In the realm of merchant processing and payments, the landscape is undergoing a seismic shift. Customers no longer view a seamless checkout process as a luxury; it's now an expectation. However, navigating the legalities surrounding surcharges has become increasingly complex, demanding urgent attention and robust solutions.

From the Big Apple's requirement for distinct disclosure on cash versus credit pricing, to the mandated 3% disclosure prior to obtaining an authorization for repair on transactions in California, the legal landscape is in constant flux. These regulations change with such frequency that keeping up requires dedicated resources and expertise. 

Surcharges Unveiled: The Imperative of Compliance

Why the emphasis on these legal nuances? The answer is in the exponential growth of credit card transactions, especially in the wake of the COVID-19 pandemic. With cash transactions dwindling and contactless payments soaring, surcharges have emerged as a vital mechanism for merchants to offset the rising costs of doing business. 

The legal framework surrounding surcharges has evolved significantly since 2013, following a landmark class-action lawsuit against major credit card companies. This legal shift paved the way for merchants to pass surcharge fees directly to consumers, fundamentally altering the dynamics of payment processing.

Merchants must ensure transparent communication regarding surcharges, from prominent signage at point of sale to detailed disclosures on receipts. Each credit card brand imposes its own set of rules, dictating everything from surcharge caps to exemptions for debit card transactions.

While surcharging has gained legal footing in the majority of states, a handful still have yet to implement, underscoring the importance of staying abreast of regional regulations. As of the writing of this article, states like Connecticut, Maine, Massachusetts, and Puerto Rico maintain prohibitions against surcharges, while others, like Colorado, have recently reversed such restrictions.

In this ever-evolving landscape, understanding surcharge legalities isn't just advisable—it's indispensable. To navigate this complex terrain successfully, dealerships must arm themselves with knowledge, adaptability, and a robust compliance strategy.

Shifting Gears: Embracing Innovation in Payments

In the dynamic world of auto dealerships, competition on the payments processing front has historically been dominated by two main players, each presenting its own set of challenges and opportunities: Traditional banking institutions and ISO (Independent Sales Organizations). The landscape is ripe for competition from more customer-centric technology companies specializing in modern SaaS payment solutions, especially if they have an integration to the Dealer’s DMS (Dealer Management Systems).

While this traditional technology has been implemented by auto dealerships for years, the system can be clunky and disjointed, exacerbating customer dissatisfaction, and sometimes leading to negative outcomes. To truly enhance the customer journey, seamless integration of online and in-store processes is imperative.

Banking Institutions

Banks, entrenched in every dealership through banking relationships, exert their influence primarily through checking accounts and lending services. However, the level of customization offered often falls short, with services lacking specificity and personalization.

Traditional ISOs, while touted as cost-saving options, lag in providing online solutions, and typically require manual processing, blurring the lines of legal compliance. Despite the increasing digitization of auto lending processes, face-to-face interactions remain paramount for dealership finance teams to confidently continue ISO relationships. According to the J.D. Power 2023 U.S. Dealer Financing Satisfaction Study, in-person meetings between dealers and  lending sales reps significantly impacted outcomes.

While dealership F&I teams generally show openness to incorporating AI and machine learning in loan adjudication processes, the approach is still cautious as the technology continues to develop, emphasizing the importance of striking a balance between technology and interpersonal relationships.

In navigating this competitive landscape, auto dealerships should consider payment solutions that address the holistic customer experience. Thinking outside the box of the  incumbents, and considering more modern SaaS payment solutions will drive revenue forward.

Powering Profits: Choosing the Right Payments Processor

Finding the ideal payments processor beyond the traditional players can be a game-changer, propelling your dealership towards streamlined operations and enhanced customer satisfaction. Below is a comprehensive list of what to look for in a payments processing solution.

• Flexible Payment Options: Look for a processor that offers a diverse range of payment options, catering to both traditional methods like credit cards and debit cards as well as newer alternatives like Apple Pay, Google Pay, and various buy now pay later options (i.e. Affirm & Sunbit). This ensures versatility and convenience for your customers.
  
  
• Technology Integration: Opt for a payments processor that seamlessly integrates with your existing systems, enabling swift and efficient transactions and reconciliation. Advanced terminal options, including WiFi and Bluetooth-enabled devices compatible with EMV contactless chip specifications, enhance flexibility and speed.
  
  
• Surcharging Ability:  Find a processor that gives you the opportunity to pass credit card costs onto the consumer.  While this may not be a consideration for your business currently, it is much easier to make the change to surcharge implementation if the processor you chose has the tools to allow you to make this change.  Otherwise you will be forced to move to another processor which is very time consuming and could have additional costs. 
  
  
• Security and Fraud Prevention: Prioritize security measures that safeguard sensitive transactions and data. Choose a processor equipped with robust authentication and verification features such as 3DS, shifting liabilities to issuing banks to mitigate bad debt losses and chargebacks.
  
  
• Cost-Efficiency: Seek processors that offer competitive pricing models and compliance with surcharge regulations to allow the Dealership to minimize processing fees.
  
  
• Customer Support: Opt for a processor that offers round-the-clock customer service and support, ensuring prompt assistance in case of any issues or queries. Accessibility and reliability are key considerations in fostering a positive and seamless experience.
  
  
• Detailed Reporting: Seek out processors that provide comprehensive reporting and analytics tools, empowering you to gain valuable insights into your dealership's financial health and make informed decisions. Features like multi-department payments and easy reconciliation streamline operations and save time.

Choosing the right payments processor is paramount for auto dealerships seeking to optimize efficiency, reduce costs, and enhance customer satisfaction. The landscape is competitive, with options ranging from legacy players to technology forward startups. This comprehensive guide should help guide and support you on your journey to creating the best experience for your customers.

This article was first published in Fixed Ops Magazine.