Before merchants can begin to surcharge for credit card purchases, they must first consider the requirements that a payment card networks have in place.
For instance, should they wish to apply a surcharge, they must first identify the stakeholders. What would customers think? What are the top competitors doing? How would a business be disclosing surcharges to its customers?
In addition to asking oneself these questions, it is also important to look into one’s specific state, in the U.S., and its statutes, laws, and policies. At the time of writing this post, the states that have laws in place which prohibit surcharging credit card users include California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas. To ensure that surcharging is permitted in one’s respective state, one can contact their attorney or an expert here at Merchant Broker
The next logical step when it comes to best practices for merchants would be to know when they can begin surcharging. In the case with Visa, merchants must notify the payment card network, as well as the acquirer, 30 days before surcharging customers.
As for when one can surcharge, this only pertains to credit transactions for the U.S. and its territories. Meanwhile, for Visa, debit and prepaid payment methods cannot be surcharged.
It is important to note that a surcharge cannot exceed the cost of acceptance for the credit card. In addition, when it comes to disclosing surcharges to customers, proper signage, as well as notification, are required at the point of entry and the point of sale. Finally, the itemization of the amount surcharged must also be clearly identified on the receipt at the end of the transaction.
Mastercard’s policy on customer notification and disclosure is similar to that of Visa. For Mastercard, merchants must provide a clear disclosure about surcharges to their customers. This disclosure should occur right at the point of interacting with customers. Customers should also be notified of the surcharge dollar amount via the receipt.
Another important requirement to take into consideration for Mastercard is the specific rules of other accepted brands of payment card networks such as PayPal, American Express, and Discover.
For instance, merchants can surcharge Mastercard cardholders depending on the cost of the aforementioned brands and the surcharging restrictions associated with them. Merchants should always look into the specifics for each of the brands they work with by contacting their acquirers.
In terms of a merchant’s ability to surcharge with Mastercard, it is based on whether the merchant can satisfy particular disclosure requirements. For instance, one of these requirements is to notify both Mastercard and one’s acquirer of the intention to surcharge. This should be done in no less than 30 days before the surcharge gets implemented into the merchant’s system.
Specifically, for Mastercard, one should have information regarding the merchant’s name, merchant contact information, type of channel, as well as the type of surcharge in order to fulfill the aforementioned requirements. In addition, one should have the number of surcharging locations, the date at which the surcharge would begin, and the merchant’s address ready at hand.
The types of surcharges allowed for Mastercard include product-level and brand-level. While product-level surcharges let merchants impose the fee on particular Mastercard credit products, the latter option allows for merchants to charge the same percentage for all Mastercard credit cards.
Of course, in both cases, there is a limit on the surcharge fee. This amount is dependent on the merchant’s cost for the payment card network’s credit acceptance. For a product-level surcharge, it must not exceed the merchant’s cost to accept a particular product of Mastercard. Conversely, for a brand-level surcharge, the amount should be less than that of the merchant’s average effective discount rate. This rate is what the merchant pays their acquirer for Mastercard credit acceptance.
It is integral for any merchant to pay close attention to the payment card networks with which they work. The Merchant Broker team would be more than happy to provide advice and help business owners on this front. One can contact a Merchant Broker expert at either 1-888-668-0733 or email@example.com