Over the last five years there has been a significant shift to digital across all business processes, not least accelerated by a global pandemic. The rollout across businesses and merchants is often piecemeal, different departments lead while other functions lag. Payments is often one area of the business that perpetually lags. In fact, 64% of the US B2B payments market is still fueled by non-digital processes, cash and checks. 

But the writing’s on the wall. The transition to digital continues as the US looks towards a cashless economy. For merchants themselves, this transition can be bumpy as organizations adopt new software, products and ways of working. For small businesses, even more so, with limited resources and high costs of merchant fees. 

Merchant fees are standard fees set by credit card companies, such as Mastercard or Visa, that charge a percentage of the sale each time the card is used. For small businesses, merchant fees add up and have the potential to greatly impact profit margins. Consider a vendor to the construction industry whose cost of credit card acceptance exceeded 3% of credit transactions, approximately $100,000 in monthly spend on merchant fees and resulting in upwards of $1M annually. For a large, multinational organization, that cost might be a drop in the bucket, but for a small business, that’s a high overhead cost and money out the door. 

To alleviate the weight of high merchant fees, small businesses must ask themselves: What is my processing footprint? Where are the opportunities to be more competitive? 

Adding a surcharge: Optimizing credit card acceptance costs

In today’s global economy, with rising inflation and a looming recession, every dollar counts. To manage costs and stay afloat, small businesses across industries must identify areas of opportunity to limit costs and tap into potential areas of revenue. 

In the context of the construction vendor, credit card acceptance fees consumed a significant portion of revenue. The business wanted to find a solution that would alleviate some of the weight of that burden. It wasn’t about finding a solution to recoup the total cost, but rather share a portion of the expenses. 

One such path to consider to optimize credit card acceptance costs is surcharging. Surcharging is a practice in which a merchant passes on all or part of the cost of accepting a credit card to a customer. A surcharge is a percentage fee of the purchase price of a product or service, and can only be applied to credit cards. Surcharging is regulated by state and federal law, with differing regulations across state lines. For companies that conduct business nationally, across multiple states, implementing a uniform surcharging program may not be permitted.

Both Visa and Mastercard have their own criteria when surcharging, including a cap on the surcharge percentage. Businesses that utilize surcharges are required to give the customer the opportunity to cancel the surcharged transaction and provide a surcharge-free means of payment. 

Turning challenges into opportunities: Identifying untapped revenue

For this vendor, faced with significant overhead credit card costs, surcharging proved to be a strategic solution. Implementing a surcharge strategy can be imperative for businesses with high transaction cost and frequent transactions. But the decision to do so had to be weighed considerably against how the cost passed on to customers might land. For example, for businesses that operate in a competitive market, the higher cost resulting from a credit card surcharge might put them at a selling disadvantage. 

Customers might react negatively to seeing an additional fee on their bill, and in response, they might take their business to a competitor. Or, they might switch back to using a check altogether - reigniting the initial challenge presented by a digital-first, cashless economy. To get ahead of this potential barrier, it’s imperative for small businesses to communicate upfront with customers about the change in fees and how it might impact them directly. Transparency is key. 

The next step, once electing to implement a surcharge, requires a reconfiguration of existing software. To do so, requires a payments partner with both industry expertise and flexible technology to optimize the payments process.

Choosing the right payments partner: Turning challenges into opportunities

When it comes to payments, the challenge is knowing where to look, understanding the complexities - and cost - of current business processes, and leveraging technical opportunities. For this vendor, specifically, adding a surcharge fee reduced the cost of credit card fees by 80%, saving the business more than $800,000 annually. Consider what that can afford: new team hires, investment in technology and innovation, or new infrastructure. 

Identifying opportunities for revenue growth often requires a sophisticated partner - experts in the industry that understand both the specific business and the broader payments ecosystem, including compliance and regulations. In the example of the vendor to the construction industry, to uncover possible solutions, the business needed a provider that leveraged flexible, configurable technology that not only aligned with vertical market requirements, but could adapt to their business’s unique needs. Assess payment platform providers based on their ability to deliver financial products and services that combine both banking-as-a-service (BaaS) and payments-as-a-service (PaaS) for seamless integration and a full suite of solutions that can offer alternative payment processes in the event of surcharging. 

Evaluating surcharge fees is just one example of uncovering potential revenue opportunities across the business. Choose a customer-first payments partner that has the chops and technical flexibility to audit your current infrastructure, identify gaps and potential opportunities, and empower your business to achieve its goals.