You may have noticed (with dismay) new credit card processing fees and convenience fees on bills at restaurants and other businesses.
In the past, it was standard practice for businesses to absorb these fees, and in many states it is illegal to add a charge specifically for credit card processing. But that is changing, even in states where it is ostensibly illegal, according to Ben Danner, Senior Analyst at Javelin Strategy & Research.
“Around 56% of consumers have encountered such fees in the past year, according to Javelin’s North American PaymentsInsights survey,” Danner said. “That includes convenience fees that can be used to bypass surcharge rules.”
According to Visa, adding a credit card surcharge is illegal in four states: Connecticut, Maine, Massachusetts, and Oklahoma. In all other states, surcharging is allowed, but only on credit card transactions, and the charge can be no more than the cost of acceptance of the credit card. But “convenience fees” can be used to get around this.
Fees Add Up
Credit card processing fees are becoming exorbitant, causing businesses to pass directly to consumers. This change means that consumers are now more aware of these fees because they’re visible on their bills.
For example, Square is known for its ease of use and popularity, but it’s considered one of the more expensive payment processors because of the fees. Square has neat white payments terminals that have become common, especially in small businesses.
“Square charges 2.6% of the transaction amount plus 10 cents per transaction, and these fees can really add up,” Danner said. “For instance, on a $10 transaction, they take 26 cents (2.6% of $10) plus an additional 10 cents, totaling 36 cents in fees.”
On a $10 transaction, Square thus takes 3.6%. Hence, the common practice of businesses not accepting credit cards for small transactions, where the 10-cent transaction fee is a significant chunk of the purchase.
Consumers are more aware of the fees that credit card companies charge them. In the face of paying additional fees, some consumers opt for other purchasing methods that are cheaper to them and the merchant. Some try to pay local small businesses in cash whenever they can, so those businesses get the whole payment and don’t incur fees.
In any case, the visibility of these fees, while annoying for consumers, may be for the best, as everyone is on the same page about how the payments system works. It also gives consumers and merchants more choice in available payment methods.
