I felt upset because we are all struggling right now. We are trying to stay healthy. Millions of people are losing their jobs and having to file for unemployment. Thousands of people are out of benefits and will not struggle more to feed their families. And this local business, wants to charge me a surcharge because of COVID-19? WTF!

A COVID-19 surcharge is a fee added to a customer’s bill, usually as a percentage. This fee, although temporary, is there to help offset the recent surge in operating costs.

It took me a while. Sometimes I am a bit slower at “getting it” than I would like to be, my wife can attest to that… I vented, said some things about the store that I did not mean. I thought about posting to social media and writing a review. I needed to cool off.

After a while, I calmed down. I tried putting myself in the owner’s shoes. What if my costs, especially with the increase in food, doubled in price. How would I keep my door open? Or how would I put food on my own table? I was able to put myself in the owner’s shoes… Suddenly the AH-HA moment hit me. I get it now. I support the surcharge, it actually helps me, not hurts me.

Please know that I do not want to persuade you. I value your opinion. I also acknowledge that my opinion is the unpopular one, and thus may be very wrong…

With that being said, in this post, I am challenging myself to see if I can help you see my perspective.

What Is the COVID-19 Surcharge?

Besides being a bit of a frustration, a COVID-19 surcharge is a fee added to a customer’s bill. On average, I have seen 5%, but some have gone way higher. The idea of this fee is there to help offset the recent surge in operating costs.

Restaurants are doing this because of the cost of food. Food prices have risen significantly due to shortages. Mainly caused by the closing of processing plants. In a CNN article, although the demand for meat increased due to the stay at home orders, processing plants had to close due to recent outbreaks. In fact, beef processing in the US was down 27%, and pork processing was down almost 20%, compared to this time last year

But it is not only restaurants that have the COVID-19 surcharge fee popping up on their receipts. It is also happening with hair salons, doctors and dentists.

The sheer costs associated with constant cleaning and disinfecting puts a strain on most businesses. The extra hours, overtime, loss of efficiency, all adds up.

“We’re just trying to pay the bills so we can stay open until this is over,” Brad White, owner of Goog’s Pub & Grub in Michigan told Fox 17.

Ok, Why Shouldn’t We Be Upset over This?

Ok, so time for the nitty-gritty.

I support the COVID-19 surcharge because you and I benefit from the surcharge. You can label this as selfish if you so please. But to me, it is a win/win for all parties.

Before I go too far into detail, let me make it clear that there should be exceptions to the rule. There are some cases where the fee should not added. If it is going to break your customer, make things harder for them, don’t do it. If it is only a few cents more, and it allows me to enjoy the benefits from this business, the fee should be added.

Side note, whenever I was struggling with a decision, my Dad always pulled out a yellow legal pad. He would draw a line down the middle, and hand it to me. He explained the power of the pro’s and con’s list.

Pros:

1. The extra funds help offset the increasing costs in operations and supplies.
2. The COVID-19 surcharge may allow them to maintain the employment of their staff.
3. The fact that the surcharge states COVID-19, requires the increase to be temporary.
4. The temporary surcharge sets confidence with customers that management believes in lower prices.
5. If messaging was clear and transparent, it relays respect from the owner.
6. It draws attention to a few suppliers and vendors that may be taking advantage of the situation.

Cons:

1. The business may see customer backlash if they are unhappy with the fee.
2. If a customer is really offended, they may draw negative publicity.
3. It may increase tax liabilities.

To me, I see more pros than cons. Besides, it seems that the cons could be resolved if they were informed about the pros. Helping a business I care about, yes. Helping myself avoid future increases? Yes! Helping myself maintain a local source of food or service, yes!

I personally would rather pay a few more points today than have a business raise their prices. I will explain that part more in the section below.

Should Other Businesses Add a COVID-19 Surcharge Too?

Should other businesses add the COVID-19 surcharge? Absolutely if it means any of the following:

• They can avoid permanently closing their business.
• They can avoid laying off employees.
• It stops them from permanently raising their prices.

Permanently raising their prices is a real problem we have. Each time I have been through any kind of recession, a few things happen. We all do amazing and come together to help each other. Staff is reduced, prices increase.

We work more efficiently and longer hours to replace those who have been let go. Then, the economy comes back. You impressed your boss and held the company together. The only issue is, the boss now believes that you capable of doing the job of multiple people on your own. There is no reason to rehire back staff if it can all be handled by you.

As for the prices being increased. Well, the customers are used to the new price, there is no reason to lower the prices back to where they were before. Thus, price increases, become permanent.

How to Properly Add the COVID-19 Surcharge

If you are going to add a COVID-19 surcharge, it is so easy to do it right. Please trust us, we have a lot of surcharging experience.

The difference been a successful surcharge program always comes down to communication.

Be truthful, open, and honest with your staff and your customers. No one should ever be surprised by the fee. If you surprise them, that is the quickest way to an angry customer and a resentful employee.

Put up signs in the entryway, on the menu, on the website, on social media, etc.

Train your staff properly. Make sure they understand the purpose of the fee. It is not to earn more money, it is to help them have a job or benefits, or to purely keep the lights on. They need to relate and want to see you succeed. If they have a bad attitude about it, either you did not relay it right to them, or they should not be on the floor with customers.

One of my favorite things to do is role play with them. Role-play questions, concerns, rebuttals, and how to identify a situation where the fee should be waived.

I would recommend reviewing the messaging and training section of How to Test Your Surcharge Program. There is a lot of goodies there that can really help.

Conclusion

It is not ideal to see a surcharge. It never is. Although, when you take a step back, you may see the good that comes from it.

Yes, it helps keep our local shops open. Yes, it is passed down to the vendors and employees.

It shows you that the owner is less interested in raising the prices on you, long term. Quiet the opposite that most businesses are doing, right in front of our face. Yet, we are not upset at them.

COVID-19 is temporary. The COVID-19 surcharge is temporary.

Your frustration over it is temporary.

The next time that you see or hear of a COVID-19 surcharge, breathe. Put yourself in the owner’s shoes.

That is it, folks. I hope that this post helped shed new light or at least offer a new perspective on the COVID surcharge. If this post was useful, please help me by sharing or leaving a comment below. Your feedback motivates me more than you know. Additionally, if you do not agree with my view and want to help me see your side, please help me.

P.S. About the pro’s and con’s list part. I still don’t like them. I always seem to skew the results subconsciously. I add value and weight to an item, unfortunately balancing them out no matter how hard I try. With that being said, I still do them.

If you are a business operating out of the great state of Texas, you can legally surcharge your customers for using a credit card. However, there are some specific rules that you need to follow.

If you are a business located in Texas, please comment below with the name of the city you represent. I have been seeing more and more traffic from Texas and I love that. I am really curious to see the areas where we are helping out. 

I am going to keep this post relatively short as I have a feeling I am going to be making versions of this post for other states.

In this post, we are going to briefly touch on what a legal and what is not legal when it comes to surcharges. We will also touch on how to present it positively, and most importantly, is how to do it in a compliant way.

What is a credit card surcharge?

A credit card surcharge is the act of adding a fee at the point of sale. This fee is to cover the cost of acceptance. 

There is some confusion lately with surcharging and cash discounting. Both surcharging and cash discounting are legal in Texas. However, as similar as they are, they are different.

A true cash discount program gives a discount at the point of sale for paying with cash. However, if all of the prices were just increased at that same point of sale, then immediately decreased, it is a surcharge. 

Another common practice is to post the cash prices on menus or tags, then the credit price is up at the point of sale, this too is a surcharge. 

There is such a thing as a hybrid. Where you can offer it as a discount, and have it be a compliant surcharge. We will cover that more below.

When did it become legal to surcharge in Texas?

On January 27th, 2013, due to the terms of a major class action settlement, surcharging became legal in most states.

The rules were then up to the states to uphold. At that time, 10 U.S. states have upheld surcharge restrictions including California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas.

In 2016, the Fifth Circuit affirmed the district court’s decision in Rowell v. Paxton. This decision upheld the Texas surcharge prohibition. In August, 2018, the district court reversed its prior position, illuding that the Texas surcharge prohibition is unenforceable as an unconstitutional speech regulation.

Over the years, more and more no-surcharge laws are being overturned. At the time of writing this article, there are only 4 states left where surcharging is still prohibited. 

How to implement a surcharge program?

There are two major routes to take when implementing a compliant surcharge program in Texas. 

Compliance is the most important part of a Texas surcharge program. 

The first route is to work with a company or software vendor who can handle all of the compliance factors for you. We will recommend either us, (https://www.surchoice.com) or https://www.paynow.io.

The reason we like PayNow.io is that they work closely with us to complement the systems. They can do hosted payment pages, QR payments, text to pay and email to pay. If you are interested in signing up for SurChoice, or PayNow.io, click here for a shortcut to register.

The second route is to do it yourself. If you are the kind of person who loves to get their hands dirty, and you pay attention to details, this may be the best option for you.

If you are doing the first option. It is simple. Reach out to 1 or more of the providers and ask for guidance. The pricing is usually competitive and is part of the savings. They can help you with most of the aspects from compliance to messaging. 

Now if you are doing the second option. You will need to do the following:

1. Design the blueprint of how you would like your program to work.
2. Research and become familiar with the rules that are required to remain compliant. I have listed them below in this section.
3. Design the messaging. Messaging is very important to customers and staff. It can mean the difference between a successful surcharge program and a failure.
4. Determine how you are going to test, audit, and maintain your program.

I recommend reading through some of the links above as we have created multiple pieces of content to help you through this.

General rules. Many sites summarize this down to 4 parts, however since we are talking about compliance, it is better to be super clear.

1. Notify the card brands and your credit card processor, at least 30 days in advance.
2. Do not exceed the cost of your merchant processing or 4%.
3. Signage must be posted, clear and conspicuous.
4. The surcharge needs to be disclosed on the receipt as a line item.
5. You cannot surcharge a debit card, even if the customer runs the card as “credit”. Why the surcharge rules were created
6. A convenience fee and a surcharge cannot be charged on the same transaction
7. A brand-level or product-level surcharge can be implemented, but not both.
8. When refunding a transaction, the full or prorated amount of the surcharge must be returned as well.
9. In the event of a chargeback, the surcharge is also to be returned.
10. A surcharge and the base amount must be charged in one single transaction
11. A surcharge may not be applied to a customer who is in a state where the state has a no-surcharge law.
12. You cannot surcharge a transaction that originates in an area where surcharges are prohibited.

How to present it to customers?

The success of your surcharge program in Texas will really come down to communication. No one likes surprises, especially when it comes to their money.

You know why you are putting this in place, right? Is it just about the savings? Usually not. It is more often about being competitive in the market and taking the steps to have pricing stability.

If questioned, you want to help them see these benefits and help them benefit from it as well. For example, how many times have you had to increase your prices over the years? Credit card interchange has gone up each year for the last 10 years. I am willing to bet that there was more than one price increase due to this. Show them how this reduces the chances of future price increases. It also gives them the ability to save money by not having to pay to cover the costs of card acceptance.

Be open and transparent. “Mr. Customer, the cost of credit card acceptance keeps going up, and in order to make sure that we can continue to accept cards, we needed to put this small change in place”.

If a customer is really unhappy with the fee, it is up to you if you would like to reimburse them for it. I usually only see this in retail, rarely ever in B2B or service.

How to stay in compliance?

Staying in compliance is not difficult as long as you put a process in place.

I had a large hotel which was always great about their compliance. Over the years, they had new hires and new departments. They were growing which was amazing. But here and there individual departments made adjustments. They did not have a standard process in place. Later, they discovered that customer data was exposed. If they had taken the time to put their process in writing and make sure that they upheld it, they would not have this incident.

In your standard process, I would recommend that only an authorized individual is allowed to alter the process. This should be someone who really understands the vulnerabilities and PCI security standards. This individual should also be familiar with the rules around surcharging.

I would recommend that a quarterly audit be put into place. This should be someone other than the individual in charge of the standard process. Audit that the process is being followed, check for rule updates from the card brands and their local attorney general’s office. Check the statement for any hidden price increases, or reductions. Reductions are just as important as if they are lower than your surcharge, you are in violation.

Last but not least, the audit should also include talking to the customer-facing staff. Find out if there is any change in behavior from customers and if there needs to be a pivot in the process.

In Conclusion

There is no doubt that we are in an exciting time. Not only has surcharging become legal, but it is also becoming an acceptable practice.

Customers want opportunities to save. Not fake opportunities that come with marketing ploys. But real opportunities, such as using a debit card over a credit card. 

If we can continue to educate the consumers and our neighbor business owners, together we can help make the practice of taking a credit card more affordable for everyone.

Thank you so much for reading my post. Did I miss anything? Please give me feedback in the comments below. 

The reason we like PayNow.io is that they work closely with us to complement the systems. They can do hosted payment pages, QR payments, text to pay and email to pay. If you are interested in signing up for SurChoice, or PayNow.io, click here for a shortcut to register.

Reminder, this website does not provide legal advice. These materials are for information purposes only and not to provide legal advice. Please review your circumstances, including applicable state law, with your independent legal advisors.

Free credit card processing is a clever marketing spin to a credit card surcharge or cash discount program. This is where the fees are passed on and paid by the customer through a surcharge, service fee, or “non-cash adjustment”.

If you are a business owner, I know you can relate to this. Do you remember when you were pricing your product or service? You were so careful. You were competitive, selling a fair product or service at a fair price. Then … you get your merchant services bill…

Hi folks, my name is Dan Paige, and I am a payments expert. I am here today to help answer your questions about free credit card processing and how to get it if it is real.

Before I go too far into detail, if you are a local business looking for free credit card processing, please leave a comment below. Write ”Yes“ if you are and “No” if you are not. You can write more, of course, we would love to see it. I want to use these results for a future guide.

Is Free Credit Card Processing Real?

I get this question a lot. I like it when people ask me if free credit card processing is real. Sometimes I am so open that it gets me in trouble. When someone asked me if free credit card processing exists, I usually have the same response.

TANSTAAFL. That is always funny when I read that but when I do, I know exactly what it is saying. I know I am not alone in this.

Google: “There ain’t no such thing as a free lunch”. Seriously, Google it!

TANSTAAFL Has been used since the early 1900s. It is used in so many industries. Sports uses it in a manner similar to “no pain no gain”. Science uses it when explaining that energy cannot be created or destroyed, but only changed from one form into another or transferred from one object to another In economics, uses it in regards to opportunity cost.

If products and services are given away for free to an individual or a business, there is still a cost. Even when there is no one to assume the direct costs, society bears the burden (our natural resources).

Even products and services given to individuals for free are not truly free; a company or individual ultimately pays the cost.

Investopedia Article about TANSTAAFL by Alexandra Twin

The same goes for free credit card processing. There are so many companies, banks, organizations involved in a single transaction, someone has to pay the fees…

You wouldn’t expect them all to work for free, right? Besides, there is a lot of costs and risk when it comes to processing, but that should be saved for another time if you are interested in the inner workings of the industry.

How Others are Doing it?

There are ads everywhere for free credit card processing. “No Cost Processing”, “Zero Fee Processing”, and “Free Credit Card Processing”.

If you call any of them, ask them if they are really working for free, the answer will be no. The fees are still being paid. Instead of them being paid by the merchant, they are being paid by the customer. This is the part that really bothers me in marketing, if it is no cost or free, why is it that there is a cost?

What there really are doing is the process of surcharging and cash discounting. In other words, it is the process f passing the fee onto the customer.

A surcharge is the process of adding a fee to the price if the customer is paying with a credit card. A cash discount is very similar. However, instead of adding a fee for using a credit card, it adds a fee to all transactions, then discounts if paying with cash.

Is Surcharging or Cash Discounting Legal?

Well yes and no! Since 2013, surcharging has been legal and the processors cannot stop you from doing. However, you need to follow very strict rules.

Now, even if you follow the rules, some states banned it. It was about 10 states that had made no surcharge laws. But since then, one by one the laws have been challenged in court and overturned. Now it is down to only 4 states where it is still illegal. Those states are Colorado, Connecticut, Kansas, and Massachusetts. Some states have strict rules to follow such as New York, but the no-surcharge law has been lifted.

There is some push back on the method of Cash Discounting. Many believe it is just a clever spin on surcharging and is breaking many rules in the process of doing it. This is in regard to the Durbin amendment and I will go into detail on that in a different post as it deserves.

How You Too Can Offer Free Credit Card Processing?

That is easy! Utilize one of these companies that are offering such a program. Just make sure to do your homework and verify that they are offering a program that is compliant and not going to get you in a lot of trouble.

For example, if doing a surcharge it needs to follow the rules. The main rules are:

1. You must register with the card brands.
2. Each customer must be alerted of the surcharge before the transaction. This is done with signage and or verbal cues at the entrance and at the point of sale.
3. The merchant cannot profit from the surcharge, they must not charge a fee greater than their cost of card acceptance.
4. The amount of the surcharge cannot exceed 4%.
5. The fee must be processed with the original base amount, in a single transaction.
6. The fee must be itemized on the receipt.
7. The fee can only be applied to credit cards, no debit cards.

Are they providing software or technology to make sure that your sale follows the rules? For example, a customer may have a contactless card such as Apple Pay, or the card looks like a credit card. Even if they press credit and run it like a credit card transaction, you can be exposed to potential fines and penalties because you are not allowed to surcharge a debit card.

If doing a cash discount, make sure that the provider is willing to help defend you if you are called out by the attorney general or another legal office. I do feel the Durbin Amendment does allow for it, but it is clearly in conflict with the surcharge rules.

At some point, there will be an action or legal battle that will decide which order is to be enforced. When that happens, it will have to change in some manner. If you want to be safe and not have to change later down the line, I would suggest sticking with the surcharge method.

However, if you want to maximize immediate savings, the cash discounting method is looking very tempting.

Should You Offer Free Credit Card Processing?

Absolutely, yes! Of course this is just my personal opinion.

The reason that I am a big supporter may surprise you. It is not because there is a massive savings in there for you. It is not because my clients profit from it. It is because it has the ability of changing what is broken in our industry.

People do not realize how much the merchant spending impacts much of our economy. It impacts how much our merchants profit. It impacts how much our customers spend. It impacts the price of advertisements. It even impacts the price of our food.

There are a few problems in our economic process that I see could use some improvement.

Cost of Rewards

The merchant pays extra for reward cards but does not see any monetary value for accepting that card. Why is it that the rewards that are earned are usually paid for by a merchant who never sees the profit from it?

What I mean by that is if you are earning double miles from your favorite airline for using your card. That card is usually under the high-end interchange bracket because those rewards are expensive. The merchant who took the card is paying for those rewards. Those loyalty rewards are then being used with the airline who we know profits from the mile value, upsells, and brand loyalty.

So I ask again, if I were a merchant, why am I paying for someone else’s rewards? Shouldn’t the extra costs I am paying go to a loyalty program that earns me a repeat customer?

Margin Creep and Inflation

The card brands are known to increase the cost of interchange twice per year. Because of this, a merchant is going to lose margin or have to raise prices.

Our economy is so competitive that there is a low margin in many of our retail and foodservice merchants. To stay in business, they MUST raise prices. Doing this further ostracizes their customers, causing them to shop online or at the big box stores.

Therefore each time there is an increase, effectively everyone has to raise their prices. With a higher cost of living and our wages not increasing, it is theoretically putting stress on our economic system.

The only ones profiting are the banking and financial services.

What If We Said Enough is Enough?

What if adding a small fee to cover the cost of merchant processing?

Cash and debit customers would be happy because there would be no more increases due to interchange hikes. NONE!

Businesses would be happy because they could lower their prices if they want to be more competitive with the big box stores.

The credit card customers would start to understand that the rewards they earn should be paid for by the merchant profiting from them. If they do not want to pay the small fee, they can always use cash or debit.

Just like what happened in the other countries who took on this model, the card brands were forced to lower their interchange. Doing so entice many merchants to turn off the surcharge because it was now affordable again.

Conclusion

There you have it folks. Free credit card processing does exist, just not in the way it sounds.

I am sure that will change some day. Truth in marketing will have it reworded, but how are they going to make it exciting then?

Now is the time if you were ever going to consider implementing a cash discount or surcharge program. Customers are more willing now than ever. Willing to help their favorite merchants sustain and get back on their feet. If this is all it takes, I say give it a shot.

Did I miss anything? Do you have questions, comments, or feedback? Please let me know in the comments below. I will get back to you and your feedback is what motivates me to keep creating new content.

PCI Non-Compliance is a fee that merchant providers charge their merchants if their merchant is not up-to-date on their PCI SAQ’s and or PCI scans.

Because merchants ask me this so often, I am going to go into the details about what is PCI non-compliance, why it is there, and what you can do to remove it.

Before I go too far into detail, if you are a local business searching the internet for “what is PCI Non-Compliance”, please leave a comment below. Write ”Yes“ if you are and “No” if you are not. You can write more, of course, we would love to see it. I want to use these results for a future guide.

What is PCI Non-Compliance?

As stated above: PCI Non-Compliance is a fee that merchant providers charge their merchants if their merchant is not up-to-date on their PCI SAQ’s and or PCI scans. We have seen these PCI Non-Compliance fees range from $7.00 per month up to $125 per month.

However, in order to understand what is PCI Non-Compliance and why you would get that fee, I should explain what PCI Compliance is in the first place.

PCI, stands for Payment Card Industry. When we talk about PCI, we are most often referring to the PCI Data Security Standard. This is also referred to as PCI DSS.

You can read all about PCI DSS on the PCI Security Standards website.

If a business accepts a credit card in the United States, they must comply with the PCI Security Standards at all times.

Merchant processors often require their merchants to go through a PCI assessment each year. This assessment consists of a self-assessed questionnaire (SAQ). There are many different types of SAQ’s but they have to follow the set standards and be administered by an authorized PCI assessor.

We will go into more detail at a later time on how to pick which SAQ if you want the quickest route.

There is another aspect of PCI, it is PCI Scans. PCI scanning is the process of having your network scanned for vulnerabilities that could lead to a PCI data breach. If your processor flags you as needing PCI scans, then you will have to scan your network quarterly.

In summary, if you do not pass your SAQ every year, or your PCI scans (if required), you can expect a PCI non-compliance fee.

Why do we have PCI requirements?

From my understanding, and I am not an expert, we have PCI Compliance for protection. Protection for our merchants, their cardholders, and us as the agent or processor.

The way I explain PCI is that it was created because we’re tired of our data getting out. Getting out because merchants being careless or irresponsible. If you go through a PCI compliance program, you’ll be able to protect yourself and your customers.

As a result, if a merchant is not willing to take the time to answer the SAQ and do the scan, they are more likely to have a data breach. Therefore, as an incentive, merchant providers charge you a PCI Non-Compliance fee.

Do not make the mistake to think that this fee is mandated by the PCI DSS council or the card brands. It is not mandated and goes into the pocket on your processor. With that being said, I do not believe this means it is unwarranted. It is my opinion that if this fee incentives you to protect your customers, then so be it.

How do you remove PCI Non-Compliance

Removing PCI Non-Compliance fees from your statement takes 3 major steps:

• Complete your PCI self assessed questionnaire. A SAQ can be as little as 8 questions and go into the multi-hundreds of questions. Take a look at this link and pick which SAQ you fall into. If you do not know where to go to complete your SAQ, call your merchant processor. They are usually teamed up with an authorized PCI SAQ assessor. This is usually at no additional charge. Please know you probably already paid for this in your PCI annual fee.
• The next step is to do your PCI scan. This is almost always provided by the same assessor who gave you the SAQ. Take what you learn from your PCI results and fix any holes that you can.
• The final step should not be necessary, but is a good practice. It is to call your processor and let them know that you have fully passed. They should be able to see this automatically, but if you want to be sure that the fee is removed, place the call.

It never hurts to ask your processor for a refund on a few months of fees. They won’t refund the entire time, but a few months is reasonable if they think there is a potential of losing the account.

Do not use threats to get rid of PCI. A processor who enforces PCI will never back down and remove PCI or the requirements. It is not going to happen and they will let go of the account if they need to. This is because if they remove it fo you they have to for others. And let’s be honest, it is quite the revenue-generating item for them.

If you have to ask yourself what is PCI Non-Compliant for too long, there is a potential of having your merchant account canceled or being placed on the MATCH list. There is just too much risk for a processor to continue servicing an account that cannot, or will not become PCI compliant. Although it is extremely rare, it can happen.

Other PCI Tips & Advice

• You can often do a much shorter PCI SAQ if you are using a P2PE validated solution. Call your processor and ask them if you are using a P2PE validated solution and if you would qualify for SAQ A or P2P-HW. Both of these SAQ’s are short and if my sources are correct, you will not have to do the PCI after a short period of time.
• When doing your SAQ, you often alerted right away if what you are doing is incorrect. Use this as a method of education. Write down what you learned, go back and correct the process and update your SAQ.
• SAQ’s can read very confusing, even for us. Often they remind me of 1980 stereo instructions, they are not clear. Try to step back and understand what they are trying to get to. Are they trying to see if you store data? If you do not store data, just click no.
• If you are still getting the SAQ wrong, you can hit the back button. There is no limit or penalty for this as long as you are being honest.
• If you already did your PCI compliance with another company, that is ok. You can often reuse that PCI certification with your current vendor. Best of all, they will often change your PCI date to match your certification. As long as your vendor is an approved assessor of the PCI DSS, you should be golden.
• If you are having trouble with your scans, try removing some of the equipment that talks to the outside world. Do this one by one so you can identify the culprit who is leaving ports open.
• You would be shocked how often your PCI scan failure is due to your camera system. If this is the culprit and it is not easily fixed, you can often put them on their own separate network.

Conclusion

There you have it. Next time you look at your statement and ask yourself “what is PCI Non-Compliance”, you will know. It is also not the end of the world. Following the steps above can easily remove that fee from your account.

Do not be afraid to ask your processor for help. The fact is, if they are charging for it, they often provide access to PCI services who do the scans. You can reach out to those companies and ask for guidance. If that fails, you can always reach out to us, here.

Did I leave anything out? Do you have any questions? Leave your questions or comments below. I try to engage with each one and I am here to help.

Thank you so much!

You will need to monitor your new surcharge program, and sometimes, adapt or pivot. Doing this ensures that your program will be around for a long time.

Just because you launched your surcharge program, doesn’t mean that it will be a success. You wouldn’t build a business, hire staff, then immediately walk away and expect it to be a success, would you?

When you started a business, you are generally a part of the daily operations in the beginning. You do this to help it build its foundation, become profitable and scalable. The same goes when you make a major change to your payment model.

In this quick guide, I am going to show you some of the areas you will need to keep your eye on. Also, we will look at a few areas where you may need to pivot.

Ready to get started?

Before I go too far into detail, if you are a local business who needs to monitor your surcharge program, please leave a comment below. Write ”Yes“ if you are and “No” if you are not. You can write more, of course, we would love to see it. I want to use these results for a future guide.

Flip the Switch

When I was a kid, one of my favorite things was to flip switches. I loved it. I played with every switch on the wall. After a while, graduating to play with electronics and build my own switches.

Today, my daughter is the same. She is always dragging her stool to different areas in the house to flip on or off the switches. She is so proud each time. I love this.

Naturally I enjoy the launching of a well-crafted surcharge program. Assuming that you included and tested all requirements of your surcharge program, follow the below steps for a quick launch.

Quick Launch Steps

1. Do a quick walk through the morning before launching. Check for signage [Visa’s example] and opt-out notifications. If they are in place continue.
2. Double-check with your staff one more time. Everyone should be aware that the launch is today and they should be ready with their rebuttals.
3. Unplug your old terminal. Replace it with your new surcharge ready equipment or software. Do not cancel your old plan right away. I always like a 2-week buffer to make sure your new program is operating to your expectation first.
4. Run a test transaction of a credit and debit. If it is working well, it is time to trust your staff and open your business for the day.

Review with Staff

One of my favorite things to do is to role play with my staff.

Usually what I do is create a list of scenarios. Scenarios such as questions, concerns, and or complaints. I put them in a jar. First I will be the one to pick a scenario. I will then have the staff one-by-one act out the scenario and let me handle the questions or concerns.

Don’t make them too difficult, I am telling you, you are not going to get a list of hateful complaints. Be realistic and prep them that a few questions or concerns is ok. Generally we find it can be up to 1-3% of your transactions for your first 30 days. After that it drops down under 1%.

Next, I pass the jar onto the staff and let them take turns being the customer and the staff member. This works well and is usually a lot of fun.

Analyze

Now here is where we analyze.

I want to warn you, try NOT to do this your first week. Your first week will always have a few that are resistant to change. Tell your staff you want at least one week of ”trying it your way” before moving onto another.

Now, after a week, ask how it has been going. Has it been bad? No? Did you have any complaints? A few? Did those people still buy but with a cheaper method? Interesting… Keep a log of what you hear and try not to react until you hear the whole story.

Next, when you get your new statement, compare it to your previous statement.

Were the sales compatible? Did you save a ton of money?

If nothing changed from now, would this be worth it and would you do it again?

Adapt

Adapting is something that we all have to do from time to time.

Based on what you heard, are there areas that need adapting? For example, is there anything you are saying in your FAQ that is not resonating with your customers?

Is there some times where you might not want to do the surcharge? For example, on certain items that you know the customer just cannot afford the additional 25 cents? This can happen.

Do not be afraid to adapt and try something different. I love doing A/B testing in my office. I will often do testing like this week over week. Once I find something I like, I will test it against something else, the winner is the new base that I am testing against.

Maintenance

One thing that I always recommend is scheduled maintenance. No, I am not referring to your vehicle. I am referring to how you monitor your surcharge program, over time.

Some people think that scheduled maintenance is a sham when it comes to vehicles. However, ask anyone who has made their car last or has driven 60 thousand miles without a single repair will attribute their success to two things. The first, being a decent driver and not driving your car like you are Mario Andretti. The second is sticking to their scheduled maintenance.

Scheduled maintenance is there to prevent your car from breaking down. Just as it is here to prevent your business from breaking down.

What I mean by scheduled maintenance is to put on a calendar your plan. I recommend the following:

If you make no changes to your network, processor or process:

1. Once per month: Check your statements. You are looking to make sure that you are collecting the whole transaction, minus the processing fee. Thus, if you sell $100, you charged $103.50 to the customer, and $100 is now in your account.
2. Once per month: Audit your software or machines by validating that it can tell the difference between debit and credit. Swipe your own debit. Or go get a prepaid debit and make sure it can tell.
3. Once per month: Double check that all signage is clear, concise, and relevant.
4. Once per quarter: Review with your staff. Are there any patterns they are seeing? Are they still up to date on their rebuttals?
5. Once per year: Check with your rep and or your accountant to make sure that your current process is still the correct process for your state.

Conclusion – Monitor your Surcharge Program

In conclusion, as long as you continue to monitor your surcharge program, and audit the system on occasion, you will be great!

Keep in mind, as technology continues to change and evolve, so does the payments industry. I always recommend annual reviews of your account with your processor. With programs like this, it is good to have them looked at as well to make sure you are up to date on any compliance changes.

Check back with our support page for any updates that might be impactful to you or your business. You can also add your email and subscribe so that we can alert you in the case of an urgent change.

Did you find this post helpful? Did we leave anything out? Please kindly say so in the comments below. We would love to engage with you and your comments motivate us to continue our development.

Thank you so much and congratulations on your new surcharge program.

As long as you followed my previous guides on how to se tup a surcharge program, it will not be hard to test.

Ready to get started?

Before I go too far into detail, if you are a local business who needs to test your surcharge program, please leave a comment below. Write ”Yes“ if you are and “No” if you are not. You can write more, of course, we would love to see it. I want to use these results for a future guide.

Preparation Checklist

Be prepared to check off each of the following when you test your surcharge program. Once these are checked off to your satisfaction, only you can proceed with going live.

• Notifications and Signage
  • Card Brand Notifications
  • Clear and Conspicuous Signage 
• Software and Technology
  • Debit Card Auto Filtering
  • Surcharge Line Itemization 
• Messaging and Training
  • POS Signage 
  • Consistent Messaging from All Staff

Notification and Signage

There are two types of notification that are required by the card brands. First you must notify the brands 30 days prior to your first surcharge. That part was covered when we guided you to set up your surcharge program. The second type is the notification and signage to the customer. This is not only a requirement, it is the right thing to do.

Do not surprise your customers. Surprising them can the difference between earning their support vs them feeling burned. The general rule of thumb is at least 2 notifications. One notification at the entrance of your establishment and 1 at the checkout.

Visa has a good example of signage that is posted at the entrance. You can access download the PDF version from their website. “We impose a surcharge on credit cards that is not greater than our cost of acceptance”

If you have a kiosk or in-store location, it is best practice to still post in an additional signage. This can be above the POS or right where the line starts. As for websites, it would be on the front page where you list the card brands that are accepted.

When posting signage, make sure that it is clear and conspicuous.

Visa has another example of signage posted at the point of sale (edited to be brand neutral). “We impose a surcharge of _% on the transaction amount. The surcharge is not greater than our cost of acceptance. We do not surcharge debit cards.”

If you cannot post the appropriate signage, this notice should be verbal. Example: “Hello Mr. Customer, your total today will be $__ if you pay by credit card. Would you like to save $__ today by paying with cash or debit?”

Notification & Signage Test

– Were the card brands notified 30 days prior to your first surcharge?
– Do you see at least 2 notifications?
– If you were the customer, do you feel like you were alerted before you pulled out your credit card?

Software and Technology

As you know, one of the main issues with doing a compliant surcharge program is telling if a card is debit or not.

The customer may tell you it is a credit card. It may look like a credit card. The customer even presses the credit button. But, if that card does have debit capabilities, you may find yourself faced with fines or penalties.

Unless you and your staff are extremely diligent in checking every card for the word “debit”, you are going to need some help.

The easiest help is from some kind of software or technology. Many of the processors who offer to surcharge credit cards will also have a terminal that is capable of checking the BIN. When the card is dipped, tapped or swiped, the terminal checks to see if the card is a credit or debit card. If it is a credit card, it will add the surcharge and the surcharge line to the receipt.

Software can also have the ability of checking the card type to keep you out of trouble. I prefer software to a terminal, because if the software provider also has an API, integrations can also take place.

A good software can also allow the customer to opt for another payment method. This way to avoid a surprise complaint to the card brand that they were not notified.

Software and Technology Test

– Run 2 transactions, 1 from a debit, and 1 from a credit.
– Did your terminal or software automatically identify the card type?
– Was the transaction’s surcharge and line item automatically added or removed?

Messaging & Training

I often say that messaging and training your staff is the hardest part of a good surcharge program. Why is this the case? This is true because no one cares more about your business than you. The same goes for your customers. No one cares about your customers as much as you.

If the staff does not share the same values, they may not be able to relay the messaging that you lay it out for them.

The best way to mitigate this is to have set language, and a set response to common questions or concerns.

My recommendation is that your signage plant the seed to customers. An example: “In order to provide the lowest prices across the board, we impose a 3.5% surcharge on all credit card transactions. This surcharge is no greater than our cost of acceptance. We do not surcharge cash or debit cards.”

The statement above says that you provide the lowest prices and you want to keep it that way. You also state that the surcharge is not more than what you pay and that if they want to avoid the fee, use cash or debit.

Talk to Your Staff

The first step is to make sure that your staff (each staff member) can repeat with their eyes closed. They should understand this and it’s meaning. If not, take the time to tutor them. Do not get defensive or frustrated. The key is to help them understand how this is good for the business and good for the customer.

Next, help the staff see how a customer can benefit from this model. Each business is different. I like to take the time to explain how this model really keeps prices low and consistent for everyone. It limits inflation caused by interchange increases. It also creates motivation for the card brands to lower their costs to the merchants. There are more benefits listed here in this article.

The best results I have seen is where trainers and staff take the time to role-play. Role-playing as the customer and role-playing as the sales associate. Practicing common questions and rebuttals. It can be really fun and turned into a game.

Some common questions or concerns:

”What is this charge and why is here?“

This charge is here because our costs have been rising and we do not want to have to pass these costs onto the customer. This is one charge where we can control. Therefore if a customer pays with cash or debit, it lowers everyone’s costs and keeps prices low.

“Why add this charge now?”

Due to the economic climate, there has never been a harder time for businesses to reopen or sustain. This is one charge where we have some control to lower the costs. This is one way to do that without impacting everyone. The last thing we want to do is to have to raise the prices on everyone.

“Are you profiting from this charge?”

Absolutely not! The surcharge is not allowed to be greater than our cost of acceptance.

Messaging and Training Test

– Roleplay with your staff each morning for a few minutes.
– Can each member rebuttal a question or concern?
– Can each member explain why this fee is here and how each person can benefit from it?

Conclusion on How to Test Your Surcharge Program

There you have it. Not bad right?

As long as you follow the easy steps above, you will be able to test your surcharge program for compliance.

I am contemplating on making a testing program that can test your surcharge program for compliance. Do you think you would find value in this? If so, please say so below in a comment. I would love to hear from you.

Did I miss anything? Do you have any suggestions that should be added? If so, please reach out to me or leave it in a comment below. Thank you for helping me.

Your feedback is what keeps these guides going.

Thank you for reading and good luck with your new surcharge program.

Do you remember running the numbers or working hard to come up with the best pricing? You understood the market, it’s demand and clientele. You sold a fair product or service, at a fair price.

Because of competition, market contraction, or any other influence, a trend emerged. Not a good trend… A trend of “margin creep”.

Margin creep refers to a slow reduction in profit margin over time.

Sometimes this trend is so slow, we do not notice it until it has already taken a drastic toll on us. A good way to explain how sly margin creep can, you know, creep up on you is weight gain or hair loss.

It wasn’t like I woke up one day and was 30 pounds heavier. Or that out of nowhere, I had thin hair. It happened over time. It happened in a slow manner and was so easy to stop if we were only paying attention.

“… woke up one day and was 30 pounds heavier…”

If I only practiced social distancing with my fridge during COVID-19 lockdown…

A compliant fee recovery plan is one of the easiest, fastest, and most accepted way to combat margin creep. Keep in mind, the success of your fee recovery efforts is only as good as the execution of your plan.

In this guide, I will layout a 90-day plan fee recovery plan to have a successful launch of your compliant cash discount or compliant surcharge program. We will cover the following:

• Pre-Launch
  • Notification of Intent
  • Staff Training
• Day 1
  • Clear and concise messaging to the customer.
  • Never surprise your customer.
  • Proper signage with brief explanations that the customer can relate to
  • Training for empathy, not attitude when handling questions or concerns.
• Day 30
  • Report
• Day 60
  • Measure
• Day 90
  • Learn

Before I go too far into detail, if you are a local business creating a fee recover plan, please leave a comment below. Write ”Yes“ if you are and “No” if you are not. You can write more, of course, we would love to see it. I want to use these results for a future guide.

Pre-Launch

Before you launch your fee recovery plan, you will want to build your foundation.

The foundation of your plan is what plants the seed for success. If you skip these steps, you can be sure you will struggle.

One of my favorite quotes, when I want to prepare for success, is by Bobby Unser. From what I gather, he is the one who coined the phrase: “Success is where preparation and opportunity meet”.

“Success is where preparation and opportunity meet”

Notification of Intent

If you did not read our last post about the rules, guidelines, and how to implement, I do recommend that you do. One of the most important parts is the compliance, one of which is the notification to the card brands. Check it out here. Although it is titled “How to Implement a Credit Card Surcharge Program“, it also applies to Cash Discounting as well.

If you are doing a compliant surcharge program, you will need to notify Visa, MasterCard, and your processor at least 30 days prior to the day you take your first surcharge.

The easiest way to do this is to fill out the online forms.

Visa and MasterCard each have a form that merchants must fill out and submit. You can find Visa’s here and MasterCard’s here.

To alert your processor, the easiest way is to contact your merchant representative. If you have trouble reaching your rep, their general support will be the next place to go.

Staff Training

Messaging is by far the most important part of a successful fee recovery launch.

We will get into exactly what kind of messaging and some great examples a bit further into this guide.

I mention this now because messaging is only effective if delivered with care.

We both know that you can not always be there to help the customer through this transition. The transition from paying for their rewards to passing on the fees.

You will need to work with your staff to help them deliver a consistent message. This message is that the transition is in everyone’s benefit. The goal is that they walk away feeling that they would make the same decision, and that they should support you.

We recommend working with the staff on the following:

• Why do we have this fee recovery program?
• This is in everyone’s benefit. They need to understand and feel it.
• How to respond when someone questions, comments or complains about the program.
• How to be empathetic when dealing with a customer.
• Not everything is set in stone.

We recommend role-playing with your staff. It goes a long way and builds confidence. If a staff member is confident, this usually goes with little to no resistance.

Why do we have this fee recovery plan & what are the benefits?

We recommend that you help your staff understand the motivations behind this. Usually this is because we have experienced heavy margin creep.

Try to include other benefits as well. Help them understand how having a fee recovery program can prevent future increases.

It levels the playing field for those who pay with cash. Cash buyers are often subsidizing the costs caused by reward cardholders.

The fact is, now that COVID-19 is here, our customers are more than willing to help us get back on track. Back on track to providing service for years to come. They are willing to help bear the cost, or use a more affordable method such as cash.

How to respond to questions or concerns and not everything is set in stone.

James Shepard of CCSalesPro.com, an expert on fee recovery programs, weighs in. He finds an increase in questions or concerns within the first 30 days of implementation. He states this is usually 1-3%. However, after the first 30 days, that percentage usually settles to 1% or less.

This may not seem like a lot with 1-3 complaints for every 100 transactions. If a merchant does 100 transactions per day, the idea of 1-3 complaints per day can weigh heavy on your staff. After 30 days this dwindles down fast.

There is an easy way to combat this though. James is right when he points out that the first part is to have realistic expectations for you and your staff. Expect a few complaints, but this does not mean you will lose them as customers. It just means they need to adjust to the change.

They need to understand that as costs rise, they always do, this can keep prices reasonable. It is a necessary step. Plus, this change does not apply to everyone! It only applies to those who continue to use cards. If you have a customer who is less than happy about the change, they are welcome to use with cash and avoid any changes.

But how does your staff relay this the way you would?

They need to have empathy. They need to understand that it is not necessary for the markup that is upsetting the customer.

Maybe they are feeling tricked or unfairly targeted? If your staff can put themselves in the customer’s shoes, it can go a long way.

Roleplay with them. “Yes Mr customer, I see how having the extra $0.35 added to the charge seems unfair. But if it is ok, I would like for you to see why this is actually a step that prevents future increases. Plus, please remember, we always have a no-cost option, you can use cash.”

This is where it helps to have a hand back that goes to the customer. We will work on helping you create material for this.

Now, there is the rare case where a customer might not have any choice. Maybe they only have a credit card and do not have cash. It is important to understand that having empathy is not wrong or weak. If there is a rare case, it is good to have a plan for when you may want to waive the surcharge or noncash adjustment. Some do this by pulling cash out of the register to cover the markup.

Day 1

Congratulations, you are on day 1. You have laid out the foundation, trained your staff and you have the right expectations.

So what do we have to do starting today to make this 90-day fee recovery plan a success?

Clear & Concise Messaging

Follow the below for tips on being clear and concise.

Proper Signage

As stated in the previous article, post signage at the entrance and at the point of sale.

If you do not have an entrance such as a kiosk, post above the checkout register. If the point of sale and the entrance are the same point, one notification may be used. In cases like this, we recommend a verbal notification with the option to opt-out. The SurChoice iOS app prompts for a verbal notification prior to each sale.

Example of a verbal notification: “Your total today is $11.35. Would you like to save $0.35 today by paying with cash or debit? Your total today would only be $11.00 with this discount”.

Make sure your signage is clear and concise. It should not be small font, nor worded in a way that is misleading.

No Surprises

Customers do not want to feel like they have been tricked. Be honest with them, show them the signage, and explain when necessary. You will be surprised how many understand this.

Empathy, Not Attitude

There is the rare occasion where a customer might be upset or threatening.

Remember, to remain calm. Listen to their concern and empathize.

They have a real reason why they are upset. It is true that maybe your $0.05 added to the bill may not be the real reason that they are mad, but it may be the trigger.

They need to feel heard. Do not roll your eyes. Repeat back to them their concern. Try to remember a time where you felt the same and can relate to them.

Explain how this solves a problem the impacts a lot of businesses and there is an easy way to avoid this issue, it is to pay with cash. If they point out that they want their rewards or points, often they do not understand that you as the business are the ones who pay for these rewards. Often after they hear that they do a complete 180.

So do not have an attitude or stoop to their level if they are being less than nice. But do try to understand where their frustration comes from. And remember, it is only temporary.

Day 30 – Report on your Fee Recovery Plan

Congratulations, you made it 30 days.

• What did you find? Let’s take time to reflect and report back what we have experienced so far.
• Did you find the implementation of your 90-day fee recovery plan to be as tough as you expected?
• How did repeat customers react after the first week or two?

Now that you see the benefits are starting to take place, let’s keep a close eye out for the next 30 days. The next 30 days are where we are going to measure for the next phase.

Day 60 – Measure your Fee Recovery Plan

• Did your margin increase over these last 60 days?
• What percentage did it increase?
• Did you lose more than a few customers? Did the margin increase outweigh the loss or did the loss outweigh the increase?
• What are you doing with the increased funds in your account? Are you using them to market or increase your offering?

Day 90 – Learn from your Fee Recovery Plan

Wow, 90 days passed.

• What have you learned?
• Is there anything that you would do differently for the next 30 days?
• What have you learned over these last 90 days that you would change?
• How would you design this plan differently for the next business that takes this task on?

Conclusion

In conclusion, 90 days is an important time frame for the success of your fee recovering program. It sets the tone with your customers.

Your intentions are not to penalize for paying with a credit card. It is a method of keeping the costs low for all payment types, including credit cards.

In summary, a successful fee recovery plan has the following in common:

• Pre–Launch
  • Notification of Intent
  • Staff Training
• Day 1
  • Clear and concise messaging to the customer.
  • Never surprise your customer.
  • Proper signage with brief explanations that the customer can relate to
  • Training for empathy, not attitude when handling questions or concerns.
• Day 30
  • Report
• Day 60
  • Measure
• Day 90
  • Learn

Following the above guide will ensure success for your business and your customers.

Did I leave anything out? How did your fee recovery plan launch go?

Questions or comments?

Please say so below. Your engagement motivates us on our writing and guides us on what topics you find most helpful.

What does this mean? This means that the more a business takes in on credit or debit card, the more money we make.

What I am about to tell you goes against what most of the sales professionals, networks, and independent sales organizations want me to admit.

They do not want this out as in their mind, they will make less money and so will their partners. It is my belief that this is not true at all. In fact, we can help the merchant save money and still make a great living while we do it.

Look, those of you who know me, know that I will always put people first. This doesn’t mean that the customer is always right. It means that the person is always more important than the return.

This is where a credit card surcharge program comes into place. Surcharging not only makes sense, it is not that hard to implement.

It is true that there are some complex rules that govern any credit card surcharge program. But we hope that does not deter you as there are many advantages to a fee recovery program.

In this guide, we are going to touch on the rules and regulations. Plus who banned surcharges, then unbanned them. And some tools that will make your fee recovery program easier to put in place and to reconcile.

Here is a brief list of the rules and guidelines if you are implementing a credit card surcharge program:

1. Notify the card brands and your credit card processor, at least 30 days in advance.
2. Do not exceed the cost of your merchant processing or 4%.
3. Signage must be posted, clear and conspicuous.
4. The surcharge needs to be disclosed on the receipt as a line item.
5. You cannot surcharge a debit card, even if the customer runs the card as “credit”. Why the surcharge rules were created
6. A convenience fee and a surcharge cannot be charged on the same transaction
7. A brand-level or product-level surcharge can be implemented, but not both.
8. When refunding a transaction, the full or prorated amount of the surcharge must be returned as well.
9. In the event of a chargeback, the surcharge is also to be returned.
10. A surcharge and the base amount must be charged in one single transaction
11. A surcharge may not be applied to a customer who is in a state where the state has a no-surcharge law.
12. You cannot surcharge a transaction that originates in an area where surcharges are prohibited.

Sounds simple enough, but if it is not done properly, you and your business might face heavy fines and penalties. So let’s do it right.

Note, this guide is only for surcharging. There will be a separate guide for cash discount programs.

Before I go too far into detail, if you are a local business who is implementing your own surcharge program, please leave a comment below. Write ”Yes“ if you are and “No” if you are not. You can write more, of course, we would love to see it. I want to use these results for a future guide.

The Settlement That Empowered Merchants

There is actually a lot of history behind the credit card surcharge, and overcoming the strict rules of non-disclosure. It actually started back in 1968 with the Truth in Lending Act (“TILA”). The TILA, designed to protect the right of merchants to have dual-pricing systems.

“Card issuer may not, by contract, or otherwise, prohibit any such seller from offering a discount to a cardholder to induce the cardholder to pay by cash, check or similar means rather than use a credit card.”

It went through a few twists and turns, eventually the ban was renewed in 1981. Fast forward to 2005. According to Scott Blakeley, Esq. & Brad Boe in an article posted on NACM Southwest:

“In 2005, a pet-relocation company located in Atlanta, Georgia, became the unlikely catalyst to the downfall of surcharge prohibitions”.

It took a long time, but after eight years of litigation, the merchants had won. Visa and MasterCard agreed on a national class action settlement. In January 2013, for the first time in almost thirty years, merchants regained the ability to control a major cost of doing business. You can view more about the settlement here. A quick glance at the document list, it shows dates until recent, that is how intricate this settlement.

There were specific rules put into place.

The Ban of the Ban

There is a full summary of the 2013 settlement and rule changes on MasterCard’s website.

Even though the high courts approved this measure, not every state agreed. Shortly after the decision, states began to install no surcharge laws of their own. There were ten states in total that passed their no surcharge program law, these states were:

• California
• Colorado
• Connecticut
• Florida
• Kansas
• Maine
• Massachusetts
• New York
• Oklahoma
• Texas

Over the next couple of years, merchants began taking a stand. They were challenging the state’s no-surcharge laws. One by one they started to be overturned.

In 2015, Italian Colors Restaurant v. Harris paved the way for the downfall of the surcharging ban in California. According to Foley and Lardner LLP, California district court agreed with plaintiffs and, on March 25, 2015, declared that Section 1748.1 was an unconstitutional restriction of speech because it was a content-based commercial speech restriction that could not survive intermediate scrutiny.

Also in 2015, Dana’s Railroad Supply v. Bondi declared Florida’s no-surcharge law as unconstitutional.

In 2018, Texas dropped theirs after Rowell v. Paxton.

In 2018, one of the biggest ones was New York, Expressions Hair Design v. Schneiderman. New York was one of the last places that the ban was expected to fall.

As of today, there are only 4 states that still have no surcharge program laws.

• Colorado
• Connecticut
• Kansas
• Massachusetts

New York, Maine, and Minnesota have opened up the rules but wherever you post prices, it must be the credit price rather than the cash price.

The Rules and Regulations of Credit Card Surcharges, in Detail

Below are the rules, in no particular order.

Notification Requirements

You must notify the card brands and acquirer in writing, 30 days prior at minimum.

Visa and MasterCard each have a form that merchants must fill out and submit. You can find Visa’s here and MasterCard’s here.

To alert your processor, the easiest way is to contact your merchant representative. If you have trouble reaching your rep, their general support will be the next place to go.

Surcharge Amounts Are Capped

When implementing a surcharge program, there are 2 caps to be mindful of. Don’t charge more than your average cost of acceptance and never exceed 4%.

The general idea is you cannot profit from this surcharge. This means after you collect the recovery fee, the net should be no more than if you sold as cash.

Let’s look at an example: If your cost of acceptance was on an interchange-plus pricing, and you take a credit card that has an effective rate of 2.95%, you cannot charge 4% to the customer. This would be profiting from the surcharge and that is not allowed.

What if you do not know the cost of the card until your statement comes at the end of the month? That is ok, you may take your average cost of acceptance to set your surcharge rate.

An example of the above would be if you took a Signature card for 1.70% and a rewards card for 2.95%. It is ok to take the average of the two and pass on a fee of 2.32%.

There is one caveat to the above, even if your cost is higher than 4%, you still cannot exceed 4% to the customer.

Clear and Conspicuous Signage

You must alert the customer of your surcharge program at the point of entry and at the point of sale.

You cannot catch a customer of guard. Some states have strict laws about deceptive pricing, California for example. You are free to create your own signage. Make sure to give the customer an opportunity to opt-out and choose another payment method.

The card brands provide signage that you can use. It must disclose that the surcharge does not exceed the cost of acceptance.

For e-commerce transactions, the notice must be on the first page. This should be the same page that references the card brands.

Surcharge on Receipt

The amount of the surcharge must be itemized on the receipt.

Example, if there is a $10 transaction and there is $0.40 surcharge, it needs to list out as:

• Base Amount: $10.00
• Surcharge Amount: $0.40
• Total Charge: $10.40

There is also a rule from the card networks to pass information about the surcharge in the approval and settlement. However, it is often viewed that it, if the merchant does not have this ability with their technology, following the rest of the rules, is sufficient.

No Debit or Prepaid Cards

According to the card brands and the settlement, you can only surcharge a credit card. You cannot charge a debit card or a prepaid card.

This poses a major challenge when implanting your own credit card surcharge program. This is because many merchants.

The reason this poses a challenge is that debit cards are often mistaken for credit cards. They do bare the debit identifier on the front of the card. The issue is that many clerks may not notice the identifier since it may also bear the Visa or MasterCard logo.

Merchant reps will often set up the merchant accounts with credit and signature debit. Since the cards generally have a major card brand logo, it doesn’t need a pin pad. Swiping it as credit will still debit their bank account. The customer often chooses the credit button to avoid being prompted for a PIN number.

Even if the debit card is run as a credit, you still cannot charge a surcharge.

You will need the ability to filter out the debit cards. Either you or your employee is really good at checking, or you may use technology to help you.

If you are doing e-commerce, you will definitely need technology that can check the card type. If it is debit, the software needs to remove the surcharge.

I recommend that you check the card before it goes through its authorization. This is important and in my opinion, a requirement of a responsible merchant. This is not only to prevent a potential chargeback or complaint, but to protect your customer. If you do a pre-authorization to check the card type, then the real transaction, you risk locking up the customer’s available funds. They may need access to those funds to feed themselves, locking it up over a surcharge is not ok.

There are some good tools that can help with this, I will list them out below under “tools”.

Again, make sure that you do not charge a surcharge on a debit card.

Sometimes this means you may have to “test” the system with your own debit card.

According to an article on CardFellow, a merchant can be fined $1,000 per occurrence, increasing to $5,000, $10,000, and $25,000 per occurrence for repeated violations.

Do Not Combine a Surcharge With Another Type of Fee Recovery

If you are going to surcharge a transaction for using a credit card, only the surcharge can apply.

This means that if you have a surcharge, you cannot add a convenience fee or non-cash adjustment to the same transaction.

This is especially valid for those who are doing e-commerce. If you are doing online, most of your transactions are going to be paid with a card of some type. I would suggest choosing the surcharge method. This way, if a customer pushes back, you can still capture the sale by presenting a no cost debit card option.

A Brand-level or Product-level?

Most of the card brands allow you to do a brand level surcharge, or you can do a product level surcharge. But you cannot do both.

The most common is a brand level surcharge. This means all cards in that brand get the same surcharge, unless it is a debit or prepaid card.

Friendly reminder, all card brands insist that you to treat them equally. If you are applying a brand level surcharge to one card brand, you need to apply a brand level to all card brands. If you accept all card types, you cannot charge a surcharge on a Visa but not on a MasterCard.

A product-level surcharge applies the fee to a particular card type of Visa or MasterCard. For example a Visa Signature card or a World Elite MasterCard. It is difficult to surcharge at the product level and it is not practical for most merchants.

Refunds & Surcharging

When a transaction requires a refund, you must to return the surcharge that you collected back. It is ok to prorate if it is a partial refund.

For example, if you do a full refund on a $10 item, the total was $10.40 with the surcharge, you need to return the full $10.40.

When doing a partial refund, this takes a bit of math. You need to return the surcharge at the prorated amount. If you are giving back $5 of a $10 item, which is 50% of the original transaction, you need to refund 50% of the surcharge, $0.20.

A good software can take care of this for you.

No Separate Transactions

The card brands do not want to see 2 transactions for one sale or donation.

This means when you run the transaction, combine the base with the surcharge.

For example, if the transaction is $10.00 and the surcharge is $0.40, capture the full $10.40 as a single transaction. Do not do one transaction at $10.00 and another at $0.40.

When a customer looks at their credit card statement, they should only see a single authorization for the total amount.

Surcharge Only Where Not Prohibited

If receiving an order from a different state, be sure that there isn’t a no-surcharge law at their location.

If your business operates out of a state that does not allow surcharging. You may face legal penalties.

Useful Tools to Help You with Your New Surcharge Program

Signage

Retail location will need at least 2 printed signs, one at the point of entry and one at the point of sale.

If you go to Google, there is no shortage of sign examples. We like ours to be simple and official. This is why we point our clients to card brand websites for official surcharge signage. Visa has a really good one that you can get here.

Bin Lookup services

A BIN is the beginning part of a credit or debit card. It tells you a lot of useful information.

With the BIN lookup, you can tell a lot about a card. You can see which card brand, network, credit, or debit, if it is prepaid, which country and what bank issued the card.

My favorite tool for this is BINlist.net.

When taking a large transaction over the phone or internet, I recommend checking the BIN first. Go to binlist.net and enter the first 6-8 digits. If it is a debit or prepaid, do not add the surcharge. If it is credit, you should be in the clear as long as you follow the rules.

Invoicing

Many accounting systems have invoicing as an option.

We often recommend this in combination with a hosted payment page. This is because fee recovery is not supported by most of the popular accounting software.

We like Wave for invoicing.

Hosted Payment Pages

Hosted payment pages are awesome and very much underutilized.

There is a known barrier for small businesses who want to make transactions online. It often involves developers who often overcharge. Setting up a website is quite easy now that we have WordPress. But implementing a shopping cart, SSL encryption certificate, and automation can be daunting.

A hosted payment page takes care of all that for you, especially the security part which is what I love. It removes you from the PCI scope (this does not mean a processor will relieve you from PCI compliance).

Look at these as a blank payment form for your business that is hosted by your processor. You can send the link by email, on your invoice, in a letter, a text message, or put as a link on your website.

We find this to be a great option for commercial rent, donations, or for small businesses.

There is a new use case that I was not expecting. It seems that there are some it to collect in-person payments, while social distancing during the Coronavirus pandemic.

The most creative use case that I saw recently was a large QR code in the front of the take out restaurant. They asked customers to please pay their total by scanning the code on the door.

My favorite tool for this is PayNow.io. They provide a hosted payment page that has a fee recovery program built-in, which is very unique. It works great on mobile and is super easy for clients to set up. At the time of writing this guide, they are giving the pages away free to help with those affected by COVID-19.

Hand-Backs

While I do not have a 3rd party source to refer you to on hand-backs, I like to recommend creating them on your own.

Customers rarely complain or question the surcharge nowadays. It has become more common. But in the beginning, some of your customers may ask questions on why you are implementing it now. Training your staff is by far the hardest part when it comes to consistent messaging. Having a printout that your employees can hand back to the customer is very useful. It can explain what and why in a positive and consistent manner.

Reconciliation

The final part of this guide is the reconciliation. This is important, not only for understanding your finances but also for your tax reporting.

There are a few things you need to track:

• How many credit transactions
• How many debit transactions
• What your total gross collected is
• What part of that gross goes to pay your merchant fees
• What part is left over

You are accepting a transaction that has a surcharge within it. That transaction as a whole, will incur rates and fees from the credit card processor. And the gross collected is reported on your 1099.

For example, if you did $10,000 in retail and you charged a 4% surcharge. You would have collected $10,400. This means that according to the processor, you need to pay fees on $10,400, and according to the sales tax you took in $10,400.

To make it easier, you should ask your merchant provider for a flat rate. The flat rate should balance out the transaction. Your flat fee should equal the exact amount of the surcharge you charged to the customers.

For example, if you charge $10.00 plus $0.40, total $10.40. You charged a 4% fee. But if your flat rate with your processor is 4%, then your flat rate would be more than the surcharge you collected.

I want to make it easier for you. If you are charging 4%, then you will want to ask your processor for a 3.847% flat rate. You can see the value of this in bigger numbers. Let’s assume you are doing $30,000 in volume. Your surcharge at 4% would be $1,200. Your total would be $31,200. If you have the flat rate, $31,200 x 3.847 = $1,200, which balances you out.

Next, ask your merchant for daily discount / net funding. This is where the fees are taken out of each transaction before it deposits, rather than the end of the month.

If you process $10.00 plus $0.40, total $10.40, they will only deposit $10.00. This saves you from sticker shock at the end of the month and makes reconciliation on the credit cards a breeze.

Each month, you want to make sure that your credit card fees balanced out to zero. You will still pay your debit card fees.

At the end of the day, your margin will greatly increase due to no longer having credit card fees as an expense.

Conclusion

There you have it!

If you are going to implement your own surcharge program, you now know the rules to follow.

There is no doubt that it is complex, but it is completely achievable.

The hardest part of this whole thing, is making sure that your staff follows the steps that you lay out for them.

Did we miss anything?

If you found this post useful, please kindly say so below in the comments. If you did not find it useful, please kindly say so in the comments. Your comments are what gives me the motivation to share knowledge.

Thank you so much!

It wasn’t until my processor raised the rates on my merchants for the 6th time in 3 years that I got fed up.

I vented to my supervisor that…

“This feels wrong is was against what I offer to my merchants and not raising their rates”.

He explained that this is how the industry works and it is like this everywhere. Needless to say I was not satisfied with that. 

But the good news is, it doesn’t have to be this way.

I plan to show you how a compliant cash discount program, or a compliant surcharge program, can do a lot of good. 

• How the merchant benefits from a compliant cash discounting or compliant surcharging program
• The consumer really can benefit from such programs
• How

You’ll love this. Hear me out…

Before I go too far into detail, if you are a local business who learning about a compliant surcharge program, please leave a comment below. Write ”Yes“ if you are and “No” if you are not. You can write more, of course, we would love to see it. I want to use these results for a future guide.

The Ban of the Ban

I started to study why the US has some of the highest interchange in the world. Do you want to know what I found? 

The US consumers appear to be the driving force. The reason interchange goes up, thus the reasons that prices increase. 

The consumers want their rewards. Free miles. Cashback. 

What the consumer fails to understand is that their Hawaiian Miles are not paid for by the airline. Their Disney reward points are not paid for by Disney. Someone has to pay for them, and it is always the merchant. 

The rewards are generally paid for by the income from their interchange. The issuing banks are sharing their revenue to co-brand their card offering. 

The card brands release their updates around the months of April and October. When they do these ”updates”, interchange rates tend to increase as well. 

Often they market that some merchants will pay less interchange due to these updates. Yet, if we are being transparent, the majority is paying an increase in their rates.

Back in 2013, a big class-action lawsuit paved the way for a compliant surcharge programs. But, the rules and requirements to pass on the surcharge were complex unilateral on a state level. 

This left almost a dozen states who then implemented a ban on credit card surcharging as a whole.

In 2010, the Durbin Amendment expanded on the Dodd-Frank law. Placing limits on transaction fees when using a credit or debit card to make purchases. 

The Dodd-Frank Wall Street Reform and Consumer Protection Act, included wide-reaching financial reform in the wake of the 2008 financial crisis.

One of those limits being the ability to incentivize customers for cash payments.

“(2)(A) IN GENERAL.—A payment card network shall not, directly or through any agent, processor, or licensed member of the network, by contract, requirement, condition, penalty, or otherwise, inhibit the ability of any person to provide a discount or in- kind incentive for payment by the use of cash, checks, debit cards, or credit cards to the extent that—”…

Why interchange updates lead to higher prices for businesses and consumers

As stated above, the card brands tend to update their interchange rates twice per year.

Independent sales organizations (ISO’s), often raise their rates at the same time. They do this to piggyback of the messaging and to not raise attention that the ”updates” are separate. 

In fact, according to the Nilson Report, as of 2019, interchange rates were already 77% higher than it was in 2012.

Merchants often point at merchant services as being one of their highest business costs at an average of 3%.

More often than not, the business will have to raise prices to keep their lights on. This often causes small businesses to price themselves too high when compared with a big box or Amazon. 

Let’s look at a quick example. Bob owns a local store where they sell modern, blue coffee cups in person and over their online store (I am not that creative, I write this while looking at my coffee cup, guess what color it is?). These coffee cups are $19.95. Amazon also has it for $19.95.

Bob doesn’t want his customers to go to Amazon as he loves serving his community. Bob uses Square to process his transactions. He likes that it is an easy rate to figure out (swiped 2.6% + $0.10, keyed rate $3.5% + $0.15).

Bob’s cost for the coffee mug is $17. Which gives him a 15% profit margin on the sale.

Bob get’s online orders from friends or referrals. In this case, he receives 1 order for 1 mug.

Forget about the regular costs of business such as insurance, power or employees. Look at this as one transaction and one cost. The cost of the mug is $17. The cost to run the transaction on Square is $0.75 (17 x .035 + .15).

This raises his cost to $17.75, and reduces his profit margin down to 11%. Because of this, his profit margin reduced by 27% after the transaction.

Now, if interchange goes up, Bob will increase his price or have to further reduce his profit margin. 

If he increases his price, he will likely force many of his new prospects to go to Amazon. If he doesn’t, he will lose another 27% of his margin.

As these ”updates” tend to happen often, prices are in-turn increased at the retail level. Causing the consumer or business to pay a higher price.

With that, as interchange goes up, so do the prices that we all pay.

But do not worry, there are alternative solutions to this if we all work together.

Why the US has some of the highest interchange in the world

To some, it may not be surprising to find out that we have some of the highest interchange rates in the world.

Many would assume Australia, since they have some of the highest prices in the world. Especially for anything that is technology related. 

But would you believe, Australia actually has some of the lowest interchange rates? Why is that?

For starters, in 2017 the Reserve Bank of Australia had announced an Interchange fee cap. This cap applies to domestic transactions for both consumer and commercial cards.

They also stated that interchange fees for credit cards won’t allow a fee to exceed 0.88%. And debit fees cannot exceed 16.5 cents (if levied as a fixed amount) or 0.22% (if levied as a percentage amount). These include Goods and Services Tax (GST).

Now, back in the US, in 2003, the merchants won a class-action lawsuit that changed everything. They were now able to pass the fees onto the customer as a surcharge. Before 2003, the card networks and brands had a strict ban on this. It is still banned in most parts of the world.

It started with a few locations, then more and more.

Fast forward to now, while we are seeing major changes due to the COVID-19 pandemic, change is rapid. 

In many areas where surcharging is more common, it is day to day business. But the areas that do not have this program wide-spread, are in the perfect position to try this program out.

Consumers are watching their favorite restaurants and stores close their doors.

They are ordering food delivery by the same company that provides their taxi rides. 

They are willing to pay more for the convenience or pay cash to support their community. 

Back to Australia. with all the businesses who are surcharging, it was bound to make a few waves.

Because people were using their cards a bit less, the card brands had to do something. They weren’t going to sit and watch their record-breaking margins deteriorate.

Interchange, designed to incentivize banks and institutions to encourage credit card acceptance. Was now doing the opposite… 

The merchants who pay for everyone’s cost and premium rewards were pushing back at the networks. 

The only way to try and regain that share was to lower the interchange costs to the merchant.

According to Wikipedia: 

“Since the Reserve Bank of Australia’s 2003 requirement, that the card brands remove the ‘no-surcharge’ rules that had previously been in effect, Australia has seen a significant increase in the number of businesses opting to pass on transaction costs, with approximately 42% of Australian businesses assessing transaction fees in 2013. The competition amongst the card brands in the wake of the changes has significantly reduced the interchange fees assessed to merchants”.

Up until 2013, it was not allowed to disclose what you paid on your merchant fees or to pass on a fee to a customer.

Now that we have this ability to offer a compliant surcharge program and to pass on the fees, we are seeing this catch on more and more.

Why surcharging and or cash discounting may hold the key to lower prices for everyone

We can all agree that the consumers are shooting themselves in the feet, right? 

Let’s look at what we know: 

• We know interchange went up over 77% over a 6 year period, during a time where there was an increase in card-holder reward offerings. 
• We also know that one of the main reasons for an increase in interchange is to pay for the premium rewards. 
• CreditCards.com did a survey and found that the average cash back rate on a card was 1% to 1.5%. 

Since merchant services is one of the highest business expenses, as it goes up, so do prices. 

Businesses need to decide to raise their prices or continue to see margin creep.

It is my opinion that the pursuit of premium rewards had caused the cost to outweigh the returned reward.  

The difference between surcharging and cash discounting

If you search google for the difference, you get a snip-it from an eHopper.com article that states the following.

”The key difference between compliant surcharge programs and cash discounts is that with surcharges, you are adding a fee to credit card transactions, while with cash discounts, you are providing a discount off the advertised sales price when customers pay with cash.”

When a merchant has a compliant surcharge program, all prices reflect the ”cash price”. This allows them to market the lowest price and complete with some of the bigger box stores.

This means that when you walk up to a register with a $10 item, your new total will be $10.35 (assuming 3.5% compliant surcharge program). 

A true cash discount, is where you give a discount for paying cash. The advertised price is the ”credit price”. This means if you walk up to that same register with a $10 item, your price will be $9.65 for cash (assuming a 3.5% cash discount). 

A great example of this is gas stations. Do you remember when you could get a discount for paying with cash?

There is a small issue with the modern cash discount offering. Merchant services have figured out that they can advertise the cash price, state that at the register where a service fee is then added. If paying with cash, they will remove that service fee. 

Visa and many other groups are not quite agreeing with this model. But due to the Derbin Amendment, it may be OK. 

I will get back to that more on that on another post. 

Back to why this is a good thing…

The benefits of a compliant surcharge program or cash discount program for the merchant

Ok, now it is a benefit for the merchant seems like a no brainer.

A compliant surcharge program allows the merchant to pass on the fees for credit transactions and remove that expense, right? Yes! There is more though. 

Today, most retailers build int he cost of credit cards into their prices. 

Let’s look at Bob again. Bob sells coffee mugs for $19.95. 

We know you could get a similar mug from Amazon.com for a few pennies less.

But, now that surcharging is being implemented more often, Bob could remove that from his price. Allowing him to compete with other stores. 

Another benefit is that Bob’s cash-paying customers are ecstatic because they are no longer paying to cover the cost of reward cards. It levels the playing field.

If a store, like most stores now, has a low profit margin on their products. This fee recovery could help increase the margin.

For example, if Bob’s coffee mug costs $18 after all expenses including card, and he is selling it for $19.95. This gives Bob a 10% profit margin. 

If a fee recovery program was in full effect, he would now profit almost 13% which is a 30% increase in margin!

Here is the juicy part. 

People ask me all the time:

“How can I lower my interchange costs”? Or “How can I get free credit card processing“?

My answer is simple: 

“Stop taking credit cards”.

They always think I am joking. Of course if they do not take cards they won’t have to pay fees.

All joking aside, I recommend that they implement a compliant surcharge program and start to pass the high cost of credit card acceptance onto the customer.

I am saying if you take fewer cards, or if Bob down the street takes fewer cards, the card brands are going to incentives you to take more of cards…

How do they incentivize you? By lowering the interchange costs, of course!!!

This is exactly what happened in Australia and this is exactly what is going to happen in the United States. 

Plus there is more benefits that we will cover later on. Let’s talk about how the consumer benefits from this.

How consumers benefit from this model

This is where it is a bit tricky for people to understand. 

But the fact that you had the back story above, I am willing to bet that it is a lot easier to understand now.

By having a program that incentives for cash, consumers pay less for the goods or services they are buying. 

They are also protecting themselves from future increases due to interchange updates.

They will invoke greater competition with the smaller retail and big box stores. 

I imagine that the card issuers are going to get creative and find new rewards they can offer you. Rewards that are not funded by the merchant. Thus, lowering your costs even more at your favorite places of business.

Conclusion

There you have it!  With a compliant surcharge program, it is a win/win! The merchants benefit by increasing their profit, lowering their costs, and by new marketing opportunities when it comes to competition. 

Consumers benefit by gaining access to lower, and consistent pricing. 

The quicker this happens, the quicker the country can take back control from the card brands.

If you haven’t already done taken a moment to compare the value and opportunity of a compliant surcharge program, or any other fee recovery program. I encourage you to do so.

Check with your processor to weigh out your options. If they can’t do it, let us know and we will help you find someone who will.

Do you like this post? Comment below and tell me if you agree or disagree that a fee recovery program could stop price increases due to interchange updates.