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Rise of The Surcharge: Should You Follow The Trend?



Rise of The Surcharge: Should You Follow The Trend?

More merchants than ever are recognising surcharging as a cost savings tool.

It’s becoming increasingly expensive to run a business in 2023. The current cost of living squeeze extends past household items, with business’ utilities, ingredients, insurance, freight costs and more all climbing to new heights. Plus, as inflation takes hold, customers have less discretionary funds to spend on things like dinners out, spa treatments and new clothes.

Merchant fees are one of the many unavoidable costs of business. Just like you need electricity to keep the lights on, an EFTPOS terminal is necessary to ensure staff can take payment from every customer, quickly and efficiently. Yet a growing number of merchants in Australia are opting to recover their transaction costs by passing these fees on to customers as a surcharge. 

We’ve crunched the numbers, and discovered a clear upwards trend in the number of merchants choosing to surcharge their customers. It’s a powerful lever that can be pulled to improve your cash flow. So, is it time for you to consider passing on the cost of accepting card transactions to customers? We’re here to help you make this important business decision.

Surcharging in Australia is on the rise

40% of purchases these days come with a surcharge. That means your customers are being surcharged almost half the time. If they’re not already used to paying a surcharge, they surely will be soon as a growing number of business owners opt to pass on the cost of processing card transactions.

In just 12 months, the number of Australian transactions with a surcharge applied has more than tripled. In July 2021, 12% of transactions processed through a Zeller Terminal came with a surcharge. By July 2022, that number had jumped to 42% of transactions. 

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It’s clear from the data that more and more merchants are beginning to recognise surcharging as a tool to tackle the rising cost of business. If, for example, your business processes $15,000 a month and your transaction rate is 1.4%, you could save $210 per month (which is $2,520 per year) by surcharging the full amount. 

So, which merchants are opting to pass the cost of processing a transaction on to their customers?

Surcharging is most common in the transport, home and maintenance, travel, hospitality and professional services industries. Perhaps unsurprisingly, surcharging is most common in businesses across New South Wales and Victoria — where merchants were hardest hit by lockdowns. Nearly a quarter of all merchants in those states currently surcharge their customers. 

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Businesses in their nascent stages — when the focus is on building a strong brand and establishing relationships with customers — are less likely to impose a surcharge. Large merchants are twice as likely to pass their transaction costs on to customers than micro business owners. It would seem that a merchant’s surcharging strategy evolves over time, as the business becomes more established and the merchant becomes more confident that their customers will accept a surcharge. 

Yet this perceived negative perception of surcharging is changing. A surcharge is typically just a couple of cents, after all — a small price to pay for the convenience of being able to purchase with the tap of a card or smart device. As more and more businesses opt to surcharge, it’s likely more smaller merchants will take a leaf out of bigger merchants’ books and pass the cost of accepting cashless payments on to customers.   

How to know if surcharging is right for your business

As a business owner, the decision to surcharge customers is yours alone. 

Some merchant services providers will only allow you to automatically pass on your cost of acceptance if you can meet minimum turnover thresholds every month, and sign a contract that locks you in to using the functionality. They make the decision to surcharge a commitment that is not easily undone. 

We believe in giving merchants the flexibility to run their business in the way that suits them best. That means having the ability to pass on your cost of acceptance in full or in part, and add or remove surcharging when you want to. 

Before switching to surcharging, some things you should consider include: 

  • is it common to surcharge in your industry? 
  • do your competitors surcharge? 
  • do many of your customers pay with a card? 
  • how would the savings help you grow your business? 

In deciding whether to surcharge, also consider your customer experience as a whole. If you choose to pass on your cost of acceptance, it’s important to ensure you’re ensuring a seamless payment experience — customers should be able to tap, dip or swipe their cards and pay in seconds, so they can be on their way. Adding a surcharge on top of things like connectivity issues and processing delays leads to a frustrating customer experience. 

Set up your surcharge on Zeller Terminal

Zeller makes it as simple as possible to impose a surcharge, whenever it suits your business. Once you have decided whether to pass on your full transaction fee or a percentage of your transaction fee, you are ready to toggle on surcharging — there’s no contract to sign, or hoops to jump through.

To set up surcharging, either:

  • toggle on surcharging on Zeller Terminal via Site settings, or
  • toggle on surcharging on Zeller Dashboard via Payments and then Sites.
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You have the option to pass on your transaction fees in full, or in part. 

For more information, read Smarter Surcharging: Apply a Custom Surcharge with Zeller. If you need a helping hand, reach out to our customer service team.

Surcharging rules you must abide by

The most important thing to know is that if you choose to apply a surcharge to card payments, you cannot charge a fee that is above your cost of acceptance. The Reserve Bank of Australia has clearly defined the costs that can be included when calculating your cost of acceptance, while the Australian Consumer and Competition Commission monitors every business’ surcharge to ensure an excessive amount is not being charged. 

If your merchant services provider charges you terminal rental fees, account keeping fees, and multiple different transaction fees and charges for each card type, it can be difficult to calculate your cost of acceptance. Typically, your provider will not help you to calculate your card payment surcharge. Zeller keeps things simple by charging you a low, flat transaction fee of 1.4% — which you can recoup in full at the toggle of a switch.

If you decide to implement a surcharge, you must also ensure you:

  • review your cost of acceptance once per year, to ensure your surcharge does not exceed that cost, and
  • provide customers with at least one non-surcharged payment method.

Businesses are also required to let customers know what surcharges may apply before their transaction is processed, but Zeller takes care of this for you by showing the surcharge on-screen during the payment process. Some merchants also choose to display signage that advises customers a surcharge will apply.

Will you follow the surcharging trend? 

Managing costs through an economic downturn is essential; slowing growth now will impact your business well into the future. Surcharging can serve as a crucial tool to give merchants much-needed support in managing their businesses through uncertain times — which is likely why it is becoming common practice in Australia in 2022. 

Ultimately, the decision is up to you. So long as your customer service is warm and friendly, and your payment process is streamline, surcharging is a smart tactic that could keep thousands of extra dollars in your business. 

Ready to get started with Zeller?