Shoppers May Ditch Preferred Merchants If Credit Card Surcharges Expand

man paying with credit card

With consumers struggling under ongoing financial challenges, many may find credit card surcharges to be the proverbial straw that breaks the camel’s back, leading them to be less loyal to favorite merchants.

In PYMNTS’ Q1 eBook, “The Implications of Uncertainty,” which draws on advice and observations from 18 payments industry executives, Joe Meuse, VP, Product at Spreedly, noted that credit card swipe fee inflation could transform the way that consumers pay.

“With [credit card transaction] costs continuing to rise, merchants may be forced to re-evaluate their pricing strategy and consider whether a surcharge program, passing additional costs onto consumers, will be right for their business,” Meuse said. “This shift in payment dynamics has the potential to reshape consumer behavior and preferences further, posing both challenges and opportunities for businesses across industries.”

He cited the example of a situation in which “every restaurant or gas station” adds a 2% to 2.5% surcharge for paying with credit card, which could lead to shoppers reconsidering “the convenience and affordability of using their cards,” informing how they pay.

As it is, credit card surcharges are a small but significant factor for consumers who carry cash. According to the June 2023 installment of the PYMNTS Intelligence “Consumer Inflation Sentiment Report” series, the “Consumers, Cash and the Inflationary Economy” edition, 81% of shoppers use cash. Among those who carry cash around, 15% say they do so because they can get discounts or offers when they pay with cash.

Swipe fees can compromise shoppers’ loyalty. The 2022 PYMNTS Intelligence study Credit Card Surcharges: How Cardholders React To Extra Costs, created in collaboration with Payroc and drawing from a survey of more than 2,500 U.S. consumers, found that 56% of credit card users who have been asked to pay a surcharge said it made them “very” or “extremely” likely to take their business to another merchant.

Plus, the study found, 71% of cardholders who were not asked to pay a surcharge during their most recent transactions say being asked to pay one would decrease their satisfaction with the merchant.

The burden of these surcharges may be compounded by consumers’ ongoing financial concerns. The “The Pessimism About Pay Rises Offsets the Effect of Falling Inflation” installment of the PYMNTS Intelligence series “New Reality Check: The Paycheck-to-Paycheck Report” found that 83% of consumers say they are at least somewhat concerned about near-term economic conditions.

Indeed, shoppers are cutting back on those extra little costs where they can. The February/March installment of the series, “Why One-Third of High Earners Live Paycheck to Paycheck,” found that 60% of shoppers have cut down on nonessential retail purchases, and half have turned to cheaper retail merchants.

Regulators are getting involved, too. In New York State, in February, a law went into effect that limits credit card surcharges to the amount charged to the business by the card company. In addition, the law requires businesses to post — prior to checkout — the total price of an item or service including of the card surcharge or a dual-tiered pricing option. This requires the credit card price to be displayed as well as the cash price.