Rhode Islanders Save Big on Credit Card Processing fees

January 19, 2023

Although Rhode Island business owners are infuriated by having to pay credit card processing fees, they generally accept it as a cost of doing business. That is until now. There is now a legal and ethical means to reduce this cost – it's called surcharging. And, modern terminals make it a snap to implement.

If your business is in New Hampshire or Vermont, you're also in luck.

Unfortunately, if your business is in Massachusetts or Connecticut skip this article because they're two of only three states where it's illegal to surcharge.

What is Surcharging?
It's basically a shift as to who pays the credit card processing fee. The payment is shifted from the seller to the buyer. That 3+ percent processing fee on each transaction can amount to only a small amount if the customer pays but can be many hundreds or thousands to the store owner at the end of the month.

Customers that pay their local taxes with a credit card are already accustomed to this by paying a "convenience fee". It's very similar in concept.

How Surcharging Works
When the customer makes a purchase from a business and they present their credit card for payment, the credit card terminal recognizes that it's being paid with a " credit card " and automatically adds the pre-determined assessment percentage (keyed in from a range of 3% to 4%).

Special Terminal Needed
Most existing credit card terminals cannot be programmed with the codes to assess a credit card fee. A replacement terminal is required but they are not any more expensive than previous terminals – they're just capable of the new charges.

Additionally, the terminal does not (by law) surcharge debit cards and pre-paid credit cards. These cards are not surcharged but, as they do now, the business owner pays the processing fee.

Surcharging is Not Totally Free
Because debit cards and prepaid credit cards cannot be legally surcharged, the business owner will still be obligated to pay those fees at month end. Also, fees for terminal rental as well as normal PCI compliance fees still prevail. But all those fees for Interchange and assessments for credit cards (only) go away. So, it's not totally free but it is substantially reduced.

Surcharging Rules and Procedures Much to the chagrin of MasterCard and Visa who fought hard against the surcharging rule, it is now accepted in all but a handful of states (by state law). But there are very specific rules and procedures need to be adhered to:

Notifications – both Visa and MasterCard must be notified 30 days in advance of the business owner 's intent to implement surcharging. There are special forms that must be completed. (Neither American Express nor Discover need to be notified).

Signage – Customers must be notified that the store will pass on the credit card fee to the customer. And, that they have the option to pay in cash or debit card to avert the surcharge.

Debit Cards Excluded from Surcharge – as mentioned debit card processing fees are born by the business owner as previously. It's hard coded into the terminal.

Exact Surcharge Fee on Receipt – the credit card terminal receipt must show the exact amount of the surcharge in print.

Business Owners Cannot Profit from Surcharging – the surcharge amount must be what the business owner has been previously been paying and no more. The program is meant to recover the cost only. For example, if they were averaging a 3% effective rate previously, they cannot start surcharging over that amount and make more profit.

4% Surcharge Cap – Under no circumstance can the business owner assess a surcharge fee of 4% or greater.

All or Nothing – When a surcharge program is implemented all credit cards must be charged the same surcharge percentage. You can't give a freebie to a friend. It cannot be overridden. Also, no debit cards can be surcharged whatsoever.

Is Surcharging a Fit for Every Business?
Most likely not. The business owner should assess their clientele as to the attitude they would have should surcharging be implemented. Would they be put off by the added fee, thinking the owner was "nickel and diming them? " It's an attitudinal thing.

How Much Can You Surcharge?
As mentioned, you can tack on a percentage to your sale the covers your processing expenses. We can program your terminal for the following surcharges: 3%, 3.25%, 3.50%, 3.75% or 4%.

4% is the maximum surcharge allowed.

Difficult to Pass on with Big Ticket Items
Business that sell big ticket items like electronics, appliances, furniture, boats, etc. will have a challenge passing that large fee along. Depending on the sales price, the surcharge could run $50 to $100 and the customer may walk.

The Sweet Spot
The sweet spot appears to be for credit card transactions between $10 and well below $1,000. On a $10 sale the surcharge is only 35 cents on a $1,000 transaction it ' s $35, throw in another potential $60 of state tax and the customer resistance sets in.

Convenience
The same reason your customers buy from you rather than driving all the way to Wal-Mart is that you're more convenient. These types of customers will pay a slightly higher price tag for that convenience and we find the surcharge is generally not a problem.

Truly Loyal Customers
Some customers love your store and want you to succeed. When you explain to them that those credit card fees add up to a lot of money at the end of the month, they tend to be more than willing to pony up the small surcharge on their purchases.

Customers still receive all their credit card rewards like cash back and airline miles.

Transients
For stores in a high traffic tourist area, customers typically are not frequent visitors and there's less resistance to a one-time surcharge.

No Alternative
In certain businesses, the customer has no alternative but to pay the surcharge fee. Think in terms of veterinary, dental, medical. They're loyal to the doc and are not going to leave because of a surcharge.

The Customer Experience
This is the flow ·

The customer enters your store, the first thing they'll see is a tasteful sign that informs them that there will be a surcharge of X% for all credit card transactions (anywhere from 3% to 4%), but there is no surcharge for payment by cash, debit card, or prepaid credit cards. They're aware upfront what to expect at check-out.

The customer pays for the item with their credit card, the terminal quickly determines that it is a credit card and automatically assesses the surcharge fee. The fee is clearly indicated on the credit card receipt.

Your direct deposit for that day will be for all your income less the surcharge fees which covers the processing fees. You' re out of that loop.

At month end, you are not debited for any credit card fees. However, you are debited for all debit card fees at a nominal rate of 1% + 25 cents per transaction.

Potential Savings
The savings to owners who convert to surcharging are substantial. Ignoring cash sales, credit card sales typically comprise 85% of plastic transaction with debit cards only comprising 15%.

If an owner does $36,000 a month in plastic transactions the processing fees will be approximately $900.

In the image below of a true statement, this owner saves $827.94 in just one month.

Sample Surcharging Statement

We Can Help
We can help you to assess if your business can technically convert to surcharging and help you to analyze your clientele as to surcharge acceptance.

We assure total compliance with the card brand rules for notification, signage, receipt printing and the like.

We'll equip you with the proper credit card terminal and train your staff as to proper procedures.

Visit us at www.JetPayUp.com .