Surcharging and cash discounting are practices that have been discussed among some associations as a means to offset the costs associated with credit card transactions. Given the negative implications and drawbacks of these practices, we have chosen not to offer functionality to pass along mandatory credit card fees.
We strongly recommend that you budget the cost of credit card processing into your general operations.
This decision is based on the direct feedback from our customers representing many different industries and professions. One of those customers is the Association of Payment Professionals (APP). Their association supports risk, underwriting, and compliance professionals within the payment ecosystem, so they are intimately familiar with the nuances of taking credit card payments.
"We researched the cost of bad debt prior to accepting credit cards, and we found that we were writing off three times the amount of what we now pay in credit card fees."
Monica Ramsey
Executive Vice President, Apartment Association of Greater Orlando
Our decision was based on four general concerns:
1. Complex Compliance Requirements:
Complying with the regulations set by card schemes for surcharging and cash discounting can be challenging and time-consuming for merchants. The intricate rules and guidelines, as outlined by Visa, Mastercard, and Discover, often require meticulous attention to detail. Failure to adhere to these regulations can result in penalties and potential legal issues, adding further complexity to merchant operations.
2. Regional Limitations and Legal Restrictions:
Surcharging is prohibited or restricted by law in several states, including Colorado, Connecticut, Maine, Massachusetts, and Oklahoma. For businesses operating in these regions, the implementation of surcharging becomes unfeasible or requires careful navigation of complex legal frameworks. This limitation hampers the flexibility of merchants and can create disparities in pricing strategies across different locations.
3. Negative Customer Perception:
Surcharging and cash discounting can create a negative perception of the merchant's business. Customers may view surcharging as a profit-driven strategy that undermines the transparency and fairness of pricing. This perception can harm customer relationships and impact the overall reputation of the merchant, potentially leading to decreased sales and diminished brand loyalty.
4. Debit Cards are Treated Differently:
Surcharge fees are restricted solely to credit card transactions and cannot be applied to signature debit transactions or prepaid cards. Even if a debit card is processed as a credit transaction, implementing a surcharge is not allowed. As of the date of this article, QuickBooks Payments does not supply the card type via their API. Because of this, QuickBooks Payments customers cannot comply with these rules for transactions processed via their API.
While surcharging and cash discounting may initially seem like viable options for offsetting credit card transaction costs, our deep dive into the topic revealed numerous drawbacks and challenges associated with these practices. From customer dissatisfaction and potential disputes to complex compliance requirements and negative perceptions, we believe that the risks outweigh the benefits.
Limiting High Dollar Payments
We believe that budgeting the cost of credit card transactions into your pricing is generally the best approach. However, there are times where an amount may be so large, perhaps in the tens of thousands of dollars, where the potential credit card transaction fee doesn't justify the time savings. For those cases, Novi allows you to set a limit on the size of a credit card payment.
"Card brands, especially Visa, are doing a big crack down on surcharging right now, so organizations doing it should be making sure they're doing it right."
Mark Nelson, Ph.D., MBA, FASAE, CAE
Executive Director, Association of Payment Professionals
Additional Information from the Association of Payment Professionals
The Card Schemes have published rules related to surcharging and convenience fees. It’s tricky to play in the space compliantly. The difference between cash discounting and surcharging can be a little semantical. Visa in particular has been cracking down on violations that include, but are not limited to:
Surcharge was assessed on a Debit Card transaction
Surcharge amount exceeds cost of acceptance or super cap volumes
Surcharge disclosure signage violations
Merchant has not registered with Visa prior to commencing surcharging
Non-compliant deployment of Cash Discounting (often construed as surcharging violations)
When you think of cash discounting, think of it in terms of a gas station where the cash price and the credit price are clearly disclosed prior to the transaction.
Specific Card Providers
Visa (Reference Section 5.5.1)
MasterCard (Reference Section 5.12.2.1)
Discover (Reference Section 5.8 in their operating regulations). Note that the merchant no longer needs to notify Discover directly. The completion of the Merchant Surcharge - Acquirer Notification Form is required.
Requirements of surcharging include:
Assess surcharges on credit card transactions only
Assess a surcharge that does not exceed 4% of the transaction
Ensure that the surcharge amount is referenced separately on the front of the receipt, after the subtotal (allowing for any discounts) and before the final transaction amount
Ensure that signage is clearly disclosed at the merchant’s point-of-entry (in store or online) and/or point-of-transaction (payment location or check out page)
Surcharging isn't allowed everywhere. Currently, there are laws limiting surcharging in Colorado, Connecticut, Maine, Massachusetts and Oklahoma. Please refer to the card brand regulations links for further information.
Dive even deeper by reading the Association of Payment Pro's "7 Things to Know About... Surcharging."
Please note that this information may change. Before relying on it, please do your own independent research.
While Novi does not offer functionality to pass along
mandatory credit card fees, there is a feature available
to request an optional donation to cover the fees.
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