Decoding retail surcharges: what your payment fee says about your business

A payments surcharge in retail businesses is an indicator of how well the business is run and how much it genuinely cares for its customers. In my opinion.

At a local market here in Melbourne yesterday morning across 10 different butchers and fishmongers there were 8 different surcharge percentages ranging from 1% to 1.75%.

Most had a sign saying they were passing on the cost to their business. The businesses are similar in size and would, I expect, have similar capacity for negotiating with their payments provider.

To me, the surcharge percentage is a way to compare businesses. I switched an $85.00 meat purchase from one charging 1.65% surcharge to the next one along who was charging 1%. The meat I purchased was the same price per kilo in each shop, the same noted quality: hormone free, grass fed etc.

While the actual saving was only a few cents, I felt my point was worth making through my purchase decision.

All of us who own retail businesses get make choices about our cost base. Our payments provider choice is a public-facing indication of our ability to negotiate for the benefit of our customers.

I see a high surcharge (above 1%) as disinterest by the retailer in their customers, laziness even. Some providers make this pitch today: go with us and it will cost you noting since the customer is surcharged the full cost. This is the model most likely to result in a surcharge of 1.65% or higher. It’s an easy decision, one you do not have to manage.

The alternative is to shop around. Right now there are payments platforms offering small business retailers blended rates as low as .7%. Given terminal costs, you could surcharge at .85% (maybe even 1%), cover your costs and present as a more engaged and customer-caring retailer.

For all the talk at the moment about cost of living, we retailers can help our customers save money by accessing the best payments rates possible and thereby keeping the surcharge ‘tax’ applied to our customers as low as possible.

Retailers with a lower surcharge nurture trust with their customers whereas retailers with high surcharges can foster resentment and lead customers to question the value of shopping the business. In an environment where consumers are increasingly conscious of every dollar, a low and transparent surcharge can be a valuable differentiator, signalling a business that prioritises fairness and customer satisfaction over maximising profit at every transaction.

So yes, I think a payments surcharge is a reasonable comparison point when comparing retail businesses. It suits me because my own shops have a low % surcharge. Customers appreciate it.