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Credit cards remain a favored way of making payments among customers. Purchase volumes through credit cards jumped 51% between 2015 and 2021. However, the idea of applying a credit card surcharge to offset the processing cost of credit cards has always been a hotly debated topic.

Simply put, a surcharge amount is an extra fee that some merchants choose to levy on customers to cover the costs of processing credit card payments. The rate varies between 1.3 to 3.5% in most US states.

Before 2013 though, credit card brands like Visa and Mastercard didn’t allow surcharging because they didn’t want to discourage customers from using credit cards as a preferred mode of payment. However, after a 2013 lawsuit, card companies started allowing businesses to charge customers a fee for using credit cards. This is now known as a “merchant surcharge” or “checkout fee.”

In this article, we’ll explore what a credit card surcharge is and why it should matter to small business owners.


  • A credit card surcharge is an additional fee tacked on to the purchase amount when a customer pays via a credit card. It is added at the point of sale and depends on the total amount of a transaction and the cap set by credit card companies.
  • The simple benefit of credit card surcharges for merchants is that they no longer have to bear the full brunt of processing costs. With surcharging, they can transfer a significant portion of it to their customers.
  • Once you have ensured that surcharges are permissible by law in your state, you must meet card brand guidelines for compliance. It is also important to inform your customers—both in-store and online—about credit card surcharges on any purchases they might make. 

What Is a Credit Card Surcharge?

A credit card surcharge is an additional fee tacked on to the purchase amount when a customer pays via a credit card. It is added at the point of sale and depends on the total amount of a transaction and the cap set by credit card companies.

The state law, however, determines the final percentage. By using a credit card surcharge, the transaction cost shifts from merchants to customers. However, the cost gets added to the final dollar amount which may make the sale less lucrative.

Surcharge vs Convenience Fee

Even before 2013, businesses used to charge convenience fees to customers on credit card transactions in certain situations. This was meant for the “convenience” of paying by credit card over all other forms of payment. Note that a convenience fee is a flat rate rather than a percentage.

In contrast, a surcharge is a percentage-based credit card processing fee. This is true for all credit card transactions and is charged by all credit card companies. However, card companies as well as federal and state laws put limits on surcharges. These apply to all the four leading card brands—Discover, American Express, Visa, and Mastercard.

Surcharge vs Cash Discount

When customers pay with cash, some merchants may offer a price reduction which is called a cash discount.

A credit card surcharge on the other hand is the additional percentage that a customer pays for a product for making the payment through a credit card.

In case of a cash discount, the customer pays less than the original listed amount. While, in case of a surcharge, the customer pays more than the listed price. Any extra amount charged on a product, no matter what name a payment processor calls it, is a surcharge.

While this may seem like a pretty straightforward and minor difference, it is necessary to consider it for legality and compliance purposes. Getting it wrong could mean risking a fine or penalty.

Surcharge vs Interchange Fee

The interchange fee is the amount a merchant pays to the card-issuing bank whenever a customer makes a purchase using a credit or debit card. This is to cover the risk of fraud, bad debts, handling costs of the money, and the merchant’s bank account. Interchange rates depend on factors such as card type, business size, industry, and payment methods such as POS, card-not-present, mail-order-telephone-order, etc.

This is different from the surcharge that customers pay when they purchase via credit cards. This enables merchants to process credit card payments at no cost to themselves.

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Legal and Compliance Aspects

By now, you might have understood that surcharging is a matter of law and public policy. This means surcharge rules and regulations vary by state and country. The first thing you need to check—as a merchant—is whether your state or federal laws allow you to surcharge your customers. As such, surcharging has been a question of intense debate, and class action lawsuits have been piling up in many states on the matter.

Variations in laws by country and state

Here’s a quick snapshot of how surcharging laws currently vary in different states and countries.

  • There are several US states where anti-surcharge laws are on the books but these are either unenforceable at present or being challenged in courts. These states are Utah, Texas, and California.
  • Hawaii, Illinois, New Jersey, and Rhode Island, on the other hand, are considering or have pending laws to make surcharging illegal.
  • In sum, surcharging is currently legal in all US states and territories except Massachusetts, Connecticut, and Puerto Rico.
  • The only thing you need to remember is that you can surcharge credit card transactions only in the states where it is permitted by law at present.
  • Globally, surcharging laws vary from country to country. It is legal in several major economies such as Canada, UK, and Australia. On the other hand, the EU allows an interchange fee of 0.3% on credit cards but has banned surcharges.

Requirements for compliance

Once you have ensured that surcharges are permissible by law in your state, you must also meet the guidelines for compliance.

  1. You must notify your services provider and the credit card network about your intent to impose surcharges at least 30 days before.
  2. You are not allowed to profit from surcharges but only cover your baseline costs. Hence you must follow the caps strictly.
  3. Transparency in surcharging (along with its percentage) when making credit card purchases is a must.
  4. For Mastercard and Visa cards, you can either apply surcharges at brand level or product level but not both.

Implementation of Credit Card Surcharges

Once you have ensured that your state allows surcharging and that it is the right move for your business, follow these steps to get started:

  1. Provide notice to card companies about your intent to surcharge. Different card issuers have different processes, but you’ll most likely have to fill out a surcharging form 30 days before you begin to surcharge.
  2. Next, inform your acquiring bank about your intent, again, 30 days in advance.
  3. Decide whether to surcharge all cards or only some specific ones such as reward cards or prepaid cards. Also, decide on the percentage you wish to charge, below or equal to the cap.
  4. Notify customers that they will be surcharged using posts or signs. Also, disclose the percentage of surcharges. Online businesses must display the charges on the first page of their website.
  5. Re-program your payment gateway to record surcharges as per the requirements of card networks.
  6. Display the surcharge as a separate line item on your receipts.

Best practices for transparency

It is important to inform customers visiting in person about credit card surcharges on any purchases they might make. As a retailer, the recommended spots for full disclosure and transparency are the point(s) of entry at your store and the POS.

Mention the rates you intend to charge and that it doesn’t exceed your processing fees. Visa for one, offers a resource page that includes downloadable signage that merchants can use. While these may not be useful for other card brands, these could still act as useful templates for your signage.

Impact on Business

Surcharging, if allowed by specific rules in your state or country, is an important business decision. Make sure you have thought through it before you begin.


The simple benefit of credit card surcharges for merchants is that they no longer have to bear the full brunt of processing costs. With surcharging, they can transfer a significant portion of it to their customers.

  • Surcharge fees can be a significant support to merchants to cover their baseline costs. Although it is impossible to eliminate your entire transaction costs, the additional fee can still help you cover a substantial portion.
  • Surcharging may enable you to lower your product prices if your processing costs are included in your pricing. This will reduce the final dollar amount your customers have to pay and make your products more competitive.
  • In industries with thin profit margins, surcharging can be especially helpful to reduce processing costs significantly.


  • If the payment method most of your customers use is a credit card, surcharging might make your products more expensive, putting a large customer base at risk.
  • If you operate in a highly competitive marketplace, you could start bleeding customers to your rivals selling at lower prices.

While these disadvantages are valid, by using surcharging tactically, businesses can stand to benefit overall.

How surcharges can affect customer behavior

Surcharging has gained tremendous popularity as courts and government agencies across the US have removed the ban on it. But business-wise, whether surcharging will benefit you or not, is for you to decide.

If you have a well-established customer base and operate in a not-so-competitive market, surcharging won’t have much impact. After all, paying by credit card has benefits that often outweigh the disadvantage of an additional fee. But if you have lots of competition next door, surcharging could erode your customer base and affect the long-term standing of your business.

Success with surcharging

If you’ve decided that surcharging might be the way to go for your business, partnering with CardX can help you implement it quickly and conveniently. With CardX’s integrated online checkout solution, Lightbox, several companies have achieved remarkable success thanks to its seamless surcharging and payment acceptance.  

By integrating Click-to-Pay, CardX makes it extremely quick and easy for customers to check out as guest buyers which benefits merchants and cardholders alike. With a highly secure tokenization mechanism and features to reduce cart abandonment, this has been received very well by merchants and customers across the board.

Final Words

As is clear, surcharging lies in a gray zone and hence requires nuanced decision-making on your part. It is one payment processing decision that you need to properly think through. Surcharging can have long-term implications for the competitiveness of your products and services especially if your customers prefer credit card payments. However, if you are well informed about all aspects of surcharging, you could end up using it to your advantage.

Before leaping in, make sure you know all the legal aspects and surcharge rules, the step-by-step process, recommendations for transparency, and the pros and cons for your business. While you cannot profit from surcharging, using it selectively and tactically can reduce your transaction costs and improve your bottom line.

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Quick FAQs about Credit Card Surcharge

Q: What is a credit card surcharge?

A credit card surcharge, also known as a “checkout fee”, is charged to a customer for the use of a credit card. Surcharging provides the ability for merchants to process credit cards at zero percent cost to themselves. Instead, the credit card interchange fees are passed directly to the customer at the time of payment.

Q: How can credit card surcharges benefit businesses?

Credit card surcharges can help businesses to cover the credit card processing costs and pass it directly to the processing company. This allows a merchant to offer greater flexibility in collecting payments based on customer preferences without the need to take on the cost themselves.

Q: Are credit card surcharges legal?

In 2017, a Supreme Court ruling protected surcharges as a form of free speech from merchants. As of the time of publication, there are only 2 (Connecticut and Massachusetts) states and Puerto Rico with laws that prohibit merchants from charging surcharge fees. However, companies also need to account for the guidelines set by each card network.

Q: What should businesses consider before choosing to surcharge?

Businesses should consider the potential impact of credit card surcharges on the customer experience, what industry competitors might be doing, what information must be disclosed to customers and how, and the cost of credit cards and other forms of payment.

Q: How does surcharging work and what needs to be considered?

Many businesses opt to avoid using cost-saving surcharging strategies due to assumed complexity. This is from the very specific rules and expectations set by VISA, Mastercard, American Express, and Discover to ensure customers are protected from bad payment practices, in addition to individual state regulations.

Q: How can the credit card processor enable surcharging?

Not all payment processing platforms are built equally. While more payment processing providers are starting to offer merchants the ability to surcharge, how and to what extent can make a big difference in how easy it will be for merchants to start adding a surcharge to credit transactions.

Q: What benefits can software companies get from enabling credit card surcharges?

As the growth of adding payment features within Software platforms continues to grow, so do the opportunities that come with expanding payment options for their software users. Adding additional surcharge payment functions into their software is yet another way to add value for their sub-merchants.

Q: What services does Stax offer in relation to credit card surcharges?

Stax offers easy enablement, automated compliance, a data and reporting dashboard, transparency, 100% compliance and customer satisfaction, dedicated support, and top-level security in relation to credit card surcharges.