Small online businesses big winners from surcharge changes

Credit cad surcharge removal
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Online Australian retailers may be beneficiaries of new surcharge regulations for small businesses, according to new research commissioned by American Express.

One-in-five (19 per cent) Australians will abandon an online purchase because of an unexpected surcharge. If online retailers removed surcharging, they would see a dramatic increase in sales; last year Australians walked away from $4.33 billion* in transactions because of surcharging.

More than 1000 credit card users were surveyed as part of the research conducted by Retail Doctor Group (RDG), which sought to better understand consumer behaviours in response to payment surcharges.

New regulation has taken effect from 1 September that will prohibit excessive surcharging on credit cards by smaller retailers.

Brian Walker, Founder of RDG, said, “Unexpected surcharges are one of the leading causes of digital shopping cart abandonment. Removing surcharging ultimately leads to a more positive purchasing experience online and in store – it’s a bottom-line benefit to businesses and consumers.”

The research also considered the impact of reducing or removing surcharging on physical retail stores. More than one in five consumers have complained on the spot to a business about being surcharged, while 20 per cent have taken to social media to complain about excessive fees, and 21 per cent have vowed not to shop at the business again.

Many Australians (47 per cent) estimate that credit card surcharges cost them up to $20 per month, with one in six putting that figure up to $40 per month. Almost all Australians (88 per cent) are in agreement around removing or reducing surcharging.

Emily Roberts, Vice President Global Merchant Services at American Express said the findings confirm that surcharging is bad for business.

“Removing surcharging means fewer complaints, more repeat business and increased sales. In an industry up against heightened international competition, addressing the issue of surcharging presents a new opportunity for local businesses,” Roberts said.

“This regulation will help small businesses continue to build long-term customer loyalty. The trust results in the increase of returning customers by 30 per cent, particularly important to many store owners as repeat customers spend 67 per cent more than new customers.”

“We hope that the reduction to merchant service fees, combined with the negative impact that surcharging has on customer experience and loyalty, will lead to a reduction of surcharging across all credit card payments.”

In July, American Express announced it aimed to double the number of small businesses accepting its cards in the next two years, and has lowered merchant service fees for tens of thousands of Australian small businesses that choose not to excessively surcharge American Express card members.

Additional findings from the research include:

  • Small retailers could see the number of repeat customers increase by 30 per cent by reducing or going surcharge free, with repeat customers spending 67 per cent more than new customers.
  • 90 per cent of customers said they considered past surcharging practices when deciding whether or not to return to a business.

* The 2016 NAB Retail Index reported the Australian online retail market was worth $21.65billion in the 12 months to December 2016. With 20% of RDG research participants abandoning their online purchase, this presents a $4.33billion opportunity