Updated: Nov 15
Visa and Mastercard are set to raise credit card processing fees in October 2023 and again in April 2024. So, many small business owners are, of course, concerned about the impact these hikes will have on their bottom line. While larger retailers may be able to absorb the extra costs, for smaller merchants running on tight margins, even fractional increases dig deep into profits.
Understanding these upcoming changes and strategizing how to mitigate the effects of higher processing fees are crucial for merchants in the coming months.
Here’s what business owners need to know.
New Fees and Caps
The Durbin Amendment already allows merchants in most states to pass on a portion of credit card processing fees to consumers. However, as of January 2023, the cap on the amount merchants can pass on dropped from 4% to 3%.
Not long after, Visa announced they would raise processing rates by 0.2% in October 2023, followed by another 0.2% hike in April 2024. Mastercard also plans to phase in two rate increases on the same timeline.
For merchants already paying 2.5-2.7% in processing fees, these seemingly small hikes will tack on additional costs that quickly add up, especially for businesses doing high volumes of credit card transactions.
Mitigate Losses by Encouraging Cash Payments
One strategy merchants can use to offset the impact of higher credit card fees is to incentivize customers to pay with cash. Cash payments allow retailers to avoid processing fees altogether and retain 100% of their profits from sales.
Coupled with the advantage of avoiding the 3% added “credit card” surcharge, paying with cash can be even more appealing for customers. Just make sure to display signage promoting the cash discount to inform customers at the point of sale.
Staff should also be trained in your cash discount/credit card surcharge policy, so they can correctly key in payments and answer questions. Cash-paying customers will appreciate saving money while you reduce your credit card processing expenses.
Installing an ATM On-Site
To convince more customers to use cash, consider installing an ATM on your premises. This provides a convenient way for patrons to access cash before making a purchase.
An ATM model that charges a low fee for withdrawals can also encourage higher transaction volumes and draw in additional foot traffic to the store. But make sure the ATM is visible and located close to the checkout area for great cash customer convenience. When customers can easily get cash on-site, they will be more likely to take advantage of cash payments and discounts.
Additional Ways to Save
Along with pushing cash payments, look at other areas where you can reduce credit card processing costs – such as renegotiating with your payment processor for lower rates or switching to a cheaper provider. Use a processor that offers interchange-plus pricing for complete transparency on fees.
Another option that may be feasible is to consider covering the processing fees yourself for transactions under a certain amount rather than passing those costs on to customers. Absorbing fees on smaller sales can incentivize customers to make quick purchases with their cards – and larger purchases with cash.
The coming Visa and Mastercard rate hikes may be challenging for small businesses, but utilizing credit surcharges, renegotiating processor contracts, and installing ATM on-site can help merchants adapt. Taking a proactive approach will allow retailers to offset rising credit card processing costs and maintain healthy profit margins – even as rates climb.
Encourage Customers to Pay in Cash with a FREE Turn-Key ATM
Brandon Tant, Account Manager