Small businesses have faced numerous economic challenges in recent years, from COVID-19 to inflation and supply chain issues. It’s become increasingly difficult to achieve and maintain profitability, but there are proactive measures small business owners can take to improve their bottom line. In this article for Small Business Currents, we discuss two of these strategies: evaluating your tech stack ROI and gaining a better understanding the processing space.
Even after a recent proposed $30BN settlement which aimed to lower merchant fees from Mastercard and Visa, the former still increased transaction fees last month. Between these fee increases and the settlement being far from approved, businesses may only see literal pennies on the dollar in savings in the short term.
“Most card networks publish their interchange rates twice a year, in April and October. These fees are designed to cover the costs of processing and authorizing credit or debit card transactions,” explains Eric Cohen, CEO and founder of Merchant Advocate. “An increase can occur due to several factors, all of which are weighed to determine appropriate interchange rates. These factors include operating costs, competitive landscape, regulator changes, etc.”
The possible merger between Capital One and Discover has kept the financial industry buzzing. Find out what our CEO, Eric Cohen, thinks about how this can affect the credit card industry—and some of the benefits it may have for businesses and consumers.
Our CEO, Eric Cohen, shared with Hospitality Technology different avenues businesses can take to revamp and invest in payment suites, and how best to protect themselves–and their customers–from rising credit card fees.
A new state law went into effect Sunday that will help increase transparency for New Yorkers who pay by credit card and are charged a surcharge fee.
The new law requires business owners to either advertise the higher credit card price as the standard or display both a credit card price and a cash price.
Credit card surcharging and its related programs – cash discount, non-cash transaction and zero fee – have been a hot topic over the last few years and are only growing in popularity. Some see them as a way of offsetting the cost of doing business with credit cards, while others consider them an undue toll levied on loyal customers.
“Restaurant owners and managers are thinking about how to improve their bottom lines every day, especially with the continued increase in overhead and a hard labor market. One way these establishments try to increase profits is by cutting expenses, and for many businesses, the biggest offender is their credit card processing costs. With continued rate and fee increases from credit card processors, this line item is constantly expanding.
To deal with the growing financial burden, we are currently seeing a lot of restaurants push these fees to the customers using a cash discount, non-cash transaction fee model. Unfortunately, this has its own set of issues. The only Visa/Mastercard regulated program that Merchants can register for is a “Surcharge Program.” This program allows credit cards but not debit cards, to be charged a fee under the current stipulations, creating confusion in the process. Adding to the complexity is that most POS systems can’t run a true surcharge model, which leaves the restaurant with no other option but to offer these cash discounts or non-cash transaction fee programs or put a credit card machine on the side of their POS, which is less than optimal.
In simpler terms, most of these alternative programs are surcharge programs in disguise. If a restaurant is caught doing it incorrectly, they can face significant fines, adding further unwanted expenses to their monthly overheads. In addition, consumers are becoming more conscious of these issues, and if a surcharge fee is applied to their debit card, they are issuing chargebacks through their banks. This hurts the restaurant as they not only lose the increased fee but they also get hit with a chargeback in the end.
The entire philosophy of passing the fee on to the customer also jeopardizes the long-term reputation of restaurants and is a major pain point that restaurant owners will look to amend in 2024. As the economy continues to push individuals to have less disposable cash, more and more people will start to look at these fees as a nuisance and may start to go to other places with fewer unwanted expenses.
In the next year, there are several solutions that restaurant owners can employ to address these issues. The smartest way to cover these costs would be for the restaurant to simply increase their prices by two percent, five percent, or more, there are no laws against increasing prices. If they want to offer a discount for cash-paying customers, they don’t need to look to their credit card processor for help; instead, simply discounting the total bill by using features in their point-of-sale systems can streamline the payment process and alleviate many customer concerns.
In 2024, restaurant owners will need to become more aware of what they should or should not count on their payment processors to do; with a greater understanding of what they can control in terms of price hikes and swipe fees, they will be better equipped to drive profits and reduce costly overhead along the way.”
– Eric Cohen, Chief Executive Officer and Founder at Merchant Advocate
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