What is a Credit Card Surcharge in Payment Processing?

Everyday we talk to merchants who are looking for ways to reduce the processing fees that the card brands charge. Although it can’t eliminate fees for merchants all together, surcharging is becoming an emerging trend in the processing world to help cut cost and boost your bottom line.

What is a Credit Card Surcharge?

A credit card surcharge is an additional fee you, as a merchant, can charge on credit card transactions. Its purpose is to help offset the cost of payment processing fees.

Why Is There a Credit Card Surcharge?

The primary reason is to offset businesses’ fees when accepting credit card payments. Credit card companies typically charge businesses a percentage of each transaction as interchange fees, which can significantly impact the profitability of small businesses, particularly those with low-margin products or services. Businesses aim to mitigate the financial burden of credit card transactions by passing this cost to customers. However, it is essential to note that the legality and application of credit card surcharges vary across different jurisdictions, and businesses must comply with relevant laws and regulations when implementing such fees.

How Much is a Credit Card Surcharge?

Starting in April 15, 2023, Visa lowered the cap on credit card surcharges from 4% to 3%. This change affects businesses across the United States, except for Connecticut and Massachusetts where surcharge programs are a no-go. This means merchants wil be limited to recovering a maximum of 3% per transaction, even if their credit card processing fees go beyond that amount. Many experts believe the rest of the card brands will follow shortly after with their own regulatory changes. To keep things simple for our customers, we max out surcharging at 3% for all card brands.

How Can I Implement Surcharges Fairly?

As a merchant, understanding credit card surcharges is essential to ensure transparency and customer satisfaction. When implementing credit card surcharges, it’s crucial to consider the following.

Reasonable and Justifiable: Consider the costs of accepting credit card payments before applying surcharges. This includes fees charged by card networks and processing companies. Surcharging should be reasonable and justifiable, reflecting the actual expenses incurred.

Compliance with Regulations: Familiarize yourself with your jurisdiction’s laws and regulations regarding surcharging. Some states impose limits on amounts or prohibit them altogether. Ensure your practices align with the local regulations to avoid legal issues and maintain customer trust.

Transparent Communication: Communicate the presence of credit card surcharges to your customers. Display the surcharge information prominently at your point of sale, on your website, or through other communication channels. Transparency helps customers make informed decisions and avoids surprises during payment.

Fair Surcharge Calculation: Calculate surcharges as a percentage of the transaction total rather than imposing a fixed fee. This ensures that the surcharge is proportional to the purchase amount, providing customers with a fair and equitable approach.

Payment Alternatives: Offer alternative payment methods to customers, such as cash or debit cards, that do not incur surcharges. Providing various options empowers customers to choose the payment method that suits them best, enhancing their shopping experience. You may even want to consider offering cash discounts.

Customer Service and Flexibility: Maintain a customer-centric approach regarding surcharges. Be open to discussing the surcharge with customers and consider waiving it in certain situations, especially for loyal or high-value customers. Flexibility and excellent customer service can help build strong relationships and loyalty.

Regular Review: Review your surcharge practices to ensure they remain fair and aligned with market standards. As industry dynamics and regulations evolve, staying updated will help you make informed decisions regarding surcharges.

By considering these guidelines, you can implement credit card surcharges fairly, transparently, and customer-friendly, fostering positive relationships with your customers while managing the costs associated with credit card transactions.