Guidance for setting an appropriate surcharge rate
Why use a weighted average surcharge rate?
The costs associated with processing contactless debit transactions are lower compared to credit transactions. While you can set different surcharge rates for various schemes or cards to account for varying acceptance costs, your terminal cannot differentiate between contact and contactless transactions. This means you cannot have separate rates for Visa credit cards and Visa contactless debit cards. A weighted average surcharge rate helps you strike the right balance.
Step-by-Step Guide to Calculating a Weighted Average Surcharge Rate
Let's walk through the process using an example for a small business owner named Harry.
Step 1: Identify Your Cost of Acceptance
For each transaction, Harry incurs the following costs:
- 0.7% of the transaction amount for processing contactless debit transactions
- 1.5% of the transaction amount for processing Mastercard and Visa contact and contactless credit transactions
Step 2: Determine the Share of Costs for Each Payment Method
Harry analyses his transactions over the past 24 months and finds the following:
- 40% of his purchases are contactless debit transactions
- 20% of his purchases are Mastercard and Visa credit contact and contactless transactions
- The remaining 40% of transactions are made with cash or an EFTPOS/debit card where the card is swiped or inserted. These transactions are not eligible for surcharging.
Of Harry's transactions eligible for surcharging (60%), contactless debit makes up 66.7% (40/60), and credit transactions make up 33.3% (20/60).
TIP: To help you analyse your transaction volumes, download a Transaction report from Verifone Central.
Step 3: Calculate the Weighted Average Surcharge Rate
Harry now multiplies his cost of acceptance by the relevant % share for each payment method:
- Contactless Debit: 0.7% × 66.7% = 0.467%
- Credit: 1.5% × 33.3% = 0.5%
Finally, add these together to find the weighted average surcharge:
0.467% + 0.5% = 0.967%
Harry should apply a surcharge of 0.967% to all purchases eligible for a surcharge.
Important Note: General business costs and operational expenses, such as POS costs (including terminal rental and network fees), staff wages, and electricity bills, are not directly related to specific payment types. Therefore, they should not be included in the surcharge amount. Remember, the surcharge rate should not exceed your additional cost of acceptance as per the Retail Payment System Act 2022. Please note that the rates used in this example are for illustrative purposes only and may not reflect the actual rates applicable to your business. Consult your bank/third-party payment provider to obtain specific rates for accepting different payment methods.
For more information and guidelines regarding surcharging practices, visit the Commerce Commission website.