Debit Surcharging - To Surcharge or Not To Surcharge...?

I seem to get many questions about Merchant's wanting to surcharge on Debit & Credit Card Transactions to help off-set payment processing expenses.

First, I will tell you the facts and secondly I will share my thoughts on "surcharging" and hopefully this will help you make the right decision.

In Canada, you can not surcharge a convenience fee on credit card transactions, however, you may surcharge a convenience fee on debit transactions.

Most Bank Merchant Account Services do not offer this as an option. However, the Private Label Merchant Account Service Companies do.

Usually the way it works is, the Small Business Owner will decide on the amount to be surcharged and between the Merchant and Payment Processing Company will split the profits in half.

Example: Merchant decides to surcharge 50 cents on debit transactions. Let's say the Merchant's Transaction fee is 10cents and the agreement is that the Payment Processing Company gets half of the Surcharge profits.

50cents - 10cents = 40cents divided in half = 20cents.

Therefore, the Merchant would receive 20cents on each debit transaction to help off set expenses.

Here are my thoughts on this:

I think the only time it is appropriate to surcharge on your Debit & Credit Card Machines is if you are a type of business like a convenience store and your profits margins are 10 cents.

Let's face it, some customers want to buy a sick of gum with their debit card, but if your profit margins are only 10 cents and it costs you 10 - 15 cents per transaction, well then you are breaking even or losing money. In this case, I would suggest the Merchant to use Surcharging to stay profitable and still provide the convenience to their customer to be able to pay by debit, if so desire.

However, most Small Business Owners have more of a profit margin then 10 cents and when you surcharge a customer additional 50 cents just to be able to pay for you goods and services, it can leave a bad taste in your customer's mouth and you risk losing repeat business.

What I recommend is raise your front end prices to off set your Debit & Credit Card Machines expenses. If it is costing you approximately 50 cents - one dollar per sale, then raise all you retail prices by 50 cents or a dollar, tack it on the front end.

Let's say your average ticket is $47 most consumers will not notice you raised your prices and now your average ticket is $49.

Consumers do notice a surcharge. In there minds they just spent money in your business and then when it comes to purchasing for the goods and services your company charges them to by able to make a payment can leave a sour taste in their mouths and you risk a repeat visit to your business.

I recommend not falling victim to some sales rep trying to convince you that you can cover your payment processing expenses by surcharging on your point of sale terminal. Take a look at this article about surcharging and how consumers feel about it. - Click here to read it.