NEW DATA: Nearly Half of Credit Card Users Would Switch Merchants to Avoid Surcharges

A little knowledge can go a long way. This might be sage advice to the growing number of merchants levying surcharges on credit card transactions to help cover card processing costs and boost income, a common practice permissible by law in all but a handful of U.S. states. Though many consumers pay up, the practice can tarnish their opinion of the merchant and drive some to switch to the competition. Communication about fees and education about other payment options can help allay consumers’ frustration at having to pay a surcharge.

PYMNTS research finds that most consumers are aware when surcharges occur, and even consumers who use a diverse range of payment methods still pay surcharges when asked. Just 12% of credit card users switched payment methods to avoid surcharges in their last transaction, and three-quarters of these consumers cite cash as the go-to alternative. Meanwhile, two-thirds of consumers state that surcharges negatively impact their perception of merchants. Often left with few options but to pay, 44% of credit card users declare they are “very” or “extremely” likely to switch merchants when surcharges are applied.

These are just some of the findings uncovered in Credit Card Surcharges: Consumer Experience and Choice, a PYMNTS collaboration with Payroc. We surveyed 2,879 U.S. credit card users to learn more about how they paid for purchases in the last year, their attitudes toward surcharges and whether these fees would lead them to choose alternative payment methods or take their business to another merchant.

More key findings from the report include:

• U.S. consumers tend to use fewer than four payment alternatives when paying in stores and restaurants. Though the average U.S. consumer has utilized fewer than four different payment methods in the past year, we find that credit card users, younger customers and high-income consumers are more likely to use a greater variety. Some classic methods are still popular: Two-thirds of consumers have used cash or a debit card to pay in-store in the past year, while 59% have used a credit card. The usage of alternative methods such as PayPal or digital wallets is notable but trails behind, at 41% and 25%, respectively. Twenty-eight percent have used a prepaid card or gift card, while 18% have used a store card.

• Credit card usage is highest among somewhat diversified consumers yet decreases among consumers who use a wider array of payment methods. Very diversified consumers will likely prefer debit cards at the point of sale. While 97% of somewhat diversified consumers have used a credit card to make a purchase in the past year, 72% of very diversified consumers have done so. This indicates that credit card usage lessens among consumers who use a wider array of payment methods. Our data also finds that credit cards are the top choice for 42% of slightly diversified consumers and 35% of somewhat diversified consumers, but just 21% of very diversified consumers say credit cards are their first choice. Very diversified consumers are instead likely to prefer debit cards at the point of sale.

• A wide gap persists between what consumers say they would do and their actual behavior when faced with a credit card surcharge, regardless of how diversified they are. Nine out of 10 credit card users say they are reluctant to pay a surcharge but end up paying it anyway. Even though just 12% of credit card users overall say that they would pay a fee if asked, 88% end up paying the surcharge, and just 11% say they would switch payment methods if asked to pay a surcharge. Cash is the go-to alternative when switching payments to avoid surcharges, as it was used by 77% of respondents who switched.

To learn more about consumer attitudes toward credit card surcharges, download the report.