Understanding Payment Processing Compliance When Implementing Credit Card Surcharging

Are you struggling with resource constraints caused by soaring credit card processing costs? Is your business experiencing an increase in complaints from customers about hidden fees or unexpected charges?

No surprise there.

Swipe fees have doubled in a decade and increased by 20% since 2022. Credit card surcharging can help offset these expenses, but it can be tricky. Failure to comply with its policy frameworks can have severe consequences—legally and financially.

Learn how to achieve payment processing compliance when surcharging to improve your company’s financial stability and reputation. We’ll start with the basics, go into specific requirements, and finally to real-world case studies.


  • Credit card surcharging involves adding a fee to transactions with credit card payments, offsetting processing costs. It offers benefits, such as passing interchange fees to users, boosting profit margins, and encouraging alternative payment methods.
  • Surcharging involves understanding federal laws, state-specific restrictions, and international regulations. PCI DSS compliance, a global framework, mandates specific requirements and best practices for maintaining credit card data security.
  • Implementing surcharging involves analyzing pricing strategy impact, communicating policies effectively to customers, and reviewing technical considerations, including cybersecurity measures. A holistic approach ensures successful integration into business operations.

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Understanding Credit Card Surcharging

Surcharging is when you charge a fee on transactions where customers opt for credit card payments. It offsets the card processing costs, transferring the financial obligation to the latter.

To put it simply, it’s a matter of compromise. You offer flexible card payment options without incurring uncontrollably large fees. Consumers pay more for the convenience. 

Here are more reasons to implement surcharging and optimize your payment processing strategies.

  • Interchange fee management. Interchange fees are fees your bank (acquirer) pays to the cardholder’s bank (issuer) in a credit card transaction. With surcharging, you pass these high interchange fees directly to the end-users. It relieves you from directly handling payments and dealing with the tedious administrative hassle.
  • Boosting Profit Margins. Surcharging helps increase your net profit by keeping your goods and/or services competitive in pricing. You don’t have to absorb 100% of the expense and raise base prices to maintain a healthy bottom line. 
  • Encouraging Alternative Payment Methods. Surcharging incentivizes customers to use alternative, lower-cost payment methods. The more they use cash payment, the lower your overall processing expenses.

In the following sections, we’ll delve into the legal framework, compliance standards, and best practices to navigate the complexities of surcharging.

Legal and Regulatory Framework

Compliance ensures secure and transparent financial transactions, but nuances exist that businesses must grasp. 

Be sure to understand federal laws, state regulations, and international standards to sidestep potential legal issues.

Federal regulations

Transparency and disclosure are the two most important elements of surcharging regulations in the U.S. Businesses must ensure clear communication with customers regarding any surcharges. 

They must also follow regulations, such as the Electronic Fund Transfer Act, mandating fee disclosure for electronic transactions.

Follow these tips to stick to federal regulations:

  • Refer to federal regulations when drafting internal policies and procedures.
  • Subscribe to regulatory updates or newsletters from relevant federal authorities, such as the PCI Security Standards Council (​​more on this later)​​.
  • Conduct regular internal audits—preferably on an annual or biannual basis—to assess ongoing compliance with federal regulations.

State-specific laws and restrictions

Each state has an independent authority to regulate surcharging within its borders. In the United States, surcharging is legal in all states and territories except Massachusetts, Connecticut, and Puerto Rico. 

Here’s how you adhere to state-specific laws and restrictions:

  • Train regional or state-specific teams on the applicable surcharging laws in their areas.
  • Surcharging restrictions for multi-location businesses can get confusing. ​​In case of ambiguities, don’t hesitate to consult with state regulators.
  • Have your legal experts review any changes affecting specific operations in each state to avoid non-compliance.

International regulations

Cross-border transactions involving parties from different countries are subject to international regulations.

For instance, eCommerce platforms engaging with global customers must adhere to international standards. Utilizing global payment networks (Visa, Mastercard, etc.) for transactions also requires this compliance.

Below are some quick tips to ensure compliance with international laws:

  • ​​Collaborate with industry-trusted payment processors for seamless international multi-currency transactions without legal complications.
  • Keep accurate records of compliance procedures and transactions for each international market you operate in.
  • Implement geo-blocking measures, i.e., blocking or limiting payment transactions from regions or countries where surcharging is prohibited by local regulations.

Whether adhering to federal mandates, state laws, or international compliance, there’s a global framework that ensures secure financial transactions worldwide. Enter the PCI DSS compliance. Here’s everything to know about it in the next section.

Compliance with Payment Card Industry (PCI) Standards

The Payment Card Industry Data Security Standard (PCI DSS) ensures secure cardholder data processing, storage, and transmission. It’s a global framework established by major payment card networks, including Visa, Mastercard, American Express, Discover, and JCB International.

The PCI Security Standards Council (PCI SSC) has robust measures to protect cardholder information and prevent unauthorized access, fraud, and data breaches. It’s mandatory for all merchants and service providers that accept credit card payments. 

PCI DSS requirements

Businesses must complete a self-assessment questionnaire (SAQ) as part of the validation process. They’re classified into four levels based on the volume of credit card transactions they process. Each level has specific compliance requirements.

Level 1 Over 6 million annual card transactions
Level 2 One to 6 million annual card transactions
  • Annual PCI DSS Self-Assessment Questionnaire (SAQ)
  • Quarterly network scan by an ASV
  • Attestation of Compliance (AOC)

[Note: SAQ types depend on your payment gateway. Each SAQ has a respective AOC form]

Level 3 20 thousand to 1 million annual card transactions Same as Level 2
Level 4 Up to 20 thousand annual card transactions Same as Level 2

The latest ​​PCI DSS version 4.0 documentation and standards are available here. The Payment Card Industry Security Standards Council provides abundant resources, including the Prioritized Approach Guideline and topic-specific FAQs.

Best practices for maintaining PCI compliance

Staying PCI-compliant and ensuring maximum credit card data security demands ongoing effort. This section delves into 5 best practices to fortify your payment processing compliance.

  1. Security audits. Conduct regular post-payment audits to identify vulnerabilities. The assessments must also include a review of your information security systems, processes, and policies.
  2. End-to-end encryption. Implementing end-to-end encryption helps protect sensitive customer data throughout its lifecycle—i.e., from capturing to storing and transmitting. It’s particularly crucial for card information like cardholder names and account numbers.
  3. Firewall vigilance. Install a resilient firewall to monitor network traffic and detect any suspicious activity and vulnerability scan results. It’s the crucial barrier between your private and public networks, preventing unauthorized access and cyber threats.
  4. Process automation. Automate routine tasks to focus on more critical tasks like implementing cybersecurity measures. It ensures your PCI requirements are met consistently and without human error.
  5. Collaboration with ASVs. Collaborate with Approved Scanning Vendors for regular scans and compliance authentication. They’ll help maintain a secure network infrastructure by identifying and addressing vulnerabilities before they escalate.

Securing your systems and sensitive data against potential threats is a non-negotiable prerequisite before implementing surcharging in your operations.

How to Implement Surcharging in Business Operations

Now that you know the intricacies of payment processing compliance, you’re now ready to integrate surcharging into your day-to-day operations. Let’s break it down into three steps to get started.

1. Analyze the impact on pricing strategy

Understanding how surcharging aligns with your existing pricing strategy helps you anticipate how customers will perceive the additional fees. Assess potential implications on their behavior. How price-sensitive are they? Do they favor credit over debit cards? 

Some may be deterred by the surcharges, but others may prefer credit cards’ convenience. Your goal is to make informed decisions that balance profitability with customer satisfaction.

2. Communicate surcharges to customers

Know your customer’s preferred channels (e.g., email, social media, SMS), and tailor concise messages to those channels. Inform them about the surcharge policy, highlighting the consumer protection guidelines. In-store, place clear and prominent signage at strategic points, especially near checkout counters.

3. Review technical considerations

Evaluate your payment service providers, considering your merchant account’s functionality and card transaction volume. It’ll help you determine if they can accommodate your business growth, particularly a sudden spike in credit card transactions.

Implement robust cybersecurity measures, including antivirus software, to safeguard against potential threats. You may also assess physical access controls, such as smart locks, proximity readers, and biometric safes.

You’re all set! Let’s now proceed to the final compliance that requires your attention: the card networks you engage with.

Navigating Card Network Rules

Credit card brands and financial institutions enforce PCI DSS compliance. Doing business with them requires you to understand all their compliance standards. They have unique rules, validation criteria, and compliance expectations you must adhere to.

Here are network-specific regulations from these two major card companies: Visa and Mastercard.


Visa mandates PCI DSS compliance for all entities storing, processing, or transmitting Visa cardholder data. Compliance validation is a regular requirement, and entities must demonstrate adherence periodically

Issuers and acquirers are responsible for ensuring the compliance of their service providers and merchants. The higher the transaction volumes and risk exposure, the more stringent the validation requirements.


​​Mastercard co-founded and co-developed the PCI DSS. The Mastercard Site Data Protection (SDP) Program offers PCI DSS rules, guidelines, and compliance validation tools. It helps protect against security breaches and enhance consumer confidence.

Mastercard instructs merchants and service providers to use third-party payment applications or software when validating PCI compliance. Only after this phase can they be listed on the Mastercard Global Registry of Service Providers, a public record of entities that have met Mastercard’s highest security standards.

Non-compliance in both card networks can result in severe consequences, including fines, license suspension, or other legal actions. It can sometimes create system vulnerabilities and loopholes, too. Such case poses a heightened risk for fraudulent activities like money laundering and payment card fraud.

A Real-World Surcharging Case Study

U.S. businesses were grappling with one of the fastest-escalating operational costs: card fees. Unfair bans on surcharging meant limited options, pushing enterprises to uniformly raise prices. These events burdened cash and debit card users disproportionately.

Aligning with the Supreme Court’s stance, the U.S. Ninth Circuit Court of Appeals overturned California’s surcharge ban. It recognized surcharging as protected speech under the First Amendment.

This decision was a game-changer, inspiring thousands of businesses to implement surcharging. Those that met payment processing compliance benefited in the following areas:

  • Cost control. Businesses now have a method for managing credit card fees, guaranteeing equitable distribution rather than subsidizing credit card users.
  • Price transparency. Surcharging allowed businesses to disclose a single price, introducing transparency and allowing customers to compare payment alternatives.
  • Fair competition. The repeal of surcharge bans fostered price competition among credit card issuers. This competitive landscape allows favorable negotiating terms and conditions for credit card processing.
  • Inclusive access. Previously deterred by high fees, small businesses reluctant to accept cards now have the opportunity to enhance overall payment inclusivity.

Credit card surcharging offered relief to U.S. merchants and service providers. Seize the same opportunity to streamline your payment processes. Explore CardX by Stax for a smart surcharging solution today.

Surcharge with Zero Percent Cost Credit Card Processing

Surcharging offers financial stability and fair competition. But you must first deal with compliance requirements from federal regulations, international standards, and PCI DSS. Implementing surcharging involves strategic and proactive considerations.

You can save yourself the headache of complying with state laws or credit card network rules. Our automated turnkey solution helps business owners avoid credit card processing fees. ​​You sell 100%, you get 100%—we’ll handle the rest for you.

​​CardX is your go-to partner for smarter credit card surcharging. Optimize your payment processes today. Contact us to get started!

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FAQs about Payment Processing Compliance

Q: What is payment compliance?

Payment compliance refers to the adherence to laws, regulations, and standards governing payment processing. This includes ensuring secure handling of payment information, meeting regulatory requirements, and following industry guidelines to protect consumers and reduce fraud.

Q: What is PCI compliance for payment processing?

PCI compliance stands for Payment Card Industry Data Security Standard (PCI DSS) compliance. It’s a set of security standards designed to ensure that all companies that accept, process, store, or transmit credit card information maintain a secure environment.

Q: What happens if a merchant is not PCI compliant?

If a merchant is not PCI compliant, they risk significant fines from credit card companies and banks. They also increase their vulnerability to data breaches and credit card fraud. In case of a security incident, non-compliant merchants may face legal consequences, loss of customer trust, and potential business closure.

Q: What regulations apply to payment processors?

Payment processors must comply with various regulations, including:

  • PCI DSS for data security.
  • Payment Services Directive (PSD2) in the European Union, focusing on open banking and secure customer authentication.
  • General Data Protection Regulation (GDPR) for data privacy in the EU.
  • Local financial regulations and anti-money laundering (AML) laws.

Q: How do merchants implement payment processing compliance when surcharging?

To comply while implementing surcharging:

  • Clearly inform customers about any surcharges before payment.
  • Ensure surcharges do not exceed the cost of processing payments.
  • Adhere to card network guidelines and local laws regarding surcharging.
  • Regularly review and update surcharge practices to maintain compliance.

Q: What happens if merchants don’t comply with surcharging laws?

Non-compliance with surcharging laws can result in penalties, including fines and legal action. Merchants may also face disputes from customers and chargebacks.