Whether you are running an online or brick-and-mortar store or have a business-to-business payment model, accepting credit card payments can work in your favour as it is a preferred payment method among customers. Offering a credit card payment option is a personal choice, so consider all angles and choose wisely.
Until last year, many small business owners faced high credit card interchange fees (or processing fees), which they could not pass on to customers. But this changed after Canadian merchants filed a class action lawsuit against Visa and Mastercard.
What Changed in Credit Card Surcharge for Small Businesses?
As part of the settlement to the lawsuit, from October 6, 2022, merchants can charge a surcharge at the point of sale (POS) if a customer opts to pay via credit card. To add the cherry on top, on May 18, 2023, Visa and Mastercard reduced the processing fee by up to 27% for almost 90% of small business owners. Merchants can charge a 0.95% annual weighted average interchange fee for in-store transactions and 0.95% for online transactions. But to qualify for this lower processing fee, small businesses should have less than $300,000 in annual Visa sales and $175,000 in annual Mastercard sales.
These changes have made it easier for small businesses to accept credit card payments without hurting their margins. But before you begin charging surcharges to customers, you should meet specific requirements to ensure proper implementation of credit card surcharging.
Requirements For Small Businesses to Implement Credit Card Surcharge
Firstly, understand that a surcharge is a fee charged to consumers for paying via credit or debit card. It is different from the convenience fee you levy for other services.
Amount of Surcharge
When you decide to implement a credit card surcharge, determine whether you want to add a surcharge on brands (companies and banks that give you access to credit card networks) or products (standard card, premium card).
When charging at the brand level, apply a uniform surcharge across all brand cards, irrespective of the credit networks. You can levy different surcharges between credit card categories at the product level. It would help if you determined the surcharge on the credit card used and not the goods or services purchased.
A merchant cannot apply a surcharge higher than 2.4% or the actual cost of accepting the credit card.
Notifying the acquirer
After determining your surcharge model, you must give a 30-day notice to the acquirer (bank of company offering access to credit card networks like Visa and Mastercard) that you want to start surcharging. It is better to send an email and get a confirmation of receipt.
Acquirers will accept your notice of intent to surcharge credit card transactions. However, some may not be prepared to facilitate it, as they have to configure the POS to show the breakdown of the credit card surcharge on the receipt. (Until last year, there was no provision for showing the surcharge as a separate item on the payment receipt.)
You should educate customers about this change through proper disclosure when implementing a surcharge. It includes displaying information at the entrance of physical stores, in-store and online POS, and on every receipt. The Canadian Federation of Independent Business (CFIB) has made available downloadable posters for in-store and online disclosures.
Setting up the System for Accepting Credit Card Payments
If your business is not yet accepting credit card payments, you can consider offering this payment option by setting up the system. Merchant banks and payment service providers offer a complete credit card accepting hardware and software packages. You can opt for an online POS, mobile card reader, in-store card reader, or over the phone.
Beware of fraud, as you will handle customers’ sensitive credit card data. Make sure your payment service provider is genuine and approved. Never store customer credit card data, and train your employees on handling credit card billings and data. Also, if a customer claims a chargeback on a credit card, the impact will trickle down and affect the business. Consider this chargeback cost when calculating expenses.
Many businesses hesitate to charge surcharges to customers over fears that it will discourage them from using a credit card. However, the U.S.A. has been charging up to a 4% surcharge on credit card transactions since 2013.
Contact Ford Keast LLP in London to Help You with Credit Card Payment System
A professional accountant does more than make financial statements. They can help you set up payment processes and information systems. To learn more about how Ford Keast LLP can help you set up credit cards and other payment systems, contact us online or at 519-679-9330.