Information on Merchant Accounts,
Ecommerce and Credit Card Processing

May 19th, 2017 by MSI Newsletters


Filed in: Monthly Newsletters |

Thinking about Payment Surcharging?

Many business owners have been considering surcharging their customers for paying with a credit card to help offset the cost of accepting those payments. One of the common views by these business owners is that the fees charged for accepting card payments are too high and are dramatically impacting the business’s bottom line. For the past several years, the card brands have allowed businesses to surcharge consumers. However, there are limitations and procedures that you must follow. Keep in mind that your business must not be in one of the states that prohibits surcharging all together. We understand that surcharging credit card transactions is an enticing idea, however it may or may not be the best plan for every company out there.

Why Surcharge?

It seems like every month there is some new interchange fee being handed down. It feels like we are all being nickeled and dimed to death with credit card fees. For businesses with tight margins, or small tickets sizes, the cost of processing a card payment can exceed the potential profit. Passing costs back to the card holder promotes the use of more cost-effective payment options, or at least covers the cost, and helps preserve the business’s bottom line. Also, some business owners believe it will help to keep interchange rates from increasing as the card holders will understand the costs are being generated by the issuer of their card and issuers. If their customer is the one paying these fees, it might influence the amount of purchases they make on a credit card.

What are the limitations and procedures of surcharging?

There are limitations for surcharging consumers that you need to be aware of if you are considering adding a surcharge at your business. This is not an exhaustive list; however, it will get you thinking about what you will need to do if you want to start surcharging. You will want to contact your payment processing provider for assistance so that you have the most up-to-date procedures.


All of this only applies to true credit cards, as the Durbin Amendment made it federally illegal to surcharge debit cards and prepaid cards.

You will also want to review your state’s laws to see if you are prohibited from charging a surcharge to your customers. Below is a list of states that as of this writing, have a law on the books concerning the prohibition of surcharges on credit card transactions. If you’re located in one of these states, most likely surcharging is either completely prohibited or greatly restricted.

States that Prohibit surcharges:
New York
Puerto Rico

While Visa and MasterCard were forced to allow surcharges, you may have signed a merchant agreement where you agreed to not surcharge your customers. You will also want to review your merchant agreement, as it might have a clause that prohibits you from surcharging your consumers. With some processors this clause might be removable, but you would have to modify it with your processor. If not you still have the option to shop around for a processor who will allow it.

Rules and Limitations

There may be changes to make to your business before you start. You will need to post the proper signage at the entrance to your business and at the register. This would explain what the cardholder will be surcharged and that it doesn’t exceed your cost for the transaction. You must also have a point of sale system capable of surcharging appropriately. Your receipts will need to have a separate line item that shows the surcharge for the transaction and you will also need to keep up with how much you have surcharged. There are also limits to how much you can charge a consumer for using a credit card.

Merchants are only allowed to charge a customer no more than it costs them to accept the payment, up to 4%. So, if your per transaction costs exceed 4%, you are still going to be paying more than the customer. If your fees are exceeding 4% then it’s probably an appropriate time to shop around for other processing options.

You will need to provide your payment provider and the card brands with written notice, stating you will be surcharging customers. This must be done at least 30 days before you begin. It’s important to reach out to your payment processor and ask them what information needs to be on your notice and where that notice needs to be sent. It will also be important to follow up with them after you send written notice to confirm they have received it, and that there are not any issues with your notice.

Thoughts on surcharging:

Surcharging might be a good option for many businesses who want to recoup some or all of their processing costs. However, they should take some time to think about their business and your customers in regard to what impact a surcharge might have.
Your goal isn’t to alienate your customers, or prevent browsers from becoming customers. Depending on the industry, having an additional surcharge might really push away customers, and while you might be recouping processing fees you are driving your sales. Many consumers would rather see a slightly higher cost of goods, than a lower cost that comes with an additional fee. This is routinely observed in online sales, where higher price but lower shipping often sells better than lower price with additional shipping costs. Again, it’s going to depend on your customers and on your competition.

So, check out what the other businesses in your industry are doing, if it’s commonplace to have a surcharge, then the effect on customers will most likely be minimal. The same could apply if your product or service offerings are unique and consumer shopping for what you sell have very limited options.

You might also think about implementing an alternative method, where you increase the price of the products and services you are selling and offer a cash, or equivalent, discount to help entice more customers to pay in cash.

The potential of pushing customers away, and more importantly creating a limit to what those customers can spend, can make the decision to implement a surcharge very difficult. If the customer feels the surcharge is keeping them from buying with a credit card, then they are limited by the cash they have on hand.

So, it’s going to come down to what will work best for your business.

If you have any questions about surcharging, please don’t hesitate to email us or call at (888) 528-0058.

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