Are Credit Card Surcharges Bad for Business?

Recently I went to an independent coffee shop and purchased a vanilla latte and a scone for breakfast. They told me a price, which I accepted, but as I was using the terminal to pay with my credit card I noticed an extra $0.19 fee. I asked about it and he quickly proceeded to give me a quarter as a refund. Why should you care? Because this is actually an issue of consumer protection, freedom of speech, and small business competition!

California has a law, California Civil Code section 1748.1, that prohibits retailers from adding a surcharge when a consumer chooses to use a credit card instead of paying by cash. It says, "No retailer in any sales, service, or lease transaction with a consumer may impose a surcharge on a cardholder who elects to use a credit card in lieu of payment by cash, check, or similar means." It also says, "It is the intent of the Legislature to promote the effective operation of the free market and protect consumers from deceptive price increases for goods and services". As a Californian, I've become used to this law (personally and in business). I believe that we should all play by the same rules and I've accepted credit card fees as a "cost of business".

As I was waiting for my coffee several other patrons bought coffee, paid with their credit cards, and incurred the fees. There was no signage to disclose the fee and they never mentioned it unless you noticed it on the receipt. This bothered me. So after the line died down I said something to the person behind the counter who happened to be the owner. I told him that this practice was illegal and his response was basically 'I know and I don't care'. He gave the common reasons about being a small business owner, the expense of the fees, and that customers appreciate that they accept credit cards, etc. Then he surprised me by trying to compare it to speeding on the freeway and that is wasn't a big deal. However, speeding is dangerous and if you get caught or have an accident there will be consequences. I told him that the consequence was that he just lost a customer (and I have not been back since).

What neither the coffee shop owner or I knew was that in March 2015, U.S. District Court Judge Morrison England ruled that this California law “is an unconstitutional restriction on plaintiffs’ freedom of speech and is void for vagueness.” California's Attorney General believes that "...this decision is incorrect and has appealed that order." However, as of now, the Attorney General cannot enforce the statute. This combined with the change in credit card merchant agreements in 2013 has lead to confusion on this issue. The coffee shop owner and I both thought he was violating the law but what he did not know was that he technically could impose the fee legally if he gave full disclosure prior to purchase.

The State of California Department of Justice Office of the Attorney General said on this matter, "Although the Attorney General is enjoined from enforcing this specific statute, California law does prohibit a merchant from engaging in activity that is unfair or deceptive. So, for example, if a merchant charges a credit or debit card surcharge or offers a cash discount, but does not fully disclose this to customers prior to their committing themselves to the goods or services, or if the merchant does not clearly explain its policies regarding debit and credit cards, the merchant may be violating California law."

This will likely be a topic of interest for many California small business owners in the years to come. Personally, I don't think it is wise to add additional fees to the customer that they may not understand or agree with. Major merchants are not imposing these surcharges and if small businesses adopt the practice they'll be putting themselves at a competitive disadvantage. In e-Commerce the popularity of 'fast and free shipping' has shown that customers like knowing what they'll pay without being surprised by extra costs at checkout.

If you do decide to impose the surcharge then don't do it in a way that is unfair or deceptive. Fully disclose the fee and educate the customer about the policy and the change in the law (and be prepared to discontinue the practice if the appeal is successful). I would also encourage you to watch and listen to see if you're losing customers by the policy. You might lose business to competitors who do not impose surcharges and there might be hidden costs for encouraging customers to use less secure payment means (such as cash or checks).

[Disclosure: I am not an attorney and this post does not represent a legal opinion on this matter.]

Enjoy the Journey

Early in my career I believed that it was important to get to the destination as quickly as possible. However, after learning from success and failure I discovered...how you get there can actually be more important than where you go. There are many routes to take along your entrepreneurial path. Some are fast and others are slow. Some are dangerous and others are low risk. No matter your destination it is more important that you enjoy the journey, constantly learn along the way, and improve the way you make decisions. If you have not learned how to make good decisions and have fun along the way then you are destined for failure.

Success is less about the final destination and more about the journey or process that you take along the way. It should be fun. You should like your traveling companions. Appreciate the little successes and learn how to repeat them so they can become exponentially bigger. It is equally important to learn from the little failures on your path so they don't become massive problems in the future. While speed can be useful strategic advantage if you are first to market those advantages can be quickly lost don't have the correct solution for the market. Sometimes going slow enough to create an innovative solutions will yield a greater competitive advantage than simply being fast. Either way, you need to be true to yourself and enjoy the process or you might arrive at your destination and find that you are there before the market or find out that the market was never going there in the first place.

Innovation in the OC

For the last year I have been working on launching an internet start-up in Orange County. This has given me the opportunity to explore the ecosystem and develop relationships with other tech leaders in the OC. Overall I have been very impressed with the efforts being made to both create new companies and support them.

If you’re just getting started I would recommend that you attend some of the monthly events from OCTANe, specializing in TCVN, or TechBiz Connection. Also, there are some good annual events like the Irvine Entrepreneur Forum and VC in the OC.

The best people to network with are the fellow entrepreneurs (even if they are in a different type of business). Collectively they have likely encountered your problems before and can provide guidance or insider tips that can help save you money and accelerate the process of accomplishing your goals. Sometimes, when things are not going very well, they can be great listeners and allow you to vent.

Overall I would say that we’re pretty lucky here in Orange County to have an environment to create innovative tech companies (and we have great beaches too).

Quasi-Small Business

Now that we live in a flat world (see: The World Is Flat 3.0: A Brief History of the Twenty-first Century) you’ll start to see more organizations (entrepreneurial, non-profit, government, etc) that no longer act like “small businesses” but rather “quasi-small businesses”.  They use the leverage, manpower, and distribution systems of  large multinational organizations and media channels to accomplish their goals.

They may have some attributes that resemble a small business like a corporate office with “4 dogs and 12 employees”. They will have some, but not all of the features of, what we traditionally know as a small business.

Small business is traditionally defined as 500 direct employees or less. Yet, with collaboration between people utilizing various legal entities to protect their assets (including intellectual property) it is becoming the norm to have small business silos that operate cooperatively without engaging in a corporate merger or acquisition. Leaders are moving with ease between multiple organizations utilizing the power of their worldwide networks to accomplish their tasks without the need to obtain a passport or work visa.

It no longer requires a corporate structure, a board of directors, or a shareholders meeting to get things accomplished in this flat world. Yet when they are used it is not a surprise to find out that the board of directors meeting was actually just a foursome on the golf course or a conference call between people who have never met in person.

Quasi-Small Businesses, business mashups, and the hiring of the “majors” is occurring every day. It is being done by smaller and smaller organizations as the barriers to entry are getting less and less. The power brokers are the ones who represent talent and creativity. It’s the innovators, the out-of-the-box thinkers who will be successful in this new world. These are the people who don’t observe and design in the same breath; who don’t accept “business as usual”; who think big and get other people excited about their visions.

Find people like that and become like them. You no longer need to work for the large multinational to accomplish your career goals. Let the large multinationals work for you!

Seth Godin vs. Donald Trump

[Originally published on August 3, 2009]

What if you were given the opportunity to have lunch with Seth Godin or Donald Trump but you could only pick one. Who would you dine with? Would the choice change if you were paid $5,000 to sit down with Donald but it would cost you $5,000 with Seth?

If given that choice I would chose Seth gladly paying the $5,000.

Why would I make that illogical choice when I could have been PAID $5,000 to have lunch with Donald Trump? Because it’s not about them it’s about me.

I would chose Seth Godin because he has had a bigger impact on me and my business. In my opinion, he is also more humble and approachable. I believe that I can become like Seth but it would be very hard to replicate the same business playbook as Donald Trump. I can start a website that makes money by connecting people. I can’t, and don’t want to, build a 50 story skyscraper in the OC and call it Mobley Tower. I think that best way to make your first billion today is different than when Trump did it. Maybe that belief comes from the fact that I’ve done experiments with Seth’s teachings but I don’t have a lab that would work for doing trial and error in major real estate development projects (once again all about me). I can have a feature page on Squidoo but becoming the next “The Apprentice” isn’t high on my priority list.

Don’t get me wrong. This isn’t a bash Trump and praise Godin post. They have written two of my favorite books (All Marketers Are Liars: The Power of Telling Authentic Stories in a Low-Trust World & Trump: The Art of the Deal). The both are successful entrepreneurs and I’d like to meet them both in person some day. I’ve learned a lot from both of them and I will continue to in the future. The same decision might be different for you and that’s o.k. because when it’s your choice it’s all about you.

Fortunately, you didn’t mention the haircut issue. I think it would be a great lunch, but I’m wondering if it’s possible to have Donald’s bankers pick up the check...
— Seth Godin (August 3, 2009)