Credit card surcharges have been around for a while, but with the new laws that have come into effect over the past year – in September 2016 for big businesses, and the start of September 2017 for small business – changes have rolled out that are important for business owners to stay on top of.
Surcharges represent the merchant’s costs involved with accepting payment by credit card for each transaction. The latest changes ensure that surcharges don’t exceed a certain amount, according to standards set down by the Reserve Bank (RBA). This isn’t a fixed number, but the types of costs that can be included in surcharges have been reduced, ensuring a fairer approach to transactions.
This means that peripheral costs associated with transactions – such as IT infrastructure – can no longer be added to the final cost in this manner, only the cost of accepting the card, which fluctuates according to unique companies and the percentage of the transaction that they charge for.
If you still want to use a fixed fee to handle the surcharges rather than calculating that percentage on a regular basis, merchants will need to know what their average cost of accepting cards is, and ensure that the fixed amount is lower than this average.
Businesses are encouraged to review any fixed costs every month or so, as the mix of card types and transaction costs may vary on a regular basis and shift the average costs; however, reviews of just once a year will be enough to keep your business up to date and complying with the correct RBA standards.
If essential costs of the business were previously included in these surcharges, these may be added on to the costs of services and products nonetheless to ensure they are covered; but they must be part of the advertised costs and calculated beforehand, rather than something added onto the end. This adds greater transparency to the final costs of products and services while encouraging businesses to account for their own costs in the final calculation of fees.
What are the risks of not complying?
Harsh penalties will now be applied to any business found to be using excessive surcharging and failing to comply with the new laws. Infringement notices may be followed up by penalties of thousands of dollars per single breach of this law, which may add up to quite a lot considering that many businesses go through hundreds of transactions in a single day.
If court action is required to enforce the law further, the costs may grow significantly thanks to civil fines, and in particularly bad scenarios an injunction against trading may be applied. For small business especially, the penalties alone may be enough to disrupt the business beyond recovery before any injunctions could be applied, so it is especially worthwhile to avoid this.
Besides the initial potential legal costs, being found guilty of excessive fees also opens the gateway for individual customers to sue for damages, making the costs of the fallout even greater than the potential savings that may be gained by charging extra amounts for transactions. Consumers have also been encouraged by the Australian Competition and Consumer Commission (ACCC) to report any businesses whose surcharges seem excessive to help ensure that the laws are adhered to.
What are the benefits of these changes?
The good news is that businesses stand to gain a lot from discarding excessive surcharging. According to study a study known as the Amex Payment Surcharges Report, conducted by the Retail Doctor Group on behalf of American Express, revealed that surcharges have a big negative impact on transactions, especially for online retailers. 46% of online shoppers were shown to attempt different payment methods rather than accept the surcharge, while 30% abandoned their purchases altogether.
Removing those fees, meanwhile, improves customer retention and feedback. This means that the changes to the laws made will have a positive impact on relationships between consumers and businesses.
Customers will often spend more money in each transaction and come back more often, as well as being much more likely to tell their friends about the business. 90% of customers surveyed by the report said a business being surcharge-free was extremely important to them. That value will now position consumers to perceive their interactions with businesses as fairer and more transparent and make every transaction a more satisfying experience.