Due to a $7.25 billion dollar settlement reached in 2012, merchants are now allowed to charge customers a surcharge if they choose to pay with credit. Merchants now have an opportunity to earn the same amount from all customers, regardless if they pay using cash or credit. But should merchants capitalize on this opportunity?
From a customer’s viewpoint, surcharging is an additional expense and could be a deal breaker when it comes to finalizing a purchase. Case studies show that most customers do not want to pay a surcharge. In New Zealand for example, restrictions on surcharging were lifted two years ago. In that short time 90% of consumers indicated they would rather leave the store empty-handed than pay more due to a credit card surcharge. And real world examples of surcharges hurting your sales can be seen in a Canadian study where a 3% surcharge would cause 95% of credit card shoppers to switch stores.
Credit surcharges can also cost your business future customers if unhappy customers use social media or word of mouth to discuss your company’s policy of charging “usage fees.” Statistics show consumers are 26% more likely to share a bad experience with a friend. Merchants should also avoid alienating credit card users. An MIT study showed that consumers may spend up to 100% more when they pay using credit instead of cash. Customers who don’t have to monitor the amount of cash they’re carrying are more likely to make impulse purchases, spend more freely and make purchases of high denominations.
Customers have embraced debit/credit cards for a number of reasons: fraud protection, limits of liability, automatic warranties/insurance, etc., while cash is quickly losing popularity with the general public. In today’s economy, business owners should be focused on keeping customers, rather than squeezing a few extra dollars out of potential buyers.