What Is A Surcharge Fee? Open Business Visa Sign In Window

Credit cards are all the rage these days. Customers are paying for their purchases more and more with this method, increasing annual credit card payments to $51.1 billion.

But this hassle-free payment technology doesn’t come cheap. Unlike cash transactions, businesses incur expenses when accepting credit card payments. 

To sustain profitability despite these costs, small businesses can impose surcharges. If you’re wondering what a surcharge fee is, read on to learn how it works, its benefits, and real-life cases for practical application.


  • Surcharge fees are fees imposed on credit card transactions, allowing merchants to recover the processing costs.  
  • Merchants collect surcharge fees for three primary reasons: to (1) manage credit card processing fees, (2) comply with state laws, and (3) promote alternative debit or cash options.
  • To implement surcharge fees, you need to keep up with the changing state laws, educate your customers, and consider investing in third-party solutions.

What Is A Surcharge Fee?

Merchants incur processing costs when offering credit card payments. To offset these, they may implement a surcharge fee—a convenience fee imposed on customers paying with credit cards. (Surcharges don’t apply to debit or other payment methods.)

Credit card processing fees can eat into a businesses profit margin. When customers pick credit card payments, payment processors charge a fee for each transaction. Such costs can add up, especially if you process a high volume of credit card sales.

Eventually, you may be forced to offer cash discounts to incentivize non-credit payment methods. You may even opt for a blanket price increase to recoup the costs.

Neither of which is long-term viable. You can’t risk reducing profit through discounts or alienating customers by charging too much. Ideally, those who enjoyed the convenience of credit card purchases must foot the tab for said additional fees.

Credit card surcharging makes a difference here. It allows you to recover processing costs directly from credit cardholders. Surcharging fees are ​​disclosed in-store and added in a separate line item at the point of sale. They would be a percentage of the total transaction amount (e.g., 3% of the total sales). 

Note: While regulatory considerations apply upon its implementation, surcharging is now legal everywhere in the United States except in Connecticut, Massachusetts, and Puerto Rico.

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The Purpose & Reasoning Behind Surcharge Fees

Now that you know what a surcharge fee is, it’s crucial to understand why it’s implemented. Looking at it from a business standpoint can help you decide whether and how to incorporate it into your operations. 

Here are the top 3 reasons companies impose surcharge fees.

1. Managing processing fees

With various credit card brands and types—each with its own payment structures and processing fees—things can get a bit messy when handling credit transactions.  

Major credit card companies charge interchange and assessment rates.

Credit Card Interchange Fees Assessment Fees
Visa 1.15% + $0.05 to 3.15% + $0.10 0.14%
Mastercard 1.25% + $0.05 to 3.15% + $0.10 0.1375% for transactions under $1,000 / 0.01% for $1,000 or more
American Express 1.6% to 3% + $0.10 (or more) 0.12% to 0.30%
Discover not published publicly; but ranges from 1.62% + $0.10 to 3.05% + 0.10 0.14%

Note: Interchange fees are charged by the card-issuing bank (customers’ bank) to the acquiring bank (your bank or payment processor) for each transaction. Assessment fees are imposed by card networks (e.g., Visa, Mastercard) to cover the operational costs and services they provide.

As your credit transaction volume grows, these costs add up. Worse, they become challenging to track. It’s hard to recall which fees are due to which provider. 

For this reason, businesses may opt to collect surcharges through third-party solutions like CardX. CardX by Stax monitors, collects, and settles surcharge fees on your behalf. You sell $100 to someone who pays with a credit card, you get $100 straight to your account—leaving you with fewer tasks and no outstanding dues.

2. Compliance with state laws

Retailers can implement surcharge programs in almost all states, provided they follow specific guidelines (e.g., surcharge caps and in-store signages). This framework lets you take advantage of zero-cost credit card transactions while offering a fair, transparent payment system for customers.

To ensure compliance, consult with a legal provider or use a solution like CardX, which automatically adheres to all applicable surcharging laws and regulations. This includes managing the surcharge amount in accordance with the limits established by the card networks, correctly disclosing the surcharge to customers, and keeping track of any state or provincial laws that might impact surcharging practices.

3. Encouraging alternative payment methods

Non-credit payment alternatives often have lower processing costs. Visa’s credit purchase fees run from 1.15% to 3.15% s, while its debit swipe rate is only 0.80%. 

Encouraging alternative payment methods through surcharge fees can create a more inclusive payment ecosystem. Customers who are ready to pay the extra costs can continue to use their credit cards. While others can choose more cost-effective solutions like debit cards and prepaid cards. 

Surcharge fees are actually a win-win for both parties, but it is important to be transparent and explain the variety of options to your customers ahead of times so that they can choose the best method for themselves. Let’s take a closer look at how they can benefit your customer in the next section.

How Merchant Surcharge Fees Shape Customer Payment Preferences

You may expect some raised eyebrows when you introduce a checkout fee on your customers’ receipts for the first time. But contrary to initial skepticism, credit card surcharges can favorably influence customers’ decisions when implemented effectively.  

The key is transparency. When health services company OR Hope took this route, it opened meaningful conversations and more cooperative relationships with clients. You can read more about it here.

Help shoppers understand that surcharges cover the expenses incurred for processing credit payments. Highlight that they can always opt for zero-fee cash methods. But if they prefer faster transactions, improved security, and exclusive perks to earn credit card points or cashback, a minimal surcharge amount is only a fair trade-off.

In the section below, you’ll discover strategies for implementing and disclosing surcharges.

Strategies to Successfully Implement Surcharge Fees

Implementing surcharge fees requires careful planning and analysis. To ensure a successful integration, here are some tricks and tips to help you in the process.

Educate your customers 

Provide customers with surcharge information upfront to prevent confusion or surprise at the checkout. As required by law, print and display large print in-store, such as these Visa disclosure templates:

  • Point-Of-Entry Disclosure: We impose a surcharge on credit cards that is not greater than our cost of acceptance.
  • Point-Of-Sale Disclosure: We impose a surcharge of ____% on the transaction amount on Visa credit card products, which is not greater than our cost of acceptance. Surcharging is only implemented on credit card transactions

Invest In Third-Party Solutions

Payment processors specializing in surcharges like CardX can help simplify your implementation. With this smart support, you won’t have to manually modify your POS system. It’ll save you the headache of tracking and calculating the surcharge fees and keeping up with federal laws.

Now, check out how these SMBs used the same strategies to help you integrate this model into your operations.

A Real-Life Surcharge Fee Case Study

Complicated surcharge regulations are nothing new. In the case of Expressions Hair Design v. Schneiderman, NY merchants challenged the laws that restricted how they inform customers about surcharge fees. These laws allowed “discounts” for cash payments but didn’t permit “surcharges” for credit card usage.

To illustrate, customers could pay $102 for an item with a 2% cash discount or pay $100 with a 2% credit card surcharge. It’s basically the same, yet the latter was a crime under New York’s old legislation. 

Fast-forward: Jonathan Razi of CardX joined the case, and the Court ruled in their favor. NY merchants now have the right to communicate surcharges transparently without facing legal penalties. Let’s break down the case study’s takeaways:

1. When you understand state laws, you can’t only ensure compliance but also identify its limitations and potential roadblocks. 

2. Educating customers about the fees, their purpose, and the available alternative payment methods helps set realistic expectations. The more they understand, the better the implementation.

3. Third-party solutions like CardX do more than just automate tedious tasks. We also push for the fair and transparent payment ecosystems you and your customers deserve.

Well, that’s it! You now know what a surcharge fee is and how it works. Now it’s time to go revolutionize your payment strategies with what you’ve learned today.

Simplify Surcharging with CardX

Surcharge fees are an ingenious approach to dealing with rising credit card processing costs. They can help offset your expenses, comply with state laws, and encourage cost-efficient forms of payment. 

But you can’t impose these fees overnight. To reap its full benefits, you and your team must:

  • understand state laws to avoid legal problems 
  • educate customers and clearly disclose everything, and
  • invest in third-party solutions to facilitate its implementation.

Accept credit payments at 0% cost and 100% compliance. Start your CardX journey here.

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FAQs about Surcharge Fees

Q: What is a surcharge fee?

A surcharge fee is an amount imposed on customers who pay with credit cards. It allows merchants to recover a portion of the processing costs incurred when accepting credit card payments. Surcharge fees are disclosed at the point of sale and are charged based on a percentage of the total transaction amount.

Q: How much are surcharge fees?

The amount of surcharge fees can vary, but they’re always a percentage of the total transaction amount (e.g., 3% of the total sales). The specific amount of the surcharge fee is determined by the merchant and payment processor and should not exceed the actual cost of accepting credit card payments.

Q: Are surcharge fees legal?

Surcharge fees are legal in all of the United States and territories except Connecticut, Massachusetts, and Puerto Rico.  

Q: How do you comply with surcharge fee laws?

Make sure you stay updated with the changing state laws and regulations. Keep yourself abreast with specific guidelines, such as surcharge caps and in-store signage requirements, that apply in your jurisdiction. Utilizing third-party solutions like CardX can also help ensure compliance by automatically adhering to applicable surcharging laws and managing the surcharge amount within the limits established by card networks.