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By Nick Rigitano
NSGA Director of Insights and Analysis
A 3% credit card processing fee may feel small until you multiply it across every transaction in your business.
For a sporting goods retailer or team dealer, where a single purchase can easily run into the hundreds of dollars, absorbing card fees can take a noticeable bite out of margin. But passing that cost to customers can create a different problem: some shoppers may simply spend less, switch payment methods or walk away.
So let’s examine which approach makes more sense?
Option 1: Pass the Fee to the Customer
The upside: You protect your margin on every credit card transaction. Instead of treating processing fees as another operating expense, you recover some or all that cost directly from the shopper. Those dollars can then be reinvested into the business and/or customer experience.
That can be especially appealing for independent retailers and dealers competing against larger entities with more negotiating power on payment processing.
The downside: Customers don’t necessarily see the surcharge as a reasonable business expense. They see it as an extra charge for paying in a way they already consider normal.
Recent research makes that risk difficult to ignore:
- 61.6% of surveyed cardholders said they had encountered a credit card surcharge, and 31.6% said they avoid using credit cards when a surcharge applies. (Cardratings.com)
- A survey by J.D. Power found 32% of small businesses that surcharge reported customers canceling purchases at least some of the time because of the fee. (Payments Dive)
- Ipsos found merchants that surcharge experienced approximately a 10% reduction in same-store debit and credit card sales. (Ipsos)
- One WalletHub survey found 79% of Americans had been charged a credit card fee, while 85% felt consumers were being unfairly nickel-and-dimed. (PaymentsJournal)
Takeaway: A surcharge may recover processing costs transaction-by-transaction while simultaneously reducing transaction volume or basket size.
Option 2: Absorb the Fee
The upside: The customer sees one price with no surprise at checkout. That can make the buying experience cleaner and protect the relationship you’re building with a local customer.
That’s particularly relevant in sporting goods, where purchases can involve considerable research and comparison shopping. You don’t want a customer who finally decides to buy to rethink the purchase because an unexpected fee appears at checkout. Retailers should consider using transparent language throughout the shopping cart/buying process.
There is also evidence that card users tend to spend more than cash users. Ipsos found customers can spend up to twice as much per transaction when using debit or credit cards compared with cash. (Ipsos)
The downside: You absorb a cost that can add up quickly. If your business processes $1 million annually on cards, even a 3% effective processing cost represents roughly $30,000 before considering other variables.
That money must come from somewhere — margin, operating expenses or pricing.
Takeaway: Absorbing the fee can support sales and customer experience, but you need to know exactly what those fees are costing your business.
What Are Customers Telling Retailers and Dealers?
The consumer message is surprisingly consistent: people understand that merchants have card costs, but they don’t particularly like being charged separately for them.
The National Retail Federation (NRF) reports that 81% of consumers surveyed supported federal legislation designed to increase competition and lower credit card fees for small businesses. At the same time, NRF’s consumer examples show frustration with surcharges themselves. (NRF)
And rewards matter. Credit card points, miles and cash back are a major reason consumers choose cards. Research summarized by The Financial Brand found that 43% of cardholders surveyed had decided not to use their credit card for a planned purchase because a surcharge applied. (The Financial Brand)
In other words, customers may love their cards while disliking the surcharge attached to using them.
A Practical Way to Decide
Before adding a surcharge, don’t just calculate the processing fee. Calculate the potential sales impact.
Look at:
- Your annual credit card sales.
- Your effective processing rate.
- Average transaction size by payment type. Is a 3% fee likely to receive pushback?
- Customer demographics and behavioral tendencies. Are they fee-sensitive or loyalty-driven?
- Gross margin dollars per transaction.
- Whether competitors in your market surcharge.
- Customer complaints, abandoned purchases and payment method changes.
- State laws regarding surcharges.
- Whether a modest price adjustment across products would be less disruptive than a separate checkout fee.
Then compare two numbers: the annual processing cost you would recover versus the gross profit you could lose from reduced sales or smaller baskets.
The answer may be different for every store.
The Bottom Line
A surcharge can make your P&L (Profits & Losses) look better while making the customer experience worse. And the available research suggests retailers and dealers should take that tradeoff seriously instead of assuming that every dollar recovered in processing fees is a dollar gained.
For many independent sporting goods retailers and dealers, absorbing the fee may be worth considering if it protects higher-value transactions, customer loyalty and a friction-free checkout. But the right answer should come from your own numbers, not a blanket rule.
Your next step: Pull the last 12 months of credit card processing statements and calculate your true annual cost. Then compare that number with your average gross profit per transaction. That’s a 30-minute exercise that can make this decision much clearer.
Lastly, keep an eye on this issue. NSGA will continue tracking the policy and advocacy fight around credit card swipe fees and sharing updates that matter to small retailers.
Editor’s Note: Artificial Intelligence (AI) was used in writing this article. Information comes directly from the sources listed below.
Sources: CardRatings, National Retail Federation, Payments Dive, Ipsos, The Financial Brand, PaymentsJournal, and NBC News.
Research findings and regulatory requirements can change; retailers should confirm current federal, state and card-network rules before implementing a surcharge.
