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Should the user pay on credit card payments?

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Has the hospitality industry reached a point where it is appropriate to advocate for a industry-wide credit card surcharge to be added to the customer’s bill? 

For the Restaurant Association this topic has recently come to the forefront through discussions with some of our members advocating for this change and as a result of merchant rate increases across all of the banks. As a result we are trying to gauge the overall viewpoint of the industry on this topic. A survey of our members indicates that only 7% of operations currently ever apply a credit card surcharge and of  those that do, it is generally only for large functions such as weddings or large group bookings where it is felt that it is more fair to put the cost back to the consumers. In hospitality it is not yet being adopted as a ‘standard’ measure for all credit card transactions, with general opinion from the survey seeming to indicate that this would offend and lose customers.

It is also felt that unless it became an industry-wide initiative not all businesses would charge it and therefore some would use it as a competitive marketing ploy. One of the other arguments against a surcharge is that these fees should be built into our pricing, so that menu prices include enough margin to cover the additional cost that is imposed on businesses due to credit card commissions. Historically, when businesses were not legally allowed to on-charge this cost, it was simply treated is a cost of doing business and managed as such.

However, we are now faced with credit card surcharges all the time imposed by other industries – from paying our rates online, to booking concert tickets or that overseas flight – and the consumer discussion around this seems to be accepting of this extra charge as simply a way these companies are passing on the credit card merchant fee. Tourism operators and hotels are also more commonly adopting the charge, so why then do we feel it would be so negatively received by our customers? What of that small percentage that have already started applying the surcharge? They say consumer response, while there may be a few niggles, is generally neutral.

What are the rules around adding a ‘credit card surcharge’?

Since 2009 merchants have been allowed to charge a surcharge when a customer pays by credit card. It was anticipated that allowing surcharges would provide more transparency on the credit card companies’ fees and eventually bring them down. In theory prices should have come down at those businesses that have been imposing a credit card fee as they are able to recoup that business expense. However, that doesn’t appear to have been the case. In addition there have been some concerns that some merchants have set their surcharges at a level that does not reflect their actual cost of accepting credit cards.

A surcharge designed to generate a profit or cover non-credit card related costs risks infringing the Fair Trading Act. This brings up a notable discovery from our member survey – almost 25% of the respondents indicated that they did not know what merchant rate they currently pay for credit card transactions.

Adding to the discussion is the growing numbers of consumers choosing to go contactless. Merchants pay credit card fees for both credit and debit cards when they are processed as a contactless payment. Increasing numbers of consumers are choosing to use their contactless cards for small purchases they would have previously paid for with eftpos, because of the ease of the transaction for them. Of course because of the fees many businesses have chosen not to accept contactless payments yet, but they could be forced to if consumers start to expect it.

There may be a small groundswell advocating for an industry-led initiative around credit card surcharges, as just over 40% of our survey respondents indicated that they have considered credit card surcharges for the future. Many are reluctant to move unless it becomes more common place first.

What next?

The Restaurant Association would welcome any further feedback on the topic – your views either for or against – as it will lend weight to our discussions with the credit card companies.

If you do want to add a surcharge for your customers paying by credit card here are some points to note:

You must disclose your surcharge policy before any purchase is made, so consider having a sign near the entrance (perhaps), on menus and at the point of sale (definitely). It should never be a surprise for your customer as this could create negativity from them if the fee is not managed transparently.

Surcharge fees should also be disclosed on every receipt as a separate item, so that the clarity of the on-charge is intact.

If you are adding a surcharge to recoup the merchant fee charged to you, then the surcharge should not exceed this rate. For instance, if your merchant fee is 1.8%, your credit card surcharge should not exceed this amount, otherwise your argument that you are simply passing on the cost loses credence.

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