Is Passing Along Your Processing Fees Right for Your Business

Is Passing Along Your Processing Fees Right for Your Business?

My name is Annette Warren. I have been in the Merchant Service industry for about 5 years now. I am by no means an expert. I am however a Veteran, a mom, a volunteer and have a bachelor’s degree in management. My passion is service to others when I meet someone, I just want to leave them a little better off than they were before they met me, whether that be putting a smile on their face or helping to connect them with someone who can help them with a problem. Enough about me lets talk about credit card processing.

Have you ever had a customer/client say, “I would like to pay with my card, I want my points.” We have all either been that person or heard someone say it. As a business owner my eye would start to twitch when I start adding up how much that sale is going to cost me. Knowing that a particular card is a rewards card I know that I am going to pay more for that card than just your normal run of the mill credit card that does not have points attached to it (and rarely exists anymore)

As a merchant consultant I hear business owners say they do not want to pass along their fees, it is the cost of doing business, or they are afraid they will lose their clientele. I love these business owners because I know they are not out to make a quick buck and they really care about their clientele. The problem with this way of thinking however is that the credit card industry is not what it used to be. When these businesses opened, credit cards did not have rewards attached to them, some rewards cards offer up to 5% cash back on certain purchases, but the credit card companies are not the ones eating the costs associated with those cards the merchants are. Each card has a different rate attached to it. The higher the reward or the risk the more it costs the merchant to accept that card, eating into their bottom line. Over the years the cost of doing business has grown exponentially. Business owners must raise their prices to make a profit but when they do they become more expensive than their competitors and that could be detrimental to their business.

What is the solution you ask? The solution is to pass along those processing fees to your clients. Give them an incentive to pay with cash or with a debit card. Be up front with your clients and let them know that if they want to pay with cash, it will be cheaper for them than if they pay with a card. A Forbes Advisor Survey from February 2023 shows that just 9% of Americans primarily use cash to pay for purchases. Debit cards and credit cards are the primary payment method used, with 54% of consumers using a physical or virtual debit card and 36% of consumers using a physical or virtual credit card.
Wakefield research and Square partnered and did a survey with North American consumers, retail owners and restaurant owners. 88% of consumers agree that given the impact of inflation and the rising cost of goods, they would be understanding if their favorite local businesses added a charge for using a card.
Younger consumers in particular want small businesses to succeed. Many Gen Z consumers (51%) would rally behind smaller businesses who might be struggling.

If your business is primarily taking in debit cards, 70% or more, then chances are you are in pretty good shape. Debit cards have a lower rate because there is less risk to the banks when you process a debit card. However, the percentage of debit cards being used drastically drops if the charge is over $20.

If you are considering passing along the fees but you are still not sold on the idea, find a processor that would be willing to let you try it for a month or two and if you don’t like it switch you back to the traditional way of doing things.

Owning a business is hard, change is hard, inflation is hard but saving money in your business doesn’t have to be.
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