The Reasons Why Surcharging Hurts Small Businesses and Smaller Alternatives to Consider

Before taking on credit card surcharges, take a minute to check what successful business owners refrain from doing and why that might be a secret strategy to rely on in your particular case as well.

What Is Surcharging?

Let’s start with the basics and define what this term is all about. Overall, it implies tacking on an extra fee at checkout, which allows for offsetting the credit card processing costs. While it seems like a great tactic in theory, the reality is a bit messier. One of the main problems behind surcharging is how complicated this process is, especially taking into account the risks of falling into a compliance trap.

You will need to precisely stick to the target card network’s requirements to complete the deal — Amex, Mastercard, and Visa have unique regulations in this regard. One misstep can make you end up with state-level bans on surcharging and the loss of trust from your brand’s audience.

Here are some factors proving that surcharging isn’t as simple as it may seem at first:

Card-brand policies — you will need to follow the rules of the game, disclosing the fees, properly handling receipts, etc.
Enforcement risks — you may face various penalties if you fail to comply with the present regulations.
State restrictions — it would be a mistake to overlook local laws and bans, which may lead to legal exposure and steep fines.

Lessons from CEOs: How to Advance Your Approach

One of the most common beliefs is as follows: fuel your growth by learning from those who’ve already achieved the results you are looking forward to. While there is nothing wrong with the core of this concept, life brings certain adjustments to the original plan.

The era of surcharging is on the rise. However, many business owners don’t treat it as a red flag (mistakenly so, a little spoiler). Small and mid-sized merchants frequently introduce surcharges to customer bills, which lets them offset credit card processing fees. On the other hand, this practice is rarely followed by “big sharks” in the field:

No surcharges at Apple.
No extra fees at Amazon.
No add-ons at Costco, Target, or Walmart.

This move is 100% strategic. They cover the cost of processing while having greater tech stacks and bigger profit margins. Let’s unlock the true reason behind this choice.

Why Big Brands Say “No” to Surcharging

There are several reasons why such companies steer clear of this practice:

They utilize better tools to address the same issue. Instead of surcharging, corporations legally lower processing costs by cooperating with specialized firms in the market.
They aren’t interested in losing the trust and loyalty of their audience, which is caused by unexpected charges.
The risk-to-reward ratio isn’t worth it in the long run.
In certain instances, this type of processing may expose brands to additional penalties, making them pay twice for the same service.
Of course, legal risks and fines up to $10,000 and above per violation, on top of customer frustration, aren’t something big companies aim at.

What Increases Your Company’s Processing Fees?

Interchange fees, set by the card networks themselves, haven’t drastically changed for several years. The root of the problem lies in the following:

Lost rebates — with high return volume, you may suffer from processors keeping fees.
Bloated discount rates — your markup should be very low to stay on the safe side, especially when it comes to processing more than $10 million annually.
Junk fees — you may overlook hidden charges for “monthly services” and “compliance”, which add up really fast.
Inflated markups — you may need to cover a hefty margin, i.e. 2.95% set by certain processors instead of the true rate of 2.25%.

The Best Strategies for Small Business Owners Instead of Supercharging

Without any further ado, let’s walk you through effective tactics on how to lower card fees without losing your customers’ trust or exposing your business to legal trouble:

Consider interchange optimization — if your transactions are cleared and coded with the utmost precision, you may qualify for better rates without changing the prices for end users of your services.
Opt for a merchant processing audit — learn your business from within, letting third-party experts uncover hidden pitfalls, namely, outdated agreements, poor pricing models, and so on, which might lag you behind the competitors. This strategy can help you save up to 40%.
Follow the right rules if you still have to surcharge — cooperate with compliance-focused service providers to properly handle documentation, card-brand-rule alignment, state registration, etc.

Final Thoughts

An extra fee at checkout is one of the key reasons for cart abandonment. Instead of surcharging, learn from other businesses’ strategies and add more value to your offer along the way. Play smarter to boost your reputation and recognition in the market.