Surcharge Free movement draws mixed reaction

POS, credit card, payment, shopperThe National Retail Association has withdrawn its support for the recently launched Surcharge Free movement and is calling for retailers to consider their specific trading circumstances before deciding the best course of action for their business on card payment surcharges.

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Launched late last month and spearheaded by consumer advocate and campaigner, Christopher Zinn, the Surcharge Free movement urges retailers to absorb transaction payment surcharges instead of passing the cost onto customers.

The initiative was formed following the federal government’s recent announcement that it wants to end excessive payment surcharging in business, and subsequent suggestions that the RBA will soon put its foot down on excessive surcharges.

Launched on May 23, the Surcharge Free movement announced the National Retail Association as a supporter, along with American Express, Retail Doctor Group and online retailers, The Iconic and Coco Republic. However, the NRA has now withdrawn from any direct involvement with the initiative.

Speaking to Inside Retail Weekly last week, Ian Winterburn, deputy chairperson and acting CEO of the NRA, cited the belief that there is no silver bullet solution on the surcharge issue that works for all retailers as the reason for the industry association distancing itself from Surcharge Free.

“There’s sectors where the conditions under which the surcharge impacts on their business is completely different, and the remedy is different,” Winterburn said. “So it’s quite difficult for us to actually take a position which is suitable for everybody, quite frankly.

“It comes down to free choice, and it’s very hard to come up with the one remedy because it will impact differently on different businesses. So it really is up to the individual retailer to make those decisions on how best to recoup that cost. I just don’t think there’s one silver bullet that’s going to solve everybody’s problems.”

While no longer officially endorsing the Surcharge Free movement, Winterburn said the NRA remains “deeply interested” in the matter and is looking to how forthcoming changes in legislation target the broader issue.

“The main thing is that there’s some regulation about making sure there’s no excess charging of surcharges. Obviously everybody has the right to recover their costs, but it certainly shouldn’t be an opportunity to price it up unrealistically and profit accordingly. I don’t think anybody would dispute that.”

While the NRA has taken a democratic stance on the surcharge issue, Zinn points to research that suggests 90 per cent of consumers rate not being surcharged as important to their repeat business. Zinn said since launching, the Surcharge Free movement has succeeded in engaging with the retail and hospitality sectors, with “many businesses” joining the movement and pledging their support on social media.

“The list of participating businesses grows daily and we’ve received lots of enthusiastic emails from retailers who are proud to be involved,” Zinn told Inside Retail Weekly. “Catering to customers’ preferences by being surcharge free makes good business sense. [The movement] is simply about highlighting how many businesses refuse to surcharge and why, and sharing these stories with consumers.”

While the NRA suggests otherwise, Zinn is adamant that it is “highly realistic” that retailers can absorb credit card transaction surcharges instead of passing the cost onto customers. And he believes absorbing transaction surcharges can offer a legitimate return on investment for retailers in the form greater customer loyalty and return visits.

Alternative solution

The launch of the Surcharge Free movement has moved others in retail to offer up alternative solutions to solving the same issue of removing the bitter taste customers are left with when asked to stump up for surcharge fees at the point of sale.

Andrew Gorecki, managing director of one of Australia’s leading retail technology providers and a 30-year veteran of the Australian retail industry, questions the approach to the issue taken by Zinn and the Surcharge Free movement.

“There are two angles – one angle is rational, the other is emotional,” Gorecki opined. “The fact of the matter is that it does cost money to process the transaction. And it is typically related to rewards the customer is getting in return for using the specific payment type. If the retailer then wants to recover higher than usual fees because certain cards apply them, then that is legitimate because the customer always has a choice. Each payment types carries with it a cost of handling.”

In response to Surcharge Free, Gorecki proposes an alternate scenario where creative retailers could consider gradually adding a small percentage increase (for example, two per cent) to their retail prices and then offer that same percentage back as a discount for customers who pay via cash or debit card. Gorecki calls this, “smarter marketing, and a creative way for retailers to defuse the issue”.

“Look, retailers continually increase their prices,” he argues. “If you look at supermarkets, every week they will tweak their prices. They have a margin and incoming costs, so they apply the margins and the cost of goods moves as well.

“What I’m saying is that it would have different dynamics. Has anyone tried that? I don’t know. But at present it looks like you are trying to charge people extra. It’s a framing effect; it’s how you communicate the message.”

And while the Surcharge Free movement focuses on the cost of card surcharges, Gorecki argues that cash is actually the most expensive form of payment for retailers.

Cash register“Cash is the most expensive tender type to handle because it’s subjected to theft, it needs to be repetitively counted, you need to manage change, which you have to purchase from the bank, and that costs money. You need to have safes, and safety precisions around it, you need to have insurance. When all these things are considered, then cash is the most expensive tender type to handle in a retail environment. Yet, nobody is attempting to charge for handling cash.”

Surcharge free success

John Tellis, director of bespoke tailor business, Germanicus, has been a staunch supporter of absorbing surcharge costs. His business, which has stores in Melbourne, Sydney, Brisbane and Perth, pre-empted the launch of the Surcharge Free movement and stopped passing on surcharges to customers prior to Zinn’s initiative.

“For the last 10 years we would surcharge, and for me that was the last link in the chain between us and the actual customer,” Tellis said. “What a bad way to end; you need something that leaves a good impression. [Customers] didn’t really get angry, because it was quite normal and prevalent with retailers, but they’re face would drop a little bit. I thought, ‘Why the hell are we surcharging? Let’s wave it and see what happens’.”

Tellis believes to move has engendered loyalty and led to more repeat business. “I’m finding that customers are a lot happier. We feel that it’s bought us a bit more loyalty, and possibly a couple of extra little sneaky sales that wouldn’t have come in, which is far outweighing the cost to us. Our customers are walking out happy.”

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