Covering the Cost of the Transaction: There are Choices for the Merchant Business

In every scenario, there is a cost associated with a transaction.  A financial cost, a human resource cost … even the cost of time and allocated bandwidth.  And in most transactions of significant financial value, the direct financial cost is often – if not primarily – covered by the buyer.


Think about it.  When buying a home, there are closing costs, and typically those costs are paid by the buyer.  When purchasing a car, there are “doc fees”, “admin fees” … all sorts of line items that the finance manager explains … and all of these additional transaction costs are usually paid by the car buyer.  Even for big purchases not related to real estate or other assets, there can sometimes be administrative fees to cover the seller’s cost of doing business.


In each of the examples above, and many others, it’s the buyer who typically pays the cost of the transaction.  And yes, there is always a cost of a transaction, whether financial or otherwise.


Yet, in retail and other business categories where credit or debit cards are accepted for payment, the legacy business practice has been for the seller – otherwise known as the merchant – to pay for the cost of the transaction.  That’s right.  Every time a consumer presents a payment card for purchase, there is an associated “fee” that the seller pays to the credit or debit networks for the ability to accept that payment card for the purchase item or service.  And there is a related real cost to those transactions, in terms of the real-time processing, instant authorization, post-transaction processing and settlement to the merchant’s bank account.  But historically, the seller (or merchant) has absorb all of those fees, which reduces the actual income they earn from the products or services they are selling.


But there are choices for who absorbs the cost of the transaction when payment cards are used.  Broadly speaking, these choices involve newer business processes largely referenced as surcharging, where the merchant passes along the cost of credit card transactions to the buyer.  (Debit card transactions are currently not available for surcharging; however, the cost of the debit transactions are typically smaller.)  Such business practices are governed at a state level, and are considered legal in most states (there are still a few exceptions).


There is a wide range of adoption among retailers, restaurants, and many other smaller ticket businesses, as many of these businesses are concerned with negative customer feedback or other unique challenges.  However, one business segment that is now starting to embrace surcharging is in the area of automotive dealer service departments.  These transactions include the purchase of parts and labor required to complete a service.  But unlike the car sales department where the buyer has typically paid the cost of the transaction, the service departments have typically absorbed the cost of the transaction.


Now, there appears to be a trend that many service department managers are making the choice for their buyers to cover the cost of the transaction.  And the financial results can be significant, which improves cash flow that can be directed toward hiring experienced employees, equipment purchases, office upgrades, and many other options.


The Transaction Services team educates automotive dealers across the nation how to “make this choice” and then works closely with merchant customers to implement this new process.  Learn more at