Running a business comes with numerous costs, and credit card processing fees are among the most significant. These fees can eat into profits, especially for small businesses operating on tight budgets.
Unfortunately, these fees are unavoidable. There is no such thing as a “free” payment processor, but there is a solution that can help to alleviate the financial burden: surcharging.
In this article, we will explore surcharging as a way to achieve the cheapest credit card processing and how it can be implemented in the business.
TL;DR
- Credit card processing fees eat into the profits of small businesses. Unfortunately, they’re unavoidable, and most companies can’t afford to refuse credit card payments.
- Surcharging offers a way to pass credit card processing costs to the customer, letting businesses keep their earnings.
- Adopting surcharging can be financially beneficial. That said, it’s important to evaluate surcharging providers to implement an option that best fits the business.
Understanding Credit Card Processing Fees and Pricing
Before diving into surcharging, it’s crucial to grasp the concept of credit card processing fees. These fees include interchange fees, assessment fees, and processing fees.
Interchange fees
Interchange fees are a significant component of credit card processing fees and are charged by the card networks (Visa, Mastercard, American Express, Discover).
Interchange rates are a percentage of the transaction value paid by the merchant’s acquiring bank to the cardholder’s issuing bank. The purpose of interchange fees is to compensate the issuing banks for the risks and costs associated with processing and managing credit card transactions.
Interchange fees vary based on factors such as the type of credit card used (personal or business credit card), alternative cards (debit cards, rewards cards, etc.), the industry of the merchant, and the specific details of the transaction (e.g., card-present vs. card-not-present).
Assessment fees
Assessment fees are charges imposed by the card networks (Visa, Mastercard, American Express, Discover) to support their operations, including marketing, network maintenance, and the development of new technologies. These fees are typically calculated as a percentage of the transaction amount and are collected by the card networks from the acquiring banks or payment processors.
Payment processing fees
Credit card processing fees are charged by the payment processors or acquiring banks that handle the transaction on behalf of the merchant. These fees cover the costs associated with securely transmitting payment data, verifying the transaction, and settling funds into the merchant’s account. Processing fees can be based on various models, such as flat-rate pricing per transaction, a percentage of the transaction amount, tiered pricing, or a combination. The specific processing rates can vary depending on factors such as the merchant’s industry, transaction volume, processing method (e.g., in-person vs. online transactions), and agreements with the payment processor or acquiring bank.
- Interchange fees = card networks (Visa, Mastercard, etc.)
- Assessment fees = card networks (Visa, Mastercard, etc.)
- Processing fees = payment processors
All of these fees are necessary to process payments, but they can also cause a lot of stress and confusion for small business owners and startups. Understanding them is key to securing the best alternative processing option, a way to reduce or offset these fees and improve the business’s financial health.
How to Get the Cheapest Credit Card Processing Fees
When looking to minimize your credit card processing costs, the first step is understanding where those fees come from and identifying which ones are negotiable or avoidable. Most fees—like interchange and assessment fees—are set by the card networks and can’t be negotiated. However, there are ways to reduce the costs imposed by your payment processor or to offset them altogether.
Here’s how to approach it:
Compare pricing models
Payment processors typically offer one of several pricing structures:
- Flat-rate pricing is easy to understand but may not be the most cost-effective, especially for businesses with higher average transaction values.
- Interchange-plus pricing is transparent and can save money at scale, but it’s harder to predict total costs.
- Tiered pricing can hide true costs, as it lumps transactions into categories without disclosing exact interchange fees.
The cheapest option depends on your transaction volume, average ticket size, and industry. High-volume merchants, for instance, can often negotiate lower rates with interchange-plus pricing.
Evaluate your current processor
Many businesses stick with their payment provider out of convenience—but that can be costly. Take the time to review your monthly statements. Look at the markup your provider adds on top of interchange fees, and check for hidden costs like PCI compliance fees, statement fees, and minimum processing requirements.
If you’re paying for services you don’t need or use, it may be time to renegotiate or switch processors.
Avoid unnecessary add-on fees
Some processors charge extra for features like advanced reporting, recurring billing, or custom integrations. While these may be valuable, ensure you’re not paying for tools that don’t serve your business needs. Look for providers that bundle essential features or offer them at a reasonable rate.
Offer multiple payment options
Encouraging payment methods with lower fees (such as ACH transfers or debit cards) can help reduce overall costs. Some businesses even implement minimum purchase thresholds for card payments to ensure the fees don’t outweigh the transaction value.
Explore cost-offsetting strategies
One of the most effective ways to reduce your out-of-pocket processing expenses is to shift those fees to the customer through surcharging. This method involves adding a small percentage to credit card purchases, which covers the cost of accepting those payments. Done correctly, it’s compliant, transparent, and widely accepted by both regulators and customers.
Surcharging won’t eliminate fees—but it will make them no longer your burden to carry.
If you’re serious about getting the cheapest credit card processing, surcharging may be your best bet. In the next section, we’ll dive deeper into how surcharging works, the pros and cons, and how to implement it properly.
What is Surcharging?
Surcharging is a practice where merchants add a small percentage based fee to the total cost of a transaction when customers choose to pay with a credit card. That way, merchants can reduce their overall expenses associated with credit card payments. This fee is designed to offset the credit card processing fees incurred by the business. It allows merchants to recoup some of the costs of processing credit card payments.
Pros and Cons of Surcharging
Implementing a surcharging program comes with its own set of advantages and disadvantages. On the positive side, surcharging can help businesses reduce credit card processing fees, improve profit margins, and increase overall financial stability. Additionally, surcharging can create a sense of transparency, as customers are made aware of the costs associated with using credit cards for transactions.
However, it’s essential to consider potential drawbacks as well. Some customers may react negatively to surcharging, perceiving it as a markup or inconvenience.
That said, if you communicate openly with your customers and explain the reasoning behind your surcharging program, you may find that many are understanding and appreciative of the transparency. Implementing alternative payment options alongside surcharging can also help mitigate potential customer dissatisfaction, providing options for those who prefer to avoid the surcharge.
| Pros | Cons |
| Reduce credit card processing fees | Must abide by state and federal laws and regulations |
| Improve profit margins | Customers may have negative reactions. (Note: this can be mitigated with proper communication.) |
| Increase overall financial stability | |
| Educate customers about the costs of using credit cards |
Implementing a Surcharging Program
For businesses considering surcharging, follow these steps to ensure a smooth implementation process.
Check the laws
Firstly, businesses need to determine whether surcharging is legally permissible in their jurisdiction. Regulations regarding surcharging vary by country and even by state or province.
Pro tip: if you’re using a solution like CardX, compliance with your local surcharging laws is a breeze. CardX automatically ensures that your surcharging practices are compliant with applicable laws and regulations. This includes adjusting the surcharge rate to comply with caps that may exist in certain jurisdictions, and ensuring that surcharges are properly disclosed to customers prior to the completion of the transaction.
Find the right credit card processor
Once legality is confirmed, businesses must choose a merchant services provider that supports surcharging and ensures compliance with all necessary guidelines. CardX is specifically designed for this. Passing on the credit card fee, making surcharging seamless for merchants and customers.
Communicate to customers
Communicating the surcharge to customers is key to maintaining positive customer relationships. Clearly explaining the purpose of the surcharge and its benefits to the business can help customers understand the reasoning behind it.
Offer alternatives to credit card payments
Offering alternative payment options without surcharges is necessary to accommodate customers who prefer not to pay the additional fee. It highlights that surcharging is about making transactions fair, not making extra money from customers.
Communicating Clearly
Effective communication is crucial to maintaining transparency and positive customer relationships. Here are some key considerations, including legal requirements and best practices:
- Clear signage: Display clear and visible signage near the cash register or payment area, explaining the surcharge policy. The signs should state the surcharge amount or percentage, the reason for the surcharge (covering credit card processing fees), and any alternative payment methods without surcharges.
- Point-of-sale disclosure: When processing a transaction, ensure the POS system clearly breaks down the transaction amount, including the base price and the surcharge amount. Processing companies that facilitate surcharging will have this programmed into the card reader.
- Online presence: If operating online, clearly disclose the surcharge policy on the website. Include the details about the surcharge, reasons for its implementation, and any applicable restrictions or exemptions.
- Educate customers: Provide educational materials, customer support, or FAQs online or in-store that address common questions or misconceptions about surcharging.
Alternatives to Surcharging Providers
While surcharging is one of the most cost effective methods for offsetting credit card processing fees, it can be worth exploring other alternatives if you don’t think it’s right for your business.
1. Cash discounts
Incentivizing customers to pay with cash by providing a discount on the purchase price for cash payments.
2. Minimum purchase requirements
Implementing a minimum spend threshold to encourage larger purchases so that the transaction fees become a smaller percentage of the total amount.
3. Negotiating with payment processors
This option requires businesses to have substantial transaction volume and leverage to negotiate better prices.
Credit Card Processing Companies to Consider
One of the best ways to get the cheapest credit card processing rates is to opt for a processor that supports surcharging. To that end, here are our top picks.
1. CardX by Stax
Stax provides businesses with surcharging capabilities as part of their comprehensive payment platform. With CardX by Stax, businesses can introduce surcharging in line with local laws. The platform works online, in offices, and in-store. CardX is the industry leader in surcharging compliance and the only surcharging first solution available.
2. Stax
If you prefer not to go the surcharging route, Stax still offers competitive flat-rate pricing with no markups on interchange fees. You pay a transparent monthly subscription and get access to direct cost pricing on every transaction. This makes Stax a great choice for businesses with predictable or high transaction volumes that want to save without passing fees onto customers.
3. Payment Depot
Payment Depot offers businesses a surcharging service as part of their interchange plus payment processing solution. With transparent pricing and compatibility with most credit card readers, Payment Depot is a popular choice for high-volume businesses.
Conclusion
Credit card processing fees can significantly impact businesses’ profitability, making it essential to find cost-effective solutions. Surcharging offers an effective strategy to minimize these costs by offsetting the fees.
While surcharging has its pros and cons, numerous businesses have successfully implemented surcharging programs and witnessed significant savings. It’s just important to do it right. Consider customer reactions, choose the right approach, and explore alternative solutions to determine if a surcharging program is best.
For businesses seeking to lower credit card processing costs, surcharging presents such an avenue, and CardX by Stax simplifies this process, offering fairer solutions to customers and businesses.
Request a Quote
Quick FAQs about Surcharging
Q: What is surcharging in credit card processing?
Surcharging is the practice where merchants add a percentage-based fee to the total cost of a transaction when customers choose to pay with a credit card. This fee helps offset the credit card processing costs incurred by the business.
Q: Why should small businesses consider surcharging for credit card payments?
Small businesses can benefit from surcharging by reducing their overall expenses associated with credit card transactions. By passing a portion of the processing fees to customers, businesses can improve profit margins and financial stability.
Q: Are there legal considerations for implementing surcharging in my business?
Yes, businesses must ensure surcharging is legally permissible in their jurisdiction. Laws vary by state or country, so it’s vital to check local regulations and comply with any caps on surcharge rates.
Q: How can businesses communicate surcharging policies to customers effectively?
Clear communication is key. Display visible signage near the point of sale, disclose surcharge details at checkout, and provide educational materials explaining the surcharge and its benefits to the business.
Q: What are the benefits of using a surcharging provider like CardX?
CardX simplifies the surcharging process by ensuring compliance with local laws and regulations. It provides seamless integration for merchants, allowing them to pass credit card fees to customers transparently.
Q: What are some alternatives to surcharging for offsetting credit card processing fees?
Alternatives include offering cash discounts, implementing minimum purchase requirements, or negotiating better rates with payment processors. These options can help reduce costs without introducing surcharges.
Q: Can surcharging negatively impact customer relationships?
While some customers may react negatively, clear communication and transparency can mitigate this. Offering alternative payment methods without surcharges can also help maintain customer satisfaction.
Q: How does surcharging affect different types of businesses?
The impact of surcharging varies. Small retail businesses, eCommerce stores, and nonprofits can all benefit, but the approach may differ based on customer interactions and transaction methods.
Q: What steps should a business take to implement a surcharging program?
Businesses should verify legal compliance, select a suitable credit card processor, communicate the policy to customers, and offer alternative payment options. Ensuring a smooth implementation process can enhance the program’s success.
Q: Who are some of the top credit card processing companies that support surcharging?
Companies like CardX by Stax, Payment Depot, Helcim, Square, PayPal, Stripe, and Clover offer surcharging options, providing businesses with tools to manage credit card processing fees effectively.
