What is a Payment Surcharge?
A payment surcharge is an additional fee that is charged to customers who choose to use a particular payment method, such as a business credit card, for transactions.
It is important to note that some countries either heavily regulate or even prohibit surcharges on certain payments
However, in other countries, it may be legal for businesses to impose surcharges as long as they are clearly disclosed to customers.
Common types of payment surcharges include:
Online payment surcharge: This type of surcharge is often applied to
payments made through online platforms, such as e-commerce sites. This fee is intended to cover the costs incurred in processing the payment through the platform, including fees charged by the payment processor or the platform itself.
Credit card payment surcharge: Credit card companies typically charge merchants fees for processing credit card transactions. To cover these fees, some businesses may charge a surcharge for payments made with credit cards. This surcharge may vary depending on the type of credit card used, with premium cards typically attracting higher surcharges
due to their higher processing fees.
Surcharge advance payment: When a customer pays for a product or service in advance, such as booking a hotel room or renting a car, a surcharge may be applied to cover the potential risk of cancellation or no-show by the customer. This type of surcharge, commonly known as " booking fees," can be a fixed amount or a percentage of the total cost.
Why is a payment surcharge charged?
A payment surcharge is intended to cover the cost of processing the payment. For example, if a business accepts credit card payments, it may incur processing fees from the credit card company, which can range from 1% to 3% of the total transaction amount.
To offset these fees, the business may choose to add a payment surcharge to the customer's bill when they pay with a credit card.
Who charges payment surcharges?
Payment surcharges may be charged by various entities, including businesses, service providers, and merchants who accept electronic payments, such as credit cards, online payments, or other payment methods.
For instance, airline companies may impose a surcharge on flight bookings, while ticketing companies may do so for booking event tickets.
Who pays the surcharge?
The party responsible for paying the surcharge varies depending on the context. In general, it is the customer who is making the payment.
However, in some cases, the merchant or service provider may absorb the cost of the surcharge rather than pass it on to the customer. This often happens in the restaurant industry, especially after the UK stopped charging surcharges for consumer card payments after new regulations came into force in January 2018.
Why am I paying a surcharge?
You may be paying a surcharge for various reasons, and the specific reason will depend on the context of the transaction.
A frequent cause for paying a surcharge is because of the payment method you choose. If, for example, you opt to pay with a credit card, certain vendors or service providers may impose a surcharge to account for the expense of handling the payment.
How are payment surcharges calculated?
The calculation varies depending on the type of surcharge and the merchant or service provider.
But there are two standard methods of calculation:
Fixed fee: Some payment surcharges are fixed, meaning the amount is set regardless of the transaction value. For example, Ticketmaster, a global ticketing company that sells tickets for concerts, sports events, and more, applies a fixed fee of
$2.95 as an "order processing fee" made online or by phone.
Percentage of transaction value: Many payment surcharges are calculated as a percentage of the transaction value. For example, Visa imposes a surcharge of between 1.4% and 2.5% on all credit card payments.
Consumer rights and regulations on payment surcharges
In the UK, there are regulations and guidelines that govern payment surcharges to protect consumers' rights. Under these regulations, businesses are not allowed to impose excessive surcharges beyond the cost of processing the payment.
The surcharge amount should be reasonable and not discriminate against a particular payment method. Additionally, these regulations require businesses to disclose the surcharge amount before the payment is made so consumers can make an informed decision.
It is also worth noting that different payment types are subject to different laws and regulations. For example, electronic payments, such as debit cards and credit cards, are regulated under the Payment Services Regulations 2017. On the other hand, payments made through mobile payment platforms, such as Apple Pay and Google Pay, are subject to the Electronic Money Regulations 2011.
Those regulations and guidelines aim to ensure that businesses do not take advantage of consumers by charging excessive payment surcharges. The UK government hopes to create a fair and transparent payment environment for businesses and consumers by providing clear information and guidelines.
The Impact of Payment Surcharges
Payment surcharges can have significant impacts on both consumers and businesses. For consumers, payment surcharges can add to the cost of a transaction and may lead to confusion and frustration. Sometimes, consumers may choose to avoid transactions involving surcharges altogether.
For businesses, payment surcharges can be a way to offset the costs of processing payments, but they may also result in lower sales if customers are deterred by the extra costs. Additionally, businesses that apply surcharges must comply with regulations to avoid legal issues and potential fines. Considering these challenges, businesses may want to consider alternatives to payment surcharges.
For example, some businesses may choose to offer discounts for specific payment methods or absorb the cost of processing payments into their overall pricing strategy. Others may explore the use of different payment networks or negotiate lower fees with their payment processors.
Ultimately, the impact of payment surcharges depends on a range of factors, including the nature of the transaction, the payment method, and the competitive landscape. Businesses and consumers alike should carefully consider the costs and benefits of payment surcharges before deciding whether to use or accept them.