Increasing dealer profitability with a Key Merchant Services surcharge program

A creative savings strategy

In today’s competitive automotive industry, dealerships are continuously exploring new avenues to enhance profitability while maintaining high levels of customer satisfaction. As costs continue to rise and margins shrink, finding innovative strategies to reduce expenses is crucial.

Passing the cost of processing fees on to customers who choose to pay with their credit cards is one approach dealerships can take to reduce expenses and increase profitability — without alienating their clientele. Here’s how a surcharge program works and what you need to know to create a successful program for your dealership.
 

Background: Landmark litigation

Just over a decade ago, credit card surcharging was prohibited by law. As a result of a legal settlement to resolve claims brought by a group of U.S. merchants, however, merchants in the U.S. and U.S. territories were allowed to add a surcharge to certain credit card transactions beginning January 27, 2013. Merchants who chose to exercise the new law were required to publish consumer disclosure notices and adhere to other requirements agreed to as part of the settlement. Note: Colorado, Minnesota, New Jersey, New York, and California have state-specific requirements for credit card surcharging; please consult your legal counsel for advice on surcharging in your state.

In response, major credit card institutions have established rules and regulations for merchants to follow when implementing surcharges. While there are slight variations among card brands, the following general rules are universal¹:

• The surcharge amount cannot exceed the cost of the transaction processing fee.
• Surcharge fees are strictly limited to credit card transactions, not debit or prepaid sales.
• Merchants must notify major credit card institutions in writing about their intent to surcharge (or delegate this task to their surcharge program provider).

Broad-based benefits

Dealerships can realize intangible and bottom-line advantages of implementing a credit card surcharge program, including:

• Lower operating costs: Dealerships can save thousands each month on card processing fees, directly increasing their profit margins by not having to absorb interchange costs.
• Increased margins: Savings from eliminating these fees can be redirected to offset other costs, such as service and maintenance expenses.
• Payment-type flexibility: Customers can choose to avoid surcharge costs by opting for alternative payment methods such as cash, checks, or debit cards, all of which incur much lower processing fees for the dealership.
• Shift in buyer attitudes: Not only is surcharging legal now but it is also becoming more common, with dining and retail establishments leading the way to shift consumer attitudes toward card-associated fees.

Transparent, active communication from the dealership is key to maintaining positive relationships with customers, however. Because many customers are now more business-savvy, they better understand and appreciate the cost of doing business.

But they still want and deserve choices about how to pay for goods and services, which is easy to do with a little guidance. Your customers’ experience is a factor to consider before deciding to implement a surcharge program.
 

Is surcharging right for your dealership?

Remember, the dealership benefits regardless of how the customer ultimately decides to pay. Surcharging serves as an expense mitigation and margin enhancement tool. How you communicate your surcharging program is very important, however.
 

The power of positioning

When a credit card is positioned as one of several payment options, the customer is more likely to perceive the dealer as offering flexibility and the surcharge itself as a standardized fee associated with choosing a credit card for payment. By choosing a different form of payment (cash, check, or debit card) the customer experiences more control and flexibility, while the dealership still benefits from reduced processing costs.

 

Other decision drivers

Other considerations and questions you should ask that will influence whether a surcharge program makes good sense for your dealership are: 

• Competitor practices: Are other dealerships in your area implementing surcharges?
• Customer communication: What information must be disclosed to your customers about the surcharge?
• Cost comparison: What are the costs associated with credit cards and other forms of payment?
• State regulations: What surcharging laws and regulations exist in your state?
• Equipment needs: What equipment will be required to automate the surcharge process effectively?

KMS surcharge program best practices

Since offering the Key Merchant Services (KMS) surcharge program in 2021, we are excited to share three years of data that demonstrate significant cost savings for our participating dealership clients. Key benefits include:

Processing fee savings: 75%–85% reduction of client card fee expenses, on average.

Seamless integration: Our surcharge program is easy to integrate into your business, offering state-of-the-art technology, email, and text receipts, and enhanced point-of-sale/checkout experiences for customers.

Exceptional customer service: The KMS team provides assessment of savings, onsite training, shared equipment costs, and centralized sourcing for multiple financing services.

Compliance and simplification: The program ensures compliance with card company and interstate regulations, offers streamlined processing and reconciliation through one portal, and provides fast funding with no large monthly service fees or long-term contract commitments.
 

Lead with service and trust

In an industry characterized by typically thin margins, eliminating manual or paper-based systems through a KMS surcharge program can help. First, you can realize significant savings on related operating expenses — every month. Moreover, cutting costs and improving efficiencies shouldn’t compromise the good rapport you’ve earned with your customers.

The key is the program provider you choose.

With an 80-year history of serving car dealers, KeyBank understands your business. As a relationship bank, we also understand the expense and challenges that come with credit card acceptance. We bring industry experience, hands-on training, and dedicated service to ensure your dealership maximizes cost savings while maintaining the trust and satisfaction of your customers. We’re here to help you drive long-term success.