New Payment Program Will End Credit Card Fees For Merchants
For many years, merchants have struggled to find a clear-cut way to manage and offset the fees associated with accepting credit cards. These fees seem to be in a never-ending state of change and can easily amount to thousands of dollars per month.
Since their inception, the prevailing policies of the card brands (which include Visa®, MasterCard®, AMEX® and Discover®) was that the merchant was to bear the costs of credit card acceptance and that any additional fee charged to a cardholder to offset these costs was simply prohibited. A merchant charging an additional fee to a cardholder risked having their credit card services revoked entirely.
While the costs of accepting credit cards have continued to rise through the creation of new card types and a myriad of rewards programs -- all of which result in higher profits for the card brands and their partner banks -- merchants have had no choice but to absorb these costs without recourse.
In 2005, the market’s objection to this unbending policy formed the backbone of a class-action lawsuit that was launched against Visa® and MasterCard ® by roughly 7 million merchants. While there are still elements of this lawsuit that remain unresolved to this day, a settlement was proposed in November 2012 and was approved by US district courts in December 2013. Here, we saw Visa® and MasterCard® abandon their policy of prohibiting the practice of surcharging their cardholders.
In support of this ruling, Attila Business Solutions, Corp. and their strategic payments partner, Elavon, are now poised to transform how credit card transactions are processed and paid for by US merchants with their new program called Credit Card Cost Control (C4 for short).
Our new C4 program shifts a 3% credit card processing fee that is normally paid by the merchant to the cardholder at the point of sale. This means that C4 makes credit card processing effectively free to merchants.
Credit Card Cost Control (C4) will shift credit card fees from the merchant to the consumer. But who does this affect and how?
Why C4 Matters
Statistics have shown that in today’s consumer world, 70% of Americans prefer to use payment cards while only 12% prefer to use cash. This is certainly no surprise, as our modern-day processes offer us the convenience of being able to tap, swipe or insert a payment card with ease.
Aside from being the most convenient form of payment, card brands have done an excellent job of promoting products that offer their cardholders additional incentives (such as cashback rewards, points-system rewards or Air Miles). In fact, the usage of cards that offer some type of reward now nearly surpasses those that don’t.
What many cardholders are unaware of, however, is that they aren’t the ones covering these perks -- these are actually being paid for by the merchants.
Yes -- the merchant pays for the rewards and rewards are not provided to the cardholder out of the generosity of the card brands or the banks. To compound this issue, merchants cannot easily know what to budget when it comes to their monthly payment processing costs. This is because many credit cards that are used by both consumers and businesses alike are billed to the merchant at different rates, making it virtually impossible to predict what this expense will cost them each month.
With our C4 program, the costs of the benefits and rewards gained from credit card use can thusly be shifted to consumers, who will make the ultimate decision on whether to incur additional credit card costs or to pay by cash or debit. The C4 program brings significant value to merchants as in these uncertain economic times, the ability to raise bottom-line profitability by 3% can make a real difference to the financial stability of an organization. 3% is an extremely nominal fee to the individual cardholder -- however, when it is applied cumulatively to every transaction that the merchant processes, it can offset thousands of dollars in additional expenses to the merchant. Unfortunately, many cardholders don’t realize the true costs to a business that comes with accepting credit cards.
The C4 program brings fairness to both sides of the transaction. From the cardholder’s perspective, there are benefits to using their credit card as their method of payment (including rewards, security and convenience). The cardholder is given the choice as to whether they want to pay the surcharge and additionally, they can rest easy knowing that the card brand rules prohibit merchants from surcharging more than their cost of processing. That way, the merchant is not profiting from the transaction -- they are simply eliminating their cost in a certain area.
Lastly, the merchant still needs to remain competitive in the market. The merchant has three options: 1) they can continue to absorb their credit card processing fees without impacting their clients, 2) they can raise their prices across the board to all clients by 3% or 3) they can selectively charge the 3% fee to only those customers that use credit cards as their chosen method of payment. Whatever their choice (and while the merchant needs to evaluate the impact of each option on their business), the reality is that in the merchant’s case, there is a higher cost of goods from the group of customers that choose to use credit cards as their method of payment.
What Are the Credit Card Fees and Who Are They Paid to?
When a purchase is made, every party involved gets their cut of the Interchange fee. This is because there are many organizations that touch the transaction and all of them have costs to support their portion of it. There is a credit card processor, the card brand network, the issuing bank and any connecting gateway that is involved with providing service for the merchant. All of these companies incur significant costs to ensure that the networks are readily available, dependable and secure. All of this occurs at the same time that these parties need to be incentivized to continue providing cardholders with the convenience of using this infrastructure for their purchases.
For credit card transactions, Interchange costs to the credit card processor range widely between 1.15% and 2.95% and vary depending on a few factors such as the merchant’s industry, the card type and the method in which the transaction is entered. In order to provide the provisional credit that they do, the credit card processors charge a processing fee in addition to the Interchange fees. The combination of both Interchange and processing fees make up the bulk of the merchant’s costs. As such, by applying the 3% fee to the cardholder, the C4 program allocates a fee structure that is sufficient enough to compensate all parties involved.
It is also important for consumers to realize how our C4 program fits into the marketplace in relation to other fees that can be applied to payment cards.
What Other Fees Are There?
There are three possible fees that a cardholder may see: a surcharge fee, a convenience fee or a service fee.
Surcharge fee: this is a percentage-based fee that is assessed during the transaction (usually 3% of the total cost). The purpose of this fee is to cover the acceptance cost of the payment. Surcharge fees are applied during face-to-face payments where a card is used, as well as with digital wallet-based payments (such as Apple or Google Pay).
Convenience fee: this is a flat fee that is assessed for a non face-to-face payment. The purpose of this fee is to cover the convenience of allowing the customer to use an alternative payment option (eg. submitting credentials online, by phone or by mail).
Service fee: this is also usually a flat or percentage-based fee that is applied to transactions paid with methods other than cash or check, such as for payments at government or educational institutions.
How Can a Merchant Start Using C4?
The system follows an innovative “present, then pay” approach by allowing cardholders to see the surcharge fee in a separate line on the terminal’s screen during a transaction. This not only makes the cardholder aware of the surcharge before paying, but it also provides them with the option to choose an alternative method of payment and thus avoid the surcharge. With C4, there are no hidden fees. Additionally, not all States permit surcharging on credit cards and it is also important to note that debit cards cannot be surcharged. To learn more details, contact Attila Business Solutions, Corp. today.
If you are a merchant that is interested in using C4, the following terminals currently support the software:
The merchant must enroll in the C4 program with Attila Business Solutions, Corp. and notify all card brands of their intent to apply the surcharge to future transactions. Their Tetra terminal will come with the C4 software already downloaded. In the case of an existing terminal, it can be reprogrammed to receive a software update that will provide a line item with the surcharge at the point of sale.
At Attila Business Solutions, we are proud to have partnered with Elavon to launch Credit Card Cost Control (C4). If you have any additional questions about how C4 can work for your business, we can’t wait to help you get started. Contact us today to discuss your next steps!