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December 2020

Credit Card Surcharges: Bottom-line Winner For Owners

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By David Gould

Letting golfers pay with credit cards is a benefit for course operators, but sacrificing large sums of money to do it is misery. There have been two reasons for enduring that pain—fear of customer protests and, in 10 U.S. states, compliance with the law.

Now a growing number of course owners are contending that reason No. 1 is non-existent—people either don’t notice credit card surcharges or don’t mind them. As for reason No. 2, the Supreme Court basically did away with it in 2017, ruling that states banning surcharges were infringing on a merchant’s right to free speech. The court pointed out that New York’s law—the one being challenged—allows merchants to charge a $10 cash price and $10.30 credit price, but not $10 plus a 3 percent surcharge for card use, so its effect was “to regulate how sellers may communicate their prices,” in defiance of the First Amendment.

Experts on this area of the law responded by saying the decision rendered anti-surcharge laws unenforceable in the 10 states that had them on the books, which (along with New York) were California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, Oklahoma and Texas, Minnesota plus Puerto Rico.
Justin Smith, general manager of Olde Homestead Golf Club in New Tripoli, Pennsylvania, adopted the surcharge policy in April and calls it “the simplest way there is to add thousands of dollars to any golf course’s bottom line.” He prepared himself for complaints but didn’t hear any. “People don’t care,” says Smith, who set his surcharge at 3 percent, which covers the “swipe fee” imposed on him by Visa and Mastercard, plus a little. “The more these credit card companies pile on the reward points, the more money they try and get from me. If I accept credit cards I can’t avoid getting hit by the card companies and banks, but my customer can avoid our surcharge by paying cash.”

It was necessary for Roy Dykeman of Hales Mills Country Club in Johnstown, New York, to switch credit card processors in order to set up a surcharge function, which he did a couple of months into the season. “Switching was a pain in the neck, but I’d do it all over again,” says Dykeman. “We’ve had close to zero issues with this, and it’s saving me over $1,000 a month, easily. Interestingly, the customer response in the pro shop differs from what happens in the Hales Mills restaurant, which serves full meals.

“In the shop the golfer pays and leaves,” Dykeman says. “Nine times out of ten he doesn’t want the receipt, and that tenth time it just gets stuffed in his pocket. In the restaurant people have more time, and they look at their receipt to figure out a tip. So that part of it makes me a little nervous.” Dykeman pays like a regular customer for food and beverage at his facility, and lately he’s been paying cash, to save the 4 percent add-on.

Going the surcharge route has produced an annual payoff of about $35,000 for Rock Lucas, owner of Charwood Golf Club in West Columbia, S.C. “Golf is so far behind most normal business operations,” remarks Lucas, who brings his checkbook everywhere because card surcharges are the norm in his part of the world. “To my knowledge there hasn’t been a single lost customer since we started surcharging,” he asserts. “And even if there were one or two, the revenue falloff would be tiny compared to the financial benefit of charging that 3.5 percent.” His course-owning colleagues who have been on the fence about surcharges couldn’t pick a better time to pull the trigger than now, according to Lucas. “Covid-19 is everybody’s magic reset button,” he says. “If you’ve been including tax in your green fee, this is the year to go plus-tax. If you’ve been eating the swipe-fee money, now’s the time to quit doing that.”

Confirming the comments expressed by these operators is Jenn Cunningham, key accounts manager with First American, the payment services company that NGCOA partnered with last year. “The courses we work with that have instituted surcharges simply do not receive complaints about it,” says Cunningham. “And if for some reason customers objected, the course could just ask their POS partner to turn off the setting.”

If a course owner finds the transaction cost of credit card payments going up, or decides it’s too high already, raising rates and other prices by 3 or 4 percent will address the problem, without the need to impose card surcharges. People who favor that approach tend to believe that costs tacked onto other costs are more irritating to the consumer than straightforward price hikes.

What usually gets left out of the comparison of these two approaches is the general topic of pricing power. In other words, if you’re charging a $36 green fee, and you raise it to $37.50 to cover that transaction cost, it’s the equivalent of saying there was $1.50 of price elasticity available to you. In a world devoid of credit card charges, you would therefore have been  mismanaging your business by leaving the fee at $36. Once the set rate becomes $37.50, and there’s no apparent lost sales, the option to impose a card surcharge is still there, should the owner feel his golfers would shrug it off. “I’d rather use my pricing power another way than covering transaction costs,” says Justin Smith, when asked about the two sides of this debate.

There are a few advisories for any merchant who’s preparing to impose card surcharges. One is that debit cards must be exempt, even when they are being “run through as credit.” Also that your surcharge percentage mustn’t exceed the costs that your business pays to credit card companies, so-called acquiring banks and the like. Thirdly, avoid using the term “cash discount” when the posted price of a product or service isn’t being lowered. So, a $40 green fee that costs $40 to someone paying cash and $41.40 to someone paying with a credit card is not being “discounted,” no matter how you slice it. Stick with language like “cash price” and “credit card price” and you’ll be much better off.

 

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