In the few times that a merchant put a credit card surcharge on my restaurant bill, one word comes to mind: cheesy. The merchant sets the price for the goods or service, perhaps a $12.95 burger, then after local taxes calculate, comes a merchant-selected upcharge to offset the cost of credit card acceptance.
Merchants that surcharge believe this transaction should subsidize their cost of doing business. Top retailers avoid this practice, such as Outback or Home Depot; small merchants move towards the method to increase net revenue.
All this and a $2.95 Diet Coke turns lunch into a $20 proposition.
Today’s American Banker notes that surcharging becomes more common because enabling technologies make it easy. The Banker cites data from CardX, which indicates a $24.5 million save by merchants who pass their business cost to consumers.
I am a good tipper to restaurant staff and rarely flinch at the natural practice of doubling the check, then dividing by 10% and rounding up to the nearest dollar. That strategy will change as surcharging continues. The shift will no longer be coming out of my pocket. Instead, it will come by reducing the tip out of protest. Rounding up, the tip will turn to rounding down. It will probably be my last visit to the merchant.
If the merchant charged $13.95 for the burger, this would not be an issue. The tax is linear, but it would not feel like the merchant is extorting their business cost to my bill.
The unfortunate result is that surcharging will modify my shopping and buying habits. Why should I be charged more if I use a card? Where does this stop? The vendor already expects me to pay for the cost of labor because their employees rely on tips, not pay, to live. I get that and recall the idiom that “Tipping Improves Performance.”
The American Banker summarizes the issue well with a quote from Amex:
“It is not a customer-friendly practice for a merchant to attract a customer to its store or website to shop, and then to penalize the customer for using their payment method of choice.”
The number of states prohibiting surcharging is down to an odd combination: Kansas, Colorado, Massachusetts, and Connecticut. Florida, a long time holdout, recently permitted surcharging. One of the doctors we use recently adopted the surcharging strategy; in addition to the $30 copay, she charges another 90 cents, which drives me nuts out of principal. Sooner or later, we will move to another physician simply because the charge tells me that she does not do good practice-management.
But to the restaurant owner, the fact that large retailers do not surcharge will push me towards McDonald’s or Outback, even at the risk of losing some local flair. What’s next? An upcharge for lettuce or pickles?
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group