Accept credit cards? Can you charge a convenience fee to accept credit cards?
Accept credit cards? Tired of the paying high credit card processing rates? Wish you could charge a convenience fee to help with the cost? Well now you can! The 7 year battle between merchants and the major card brands over interchange fees has come to an end. Not only did the major card brands offer a settlement of approximately to $7.25 Billion available to approximately 7 million merchants to settle the claims that Visa, MasterCard and many of the nations largest banks conspired to restrict competition. The settlement is represented by a lump sum of $6.05 billion dollars and a temporary reduction in Interchange Rates that is estimated to add an additional $1.2 billion. Much like the Durbin Amendment allowed fees and incentives to be offered is apparently the “biggest” win of this recent battle. Merchants are now legally allowed to pass the cost to accept credit cards onto their customers in the form of a convenience fee of 1-3%. Since the Durbin Amendment passed last year this is the second "victory" in the battle against the cost to accept credit cards.
So is being able to charge a convenience fee for credit card users a good idea?
You be the judge but it seems that the vast number of consumers in the market place are outraged that they could be charged a convenience fee for using their credit card. This is because, from the consumers’ perspective, they believe that they are already paying for this convenience in the purchase price to begin with. Simultaneously merchants feel like the major card brands along with banks, who set the cost of card acceptance, are taking advantage of them by knowing that merchants do not have a choice but to accept credit cards and endure the fixed cost of accepting credit cards. Likewise, most consumers feel like they are being overcharged for goods and an additional 3% could be the straw that broke the camels back so to speak. Meanwhile merchants argue that without the ability to pass on this cost that they will have to further raise the cost of their goods to everyone which is not “fair” to their cash paying customers.
How can you take advantage of this new convenience fee charging ability?
The big question really is can you reduce the cost of doing business and increase profits without offending your loyal customers. I think the answer is to reverse the common thoughts of many business owners who are chomping at the bit to charge their credit card toting customers the full 3%. Instead offer an incentive to your customers to pay with debit or cash instead. Most of the major retailers have already spoken out that the practice of charging a convenience fee is not realistic and would be damaging to their loyal clientele.
What are business owners saying about the convenience fee and settlement in general? It seems that the merchant coalition should have more clearly outlined their goals with their attorneys since some of the biggest proponents of the 7 year lawsuit including Wal Mart are already denouncing the settlement. It seems that if approved this settlement has missed the target goal which is lower the cost to accept credit cards. This settlement does not do this unless you are willing to potentially alienate some of your hard earned loyal customers. This is because it does not provide for any long term reductions or caps on interchange rates. Speaking of the Interchange portion of the settlement:
Is your business going to even benefit from this landmark settlement regarding Interchange Fees?
First lets look at the lump sum settlement (if approved) - the general provisions of the cash settlement are that you may be a member of the class lawsuit if you accepted Visa or MasterCard credit cards or debit cards for payment at any time since January 1, 2004. At this time no action is required of merchants to receive the money or other benefits of the class action. You are not required to sign up with any third party to assist you in filing a claim. Notice will be made to merchants beginning in late 2012 or early 2013. One of the law groups representing the class action lawsuit Robins, Kaplin, Miller, and Ciresi will be posting periodic updates on their website at www.rkmc.com.
So what about the temporary reduction in Interchange Fees to accept credit cards? It sounds simple enough that if Visa MasterCard are going to reduce Interchange rates and fees that your business will automatically benefit, right? WRONG. Why? Well just as with the Durbin Amendment ruling there are hundreds of thousands of merchants who will not see a dime of savings. This is because Merchant Service Providers (or credit card processors) are NOT required to pass on the savings. The only way ensure that your business is going to benefit is to make sure that you are being billing on an Interchange Plus schedule. If you are then the savings will be automatic, however, if you are billed for your credit card processing via bill back or on a tiered rate structure then most likely your rates will remain the same. The Merchant Doctor has always been a proponent of Interchange Plus pricing due to its transparency and fairness to the business owner. If you have any questions about how you are being billed contact them for a no pressure analysis of your services.
Will Interchange Fees actually be reduced as they were with the Durbin Amendment victory?
The terms of this settlement are said (by K. Craig Wildfang of Robins, Kaplan, Miller, and Ciresi) to “Over time, the reforms induced by this case and in this settlement should help reduce card-acceptance costs to merchants, which in turn, will result in lower prices for all consumers.” Without a crystal ball it is hard to say whether or not this settlement will lead to price competition within the Interchange Fee schedule that will reduce the cost to accept credit cards. Personally we do not see how this is going to “increase competition” and encourage lower interchange rates more than temporarily as has been offered. We think that the Durbin Amendment and this new Antitrust settlement are simply stepping stones to the true objective for merchants which is a lower cost to accept credit cards. Now that the armor of the sacred Interchange system have been chinked the doors are most likely going to open for more future class suits.
At the Merchant Doctor we have always been proponents of fairness and are un effected by these mandates or any changes to the Interchange Fee schedule, however, just to be the devils advocate:
What would you say if the government ruled that you were making too much money in your business? Lets hear it!