April 13, 2023

Industry Trends

When is it Appropriate to Apply a Payment Surcharge?

Industry Trends

Surcharges are somewhat common across a range of retail contexts, and yet they are also something of a controversial and murky topic, particularly in the US where each state sets its own laws on their use. The question that merchants have to ask themselves is when implementing a surcharge makes sense, so let's discuss this in detail so that you don't get caught out.

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The situations in which surcharges can be used

First and most obviously, you should only use surcharges if you're allowed to do so under state legislation where your business is based.

While Supreme Court approval for surcharges was issued in 2017, with this practice being quantified as a matter of free speech, there are some parts of the US where it remains entirely illegal, including Connecticut and Massachusetts.

In terms of whether you should use them, it's typically accepted as a means of minimizing the expense of accepting certain forms of payment, specifically from customers using credit cards to make purchases.

Given that processing credit card transactions can cost merchants a significant sum each and every time, it's arguably appropriate to implement this at the checkout should a credit card be selected by the customer.

Ways to help customers accept a surcharge

If you're able and willing to apply payment surcharges, then you need to also remember that this could be a stumbling block that dissuades certain customers from going through with a purchase. Thus you've got to incentivize them to overcome any surcharge-related consternation and continue with the transaction when they get to this point.

One option is to ensure that you're going above and beyond to give them as much fitment information as possible, in the case that the item they're ordering is part of a wide range of superficially similar products with very different specifications. Spark Shippings list of the best Shopify fitment apps is a good starting place to integrate this functionality within your site.

Another tactic is to ensure that you make it clear that surcharges will apply for particular forms of payment from the moment that customers arrive. That way there won't be a nasty shock when the charge appears at the checkout, because they'll already be aware it's on the way.

Options for avoiding surcharges altogether

Let's say that you've got no option but to add a payment surcharge for certain methods because failing to do so would cost you thousands of dollars every year, and squeeze your margins to breaking point.

The good news is that you can still apply the surcharge where necessary, but work around needing to use it so that customers don't feel like they're being stiffed whenever they go through to the payment page.

For example, lots of merchants choose to switch things up, and rather than adding a surcharge, they instead offer a discount to those who don't pay via credit card. So for anyone purchasing with a debit card or another quality payment platform, a small but appreciated amount will be knocked off the bill at checkout.

Another option is to price your products so that you've got more room to soak up payment processing fees, without simply passing them on to customers directly. Make sure that you are offering value in other ways, whether that's in terms of things like free or discounted shipping, access to exclusive digital resources, or anything else that bolsters the appeal of your offerings.

It doesn't need to be a race to the bottom, and people will be willing to pay a little more if they know that the service they are receiving is worth it, rather than being run on a shoestring and still hitting them in the wallet when payment is taken.

Final thoughts

The reality of payment surcharges might seem insurmountable, especially if you're a smaller merchant and you worry about what impact it will have on your sales if you apply them.

Luckily this is not a black-and-white issue, but one with its subtleties, so consider all your options and think about using some of the strategies covered above to reach an amenable arrangement.