments against surcharges is that while customers may pay the fee once, they could choose to shop elsewhere next time. In the floristry business, where brand loyalty can be low and purchasing decisions are often location-dependent, this is a real concern.
Flower Store In a Box & Surcharges
In response to customer requests, we offer the option to add a credit card surcharge at checkout. The surcharge is transparently displayed, and you can even set different percentages for various payment gateways. However, despite the demand for this feature, we’ve noticed it hasn’t been widely adopted.
Bottom Line
In today’s market, if you provide alternative payment methods like cash in-store, a credit card surcharge can be acceptable. However, for online transactions, it’s advisable to factor these costs into the price of your products rather than adding a surcharge.
https://www.tyro.com/blog/tyro-report-the-surcharging-landscape-of-australian-businesses/