Learn how to navigate surcharges and payment fees to keep your SMB profitable and customer-friendly. We’ve put together a guide with the help of Pin Payments which covers the basics of merchant service fees, the impact of surcharges, and key tips for compliance and transparency.
Running a retail business can feel like a juggling act, with tasks that range from inventory to staffing to managing budgets, all while maintaining a consistent customer base. Understandably, certain areas of business can be overlooked, and one such area is payment surcharging and fees. Many business owners do not understand what fees make up appropriate surcharges and aren’t aware that different payment methods have varying costs. Whether it’s credit card processing fees or surcharging costs, understanding these additional fees is crucial for keeping your business profitable and maintaining customer trust.
Pin Payments offers a unified approach to payments for small to medium-sized businesses. Supporting over 13,000 companies in both Australia and New Zealand, they can help your business accept payments from debit and credit cards bearing the Visa, MasterCard and American Express brands without requiring a merchant account. This makes the payment solutions provider well placed to help guide us on the complexities of payment fees.
Understanding surcharges and fees
Merchant service fees
A merchant service fee is the fee your business will pay to your service provider for accepting certain types of payments. Whilst this price varies, depending on your provider, it is typically 0.7 percent for contactless debit card transactions and 1.5 percent to 2 percent for domestic credit card transactions. Make sure you’re on a plan that works for your business and if you have any doubt, contact your payments provider. Keep in mind that other payment options like international, commercial card payments and buy now pay later (BNPL) are typically higher.
Surcharges
Surcharges are additional costs added to the price of a product or service that are typically used to cover the cost of specific services or to offset particular business expenses. In New Zealand, common surcharges include credit card fees, public holiday surcharges, and delivery fees. Surcharging should never be more than your additional cost for accepting that particular payment method or group of payments methods. Any costs associated with doing business, i.e. POS costs, staffing costs, and electricity, should not be included in any surcharging.
Credit card surcharges are charges applied when customers pay with a credit card. In New Zealand, it’s legal to pass on the cost of credit card fees to customers, but it must be done transparently. As of 2020, the Commerce Commission has been keeping a close eye on businesses to ensure surcharges are charged fairly.
While surcharing can help you recoup the costs of higher cost payment methods, they need to be calculated responsibly. Likewise, they are not going to be relevant in all situations to all merchants.
When deciding upon whether surcharging is applicable for your business consider the following:
- Any additional costs of accepting different payment methods.
- The actual cost of surcharging (i.e. is it going to take staff and consumers longer to process a payment).
- How will this affect your customer experience? Surcharging can impact the speed of transactions.
- Any impacts on revenue such as lost or gained customers depending on the payment methods and surcharging applied.
The Impact of Surcharges on Customer Relationships
While surcharges can help offset costs, they can also impact how customers perceive your business. Transparency is the golden rule, customers are more likely to accept additional charges if they feel informed and understand the rationale behind them. Surprises at the checkout can lead to frustration and lost business.
Tips for Managing Surcharges:
- Be honest: Always disclose surcharges upfront. Whether it’s a sign in your store or a note on your website, clear communication helps build trust. The Consumer Guarantees Act (CGA) and Fair Trading Act (FTA) require businesses to be upfront about any additional costs. Hidden fees can lead to complaints and potential legal action.
- Keep fees reasonable: Charging exorbitant surcharges can drive customers away. Ensure that your surcharges reflect the actual cost to your business and nothing more. As of 2020, any surcharge on credit card payments must not exceed the cost incurred by the business. This means you can only pass on the exact cost of processing the payment, and no more.
- Automatic surcharge calculation: Look for providers who offer automatic surcharging calculation as part of their service. This ensures that fees are reasonable and reflect the payment cost to your business.
- Offer alternatives: Consider offering payment methods that don’t incur a surcharge, like debit cards or cash, giving customers the option to avoid the extra cost.
- Educate your staff: Make sure your team understands why surcharges are in place and how to explain them to customers. This will help them handle any questions or concerns that arise.
Navigating Regulatory Requirements
In New Zealand, businesses need to be aware of the regulations surrounding surcharges. The Commerce Commission monitors these fees to ensure they are fair and not misleading. Breaching these regulations can result in penalties and damage to your business’s reputation.
Understanding surcharges and fees is essential for every retail business in New Zealand. It’s about striking a balance between covering your costs and maintaining customer satisfaction. By being transparent, reasonable, and compliant with regulations, you can use surcharges effectively without compromising your customer relationships.
