Credit cards are a way of life, especially in the United States, although other countries are equally heavy credit users as we are. Here are some interesting facts about credit cards from when they started transforming the payment industry in 1950, only 69 years ago!

• It costs a credit card company about $80 to acquire a new customer, factoring in the marketing and processing fees, factoring in TV and radio commercials, telemarketing, print ads and direct mail.
• The word Visa is itself an acronym that stands for Visa International Service Association, founded in 1958, headquartered in Foster City, California 
• Merchants accepting credit cards spend $7 billion each year in credit card processing fees. Providing the ability to use credit cards to its customers generates approximately 15% higher sales from consumers who prefer to carry plastic for purchases rather than cash or checks.
• Across the United States, people in Alaska generally carry the most credit card debt, averaging $13,000; Ohioans have the least debt, about $5,500. 
• Averaging across the United States, a person’s or family’s average credit balance is just over $6,300 and Americans overall pay more than $100 billion in interest and fees each year.
• To you and I, a deadbeat is someone who doesn’t pay their bills on time. However, in the credit card industry, deadbeats are those careful spenders who pay off their credit balances each month. Financial institutions prefer financially irresponsible card users who aren’t paying off their balances each month, enabling the bank to charge them interest and generate profits. In fact, conscientious financial “deadbeats” cost banks money if they aren’t paying interest charges and qualify for reward programs and cash-back incentives

In January 2019, a lengthy court battle that began in 2013 ended by giving New York State merchants the right to charge a fee for purchases paid with a credit card, as long as the pricing was clear to the customer beforehand.

The guidelines require that the higher credit card price for an item must be listed in dollars and cents, such as Hamburger $15.60 Credit Price; $15.00 Cash Price – similar to how gas stations list credit and cash pricing. The pricing can be displayed on the menu, a price tag or on a display sign. Merely posting the credit card percentage upcharge isn’t enough: the state does not want consumers to have to do arithmetic to calculate their actual charges.

However, consumers are shocked and unhappy when they find the extra 3% or 4% fee masquerading under creative titles such as Technology Fee, Non-cash Adjustment, Service Fee, Muddling Fee, Merchant Fee, Checkout Charges, Usage Fee, Additional Fee Extra Cost, Swipe Fee, Differential, Surcharge and others. 

Should You Surcharge or Not?

It’s a decision every merchant must consider now that New York State law allows it. Of course, there are advantages and disadvantages for your business and your relationships with your customers that should be weighed carefully. Large retailers including Wal-Mart and Home Depot have declared they won’t be adding “checkout fees” because these would impact customer loyalty and reduce overall competitiveness.

To Surcharge

• Surcharges lessen the bite of credit card processing costs, putting some (probably not all) of the burden on the customer’s shoulders. However, merchant processors will charge more for processing the additional surcharge so that’s a somewhat hidden extra fee that could actually increase your processing costs rather than decrease them.
• If you have already built processing costs into your pricing, you might be able to lower your prices across the board, making your business more competitive, particularly if your customers usually pay with cash, checks or debit cards rather than credit cards.

 Not to Surcharge

• If most of your customers pay with credit cards, surcharging may not be a good idea. Studies show customers spend more when paying with credit cards than with cash. If you add a surcharge to their bill, customers will instinctively buy less, unless they are wealthy and money is not a concern. How much is customer loyalty, good will and repeat visits worth? Many customers surprised by surcharges on their bills vow to avoid dining or buying from that merchant ever again.
• Virtually every town, village or city has other restaurants or shops customers can patronize. If a customer can buy a meal, services or products somewhere else without a surcharge, you can bet they will. Even with a great value proposition, an extra charge makes your customers weigh your service or products against your competitors.
• If your typical credit card transaction has commas in it, adding another 3% or 4% to the price will definitely give your customers pause. The more your products or service costs, the more thought a customer gives to buying from you or buying at all.

 Follow the Rules

If you decide to add surcharges to customer purchases, make sure you understand and follow the law to avoid chargebacks or other penalties from your bank or credit card companies.

• Charge only the fee you pay for credit card processing. The rate is derived from your merchant discount rate in the previous quarter.
• Keep the surcharge fee to 4% or less per transaction as established in the court settlement.
• Debit cards or prepaid cards are exempt from the settlement; don’t assess a surcharge on those.
• Add a notice on the menu or on a sign near the front door and on receipts so your customers know about the surcharge. They must know there’s a fee for credit card transactions before using their card for payment.
• When issuing a refund, you also must refund the assessed surcharge, whether it’s a full or partial refund.

Get More Information

Want more information about surcharges, merchant processing and how to minimize credit card fees for your business? Contact Mike Krause, President of Sales Sense Payments, mike@salessensepayments.com or 585-704-6453. Ask Mike about your free fee processing analysis to help your business save on processing costs.

Retailers in the United States mostly converted to chipped credit cards in October 2015 and slowly over the past 3 years we have all become accustomed to dipping credit cards at retail checkouts. So, why are we sometimes sliding cards the old-fashioned way rather than dipping (plugging the cards into the terminal) at some retailers?

There are a couple issues behind whether a retailer has a chip-equipped terminal but still has you slide your card for payment. In addition to installing a new chip-ready terminal for checkout, the merchants must also install new software and then certify with their transaction processor that transactions are coming through accurately. Certification of their new process takes time and scheduling.

Another reason for merchants’ reluctance to adopt EMV is the additional time it takes to process a credit card transaction. While sliding a credit card takes only a few seconds, dipping the card into the card reader slot takes up to a minute longer because the transaction is verified in real-time. During non-rush months, an extra minute might be inconvenient but not noteworthy. However, during peak retail periods such as the winter holidays, every minute counts and retailers want those minutes spent shopping, not at the register.

Smaller localized merchants are somewhat more willing to take the gamble that the credit cards they’re accepting are not risky and will not affect their ability to receive funds from the transaction. In addition, smaller merchants don’t see the clear benefits of EMV chips because it doesn’t add to increased sales and it doesn’t make it easier for them to process credit cards. They know there’s a risk of credit card fraud but it doesn’t outweigh the pain and process of converting to EMV completely, certification included.

Another issue is that the United States has primarily adopted “chip and signature” technology, rather than “chip and PIN,” not providing the same level of security expected of the overall chip implementation. Moving to chip and PIN authorization is still pending in the US.

The whole movement to chip-enabled cards originated with major financial institutions (Europay, MasterCard, and Visa – EMV), pushing the responsibility for credit card fraud back on merchants, rather than absorbing the costs of fraud themselves. This has been the impetus of law suits still pending.

The US has lagged significantly behind other countries in converting to EMV. Among the largest global markets, the US was the last to make EMV law. It took more than a decade for other countries to fully adopt EMV. While it seems slow in the United States for the adoption of EMV, it is far ahead of the UK adoption, which took about 8 years for 90 percent conversion. The EMV Academy expects the US should be at 90 percent adoption by some time in 2019. Good news for those of us wanting better security for card-present credit card transactions. 

For more information about credit card services and merchant payment processing, contact Mike Krause at Sales Sense Payments by visiting salessensepayments.com or calling 585-704-6453.