Credit card fees are a major burden for businesses as they eat up profit margins. This is especially true for small and medium-sized businesses that have tight margins. In this blog, we explore a solution to avoiding credit card fees. This solution will also help boost customer satisfaction and loyalty. Before we dig into the solution, let us understand the purpose of credit card fees.
What Is the Purpose of Credit Card Fees?
When a customer uses a credit card for a transaction, the businesses are charged a transaction fee, which includes the interchange rate, payment processing fee, and an assessment fee. The interchange fees are set by card associations. The amount depends on several factors, including the transaction amount, card, and industry. The purpose of the assessment is to cover the cost of services and support. Finally, there is the payment processing fee for handling the transaction.
Credit card fees have a major negative impact on a business. Not only does it cause reduced profit margin, it can create issues with cash flow. Credit card payments can take a while to reach the merchant. Another disadvantage of credit card fees is that they can create pricing pressure, making it less competitive. If the merchant wants to stay competitive, they might be forced to lower their price.
Zero Fees Processing
One of the best ways to avoid credit card fees for a business is to encourage customers to use cash. Customers use credit cards for the convenience. You don’t need to carry cash when you use a credit card. In some cases, credit cards are also more secure compared to carrying cash. However, credit card fraud remains a major risk for customers.
Even with these benefits of credit cards, businesses can encourage customers to use cash by using zero-fee-processing through cash discount programs, surcharge programs, or dual pricing programs. A cash discount program is beneficial for the merchants and the customers. The merchants get to avoid credit card fees, while the customer enjoys a discount for using cash.
It is worth noting that cash discount programs are different from credit card surcharging. While the objective of the purchasing is also to offset the credit card fees, the value proposition to the customer is different. With a credit card surcharge, a merchant is charging extra to the customer, while a cash discount program is doing the opposite by offering a price reduction. Dual pricing is when the customer is presented with two prices — a lower amount for using cash and a higher amount for using a credit or debit card.
Using zero-fee processing not only helps businesses save money on credit card fees, it can also help promote customer loyalty. After all, who doesn’t like a discount? Customers who get a discount are more likely to become repeat customers, which can help boost sales revenue.
The merchant has to be smart in how they price the discount. If they give away too much, then they are just eating up their margin. If they give too little, it might not incentivize the customers to use cash. The key is to find the right balance.