Surcharging can be a cost-effective way of providing your customers with the convenience of contactless and credit card payments. And it’s easy to do with a Smartpay terminal.
When can you add a surcharge?
While accepting EFTPOS transactions is covered by the monthly payment network fee, banks charge merchants a merchant service fee (MSF) per transaction when your customers use a credit or debit card (contactless or online) to make a payment.
With the increasing popularity of contactless payments, many businesses are opening their doors to contactless with the choice of either absorbing these fees to accept payments or passing them on to their customers.
In New Zealand, you can pass on the additional cost of accepting certain payments to customers by adding an appropriate surcharge to the transaction total.
This includes any merchant service fee your bank charges for a transaction when you use your EFTPOS terminal to accept:
- Standard credit card transactions
- Contactless debit card payments or credit card payments
- Apple Pay, Google Pay or other contactless payment methods
How to work out your surcharge amount
Based on what your bank charges you, all you need to do is figure out how much you want to surcharge; it is usually applied as a percentage of the transaction total.
As a broad estimate, the average surcharge rate for Smartpay customers is between 2% and 3%. In which case, if a customer makes a $30 purchase the merchant fee to accept the payment would be between $0.60-$0.90.
There are some obligations around how much you can surcharge, so most merchants make it simple by choosing their MSF rate as the surcharge rate.
Once you make your decision, it is programmed into your EFTPOS machine.
And that’s it.
Adding a surcharge with a Smartpay terminal is easy. You don’t even have to calculate each transaction as the terminal does this for you.
How your surcharge is applied in the real-world
When a customer makes a purchase, all you need to do is enter the amount into your terminal. If your customer then chooses “credit” or taps the contactless card reader with their card, phone or device, your EFTPOS machine identifies the payment type as a “scheme” transaction, rather than an EFTPOS transaction. When this happens, your terminal automatically applies your chosen surcharge.
The surcharge amount will depend on the customer’s payment method and the percentage you choose to apply. Here are a few examples of how it might work:
1. You apply the same rate for both contactless and credit card transactions (A customer makes a contactless payment )
A customer makes a $100 purchase and taps their credit card or debit card on the card reader. Your Smartpay terminal would recognise this as a contactless payment and apply the surcharge you have chosen to cover the contactless transaction fee.
In this scenario, we’ll say you set a 2% surcharge. The total your customer now pays $102.00.
Most merchants on blended or interchange plus rates will choose to apply the same rate for contact (insert/swipe credit) and contactless transactions.
2. You apply a lower rate for contactless (A customer pays with a credit card)
Standard credit card transactions actually have higher transaction fees than contactless payments. Say you set a different rate for contactless and contact (credit) transactions, for example, you might set up a 3% surcharge for credit card transactions and 2% for contactless payments.
In this case, If a customer makes a $100 purchase and swipes their credit card, the 3% surcharge will apply and your customer will be charged $103. However, if they tap on the same credit card on the card reader instead, the terminal would consider this a contactless transaction and use the 2% surcharge.
Merchants on split (varying or unblended) rates may choose to set different rates for surcharging. This helps you recoup the cost of accepting this credit card payment (contact or contactless).
Surcharging also works on Smartpay terminals integrated with POS. If your POS is configured to accept surcharging, this will work seamlessly with your EFTPOS terminal when you send over the transaction to the terminal.
Handy tip:
Your Obligations when surcharging
As a merchant, you have obligations towards your customers when surcharging – this allows customers to know about the surcharge and choose to accept it or pay another way.
These obligations only require you to follow common sense guidelines and provide good customer service.
- Surcharge amount – You can only charge a reasonable surcharge fee to cover the cost of accepting the payment method. Your surcharge fee cannot be higher than the cost of acceptance.
- Surcharge signage – You must display signage at the point of sale and your premises to indicate to customers that a surcharge is applicable on certain payment methods. You must also declare how much that surcharge will be. Smartpay provides customisable signage for customers to download and display at their premises. You can find this here.
- Surcharge collection– The surcharge amount must be collected as part of the same transaction as it is applicable to. It cannot be collected separately or in cash.
- Surcharge receipt – The customer’s receipt must display the surcharge amount specifically. We take care of this for you by including this on the transaction receipt printed from the EFTPOS terminal.
A final note on surcharging
The New Zealand parliament is currently in the process of reading the Retail Payment System Bill. If passed, regulations will be brought about to both merchant service fees and surcharging.
These will empower the Commerce Commission and introduce capped limits on interchange fees which are charged by the banks that issued the credit and debit cards.
According to the Commerce and Consumer Affairs Minister, this bill intends to help lower the fees charged on such transactions and could save New Zealand businesses around $74 million annually.
The good news is Smartpay has extensive experience from Australia with helping small and medium-sized businesses set up a surcharging solution that’s both simple and compliant. We’ll be able to do the same thing for merchants here in New Zealand.
If you want to learn more about how contactless payments could help you business, talk to the Smartpay team today.