What You Need to Know About Credit Card Surcharges (and How to Implement Them)

One of the payment processing world’s biggest buzzwords today is “surcharge.” Currently, all but four states (Colorado, Connecticut, Massachusetts, and Kansas) have allowed merchants to add a surcharge to credit card transactions. 

And if you’re reading this, you’re likely considering charging it.

To help you navigate the realm of surcharging here’s a quick guide that answers the top questions about credit surcharges and how to implement them legally. 

What is a credit card surcharge?

A credit card surcharge is a fee that you charge your customers to cover the costs of processing credit cards. When a merchant implements surcharging, they’re essentially passing on the costs of payment processing to the customer. 

How much can you charge?

Surcharges are capped at 4%. It’s illegal to charge more than the cost to process credit cards, and you cannot profit from surcharging. 

How does credit card surcharging work?

The two main rules when it comes to surcharging are:

• you can’t profit from the surcharge; and
• you can’t add a surcharge to a debit or check card. 

These rules are easily violated, so it’s important to have a payment processor that manages the rates and has equipment that can detect the difference between a credit card and a debit card. 

In many cases, your merchant services provider sets a standard rate that covers all possible card types and sets the surcharge to match it. This makes it so that a merchant cannot violate the card brand rules by profiting from the surcharge. 

Most surcharge programs are set to 4% to make sure that all cards are covered. Under this type of program, ALL CARDS would be billed at 4% and the merchant would be able to recover that fee via a surcharge on credit cards but the surcharge would NOT be applied to debit cards even though they are still billed to the merchant at 4%. 

Some programs give a small rebate back to the merchant on debit transactions to account for the lower cost to process those.

Is surcharging right for your business?

Should you levy a fee for credit card processing? That depends. Surcharging typically works for:

• businesses that accept more credit cards than debit cards
• businesses whose customers are not price-sensitive
• businesses where the convenience of using a card outweighs the surcharge

Ultimately, you need to have a thorough understanding of your business and your customers to figure out if surcharging is the right move. If shoppers are already balking at your prices, for example, then surcharging may not be the best option. 

How to implement surcharging in your business

If you’re thinking about adding a surcharge, here are some pointers to help you implement it properly:

1. Familiarize yourself with the right laws and regulations 

As mentioned earlier, surcharging isn’t legal everywhere, and state regulations around credit card processing will vary. Be sure to read up on your state’s laws or consult with a payment processing professional before charging those fees. 

2. Choose the right payment processor

Processors handle surcharging differently, so speak with merchant services provider about how you can legally levy those fees on shoppers. The key is to make sure that your credit card surcharge program doesn’t charge the fees on debit cards and doesn’t allow you to profit from surcharges. 

Under Payment Depot’s program, we provide you with a free Smart Terminal that can differentiate between credit and debit cards and print a receipt that shows the surcharge.

We only charge 3.5% for credit cards and give you a rebate of 1.5% if your customer uses a debit card. The program costs $49/mo and there are no per-transaction fees.

3. Notify credit card associations that you plan to implement surcharging

You need to notify your acquirer and credit card associations (Visa, MasterCard, and Discover) that you intend to charge these fees 30 days before you implement the program. Note that American Express doesn’t require you to take this step. 

4. Display appropriate notice in your store

You need to properly notify shoppers about surcharging. Post signage at the entrance of your store and at the point of sale to inform customers that they will be charged a fee for credit card processing. 

And remember that the fee must appear as a separate line item on the receipt. This is something that your payment processor should be able to help with. (Note: At Payment Depot, we give you a free Smart Terminal that automatically does this for you.)

What if your business accepts mostly debit cards? 

If your business collects mostly debit cards, you would benefit from Payment Depot’s classic interchange + 0% model. Debit cards have the lowest processing rates and Payment Depot simply passes that low interchange rate on to you. If most of your transactions come from debit cards our original model will save you a lot of money. We have many merchants who are paying 1% to 1.5% or less on their overall processing.

Final thoughts 

Adding a surcharge to a transaction changes the relationship between a merchant and their customer. Some customers could be offended by this and refuse to shop with you while others don’t mind and are happy to just be able to use their card to pay. 

At Payment Depot, we believe that our interchange + 0% model is the cheapest and most transparent way to process for most merchants, but we also want to adapt to changing times where it is increasingly more common to pass some of these costs on to the end customer. Rewards programs from credit card issuers are getting more generous and many small business owners are tired of paying for someone else’s reward points and vacations. 

We want to offer our merchants both options and talk you through the pros and cons of each pricing model. If a salesman calls or walks into your store and says that they have a way for you to “process for free” you are likely only getting a half-truth. 

Implementing a good surcharge program requires a thorough understanding of the type of customer and cards that you accept. And in most cases, a statement analysis should be performed. 

If you would like more information or to find out if this program is for you, please reach out to one of our account experts. We’ll analyze your statement for free and offer ideas on how you can save.