Small Stuff: Charging Customers Credit Card Fees

Old adding machine

I usually write about larger themes on business growth.  However, it’s often the small stuff that can hurt.  Passing on credit card fees to customers is a sure way to piss them off.

I’ve noticed many businesses in both the retail and service sectors are charging their customers extra to pay with credit cards.  From small restaurants to Fortune 500 utilities, these companies tack their own merchant processing fees onto the customers’ bill.  Now, it’s perfectly legal to do so if they disclose it.  But is it worth it?

As a business owner, I don’t enjoy paying for the privilege of accepting credit card payments from my customers.  I’m also not an advocate for mega-giant banks; but I do accept the reality that the banks are providing a service by processing those payments for me.

Simply put, the credit card provider is facilitating the transfer of money to my bank account.  The alternative is to receive payment by check or other means, either of which requires a certain amount of labor on my part.  I must transmit that form of payment to my bank (physically or digitally) and wait several days for it to clear.  There’s a cost for this time, even if I don’t break it out for each transaction.

Accepting credit card and other automated payments requires no labor.  The money is received, verified, and transmitted without any intervention on my part.  Additionally, there’s minimal wait time from the point of the transaction to the moment the money appears in my account.  The transaction fee (usually 1-3% of the sale) replaces those other collection costs.

So, is it a good idea to make my customers cover this fee?

Let’s use a transaction value of $100.00 and assume the merchant fee is 2%, making the cost of processing that payment $2.00.  Now, think about the likely effect that charging the fee has on the customer experience.   First, it creates friction.  The customer chooses to purchase something at one price, then finds out it costs her more at check-out.  Never a positive experience!  Even if she’s given the option of using an alternative payment method to avoid the fee … who wants to be told how to pay?

The second effect is the loss of Good Will.  Not the financial goodwill used by accountants … actual, honest-to-god trust between the business and the customer.  If a business puts any value on return customers or referrals, charging an extra fee on top of their list price doesn’t engender loyalty.

Finally, passing on a standard cost of doing business to the customer is just petty.  What difference to the bottom line does the $2.00 actually make?  And since it’s tax deductible, it really doesn’t cost the business anything! Honestly, if a business can’t afford the two bucks it has a bigger problem … which I’ll be happy to solve for them at a modest fee (call me at 866-905-7382).