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Credit
Card Processing: Beat the System
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by:
Jack Lang |
Imposing surcharges
on credit card transactions is illegal, and it will only lead
to problems. The secret to beating the credit card processing
system is not charging more for credit card sales, but instead
is charging less for cash sales. It may sound like the same thing,
but there is a big difference.
The increasing costs associated with accepting credit cards are
leaving many merchants searching for ways to pass along at least
a portion of processing expenses to their customers. Card originators
such as VISA and MasterCard are becoming wary of this new trend
and are enforcing strict regulations specifically designed to
hinder any such efforts by merchants to impose surcharges on credit
card purchases.
Discount fees, transaction costs, and other expenses associated
with the acceptance of electronic bank cards (credit and debit
cards) are putting a strangle hold on to the NET profits of businesses
of all sizes. To help minimize the impact that processing costs
are having on profits, many businesses are charging a surcharge
to customers that choose to pay for products or services using
a credit or debit card.
Card originators such as VISA, MasterCard, American Express, and
Discover have a lot to lose if the practice of imposing surcharges
on credit card transactions becomes popular among merchants. When
merchants impose surcharges on credit transactions, they make
purchasing on credit a less appealing option to consumers, and
many consumers choose to avoid the additional cost by simply paying
with cash or a check. A decrease in the use of credit cards by
consumers translates directly into lost revenue for processing
banks. Not only do banks lose out on the processing fees that
they would have collected from the merchant, but they lose any
finance charges that would have been incurred by the customer
as well.
You may wonder why so many businesses still choose to place a
surcharge on credit transactions, even though it is strictly forbidden
in the processing agreement they had to sign when opening their
merchant account. Quite frankly, many business people choose to
ignore this clause in their processing agreement and impose a
surcharge anyway. This approach is not recommended. When and if
these businesses are discovered, their merchant accounts will
be terminated, and they may even be placed on the Terminated Merchant
File (TMF) which will make it nearly impossible for them to acquire
another merchant account.
Card originators and banks have control over credit card (bankcard)
transactions, and they can legally ban a merchant from imposing
surcharges. However, they do not have any legal control over other
forms of payment such as cash and checks. The largest card originator
(VISA) has even published information stating that, "You may,
however, offer a discount for cash transactions, provided that
the offer is clearly disclosed to customers and the cash piece
is presented as a discount from the standard price charged for
all other forms of payment".1
Most merchant accounts operate on a tiered discount pricing grid
and, ironically, the secret to beating credit card processing
fees is to impose tiered pricing on your products and services
as well. The old saying, "if you can’t beat em’, join em’" applies
perfectly.
While you can’t charge extra for credit card sales, you can charge
less for cash as long as all prices are clearly stated to customers,
and the cash price is reflected as a discount from the original
purchase price. For example: if the price tag on an item states
that the item costs £10, the cash price must be represented
as a discount from that price. The price tag for this particular
item should look something like this:
Price: £10.00
5% discount for cash payment @ £9.50
5% Discount for Check Payment @ £9.50
By utilizing a tiered pricing grid, merchants can alleviate the
cost of accepting credit cards, while still providing their customers
with the freedom to choose their preferred method of payment.
1. Published by VISA in the Card Acceptance and Chargeback Management
Guide for VISA Merchants, ©2004
About the author:
Jack Lang is the senior contributor member at http://www.merchantcouncil.org.The
Merchant Council is a free resource dedicated to assisting businesses
obtain and manage credit card processing and merchant account
services. A wealth of merchant account information can be found
at MerchantCouncil.org.
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