What to Know About Credit Card Surcharges for Growing Businesses

Everything You Need to Know About the Benefits of Credit Card Surcharging

There are multiple solutions and strategies businesses today use to offset the costs of offering credit card payment options. The most common strategies have been to set online transaction minimum limits, build costs into overall pricing, restrict card types to lower-rate credit card options, and promote ACH alternatives.

However, another viable option is to offer true 100% compliant credit card surcharging. (And don’t be fooled by false claims from companies that offer “compliant” surcharging.)

With costs of processing fees continuing to rise each year, it is more critical than ever for businesses to consider additional ways to cut down on the costs associated with the growing need to accept every payment type. This is especially true as VISA and Mastercard continue with their own respective plans to start raising their debit and credit card fees again after a long break caused by the pandemic for fear of public opinion.

Here is how credit card surcharges can help.

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 cost to themselves. Instead, the credit card interchange fees are passed directly to the customer at the time of payment.

This is not to be confused with a “convenience fee” and “service fee”, which are charged to credit card users for the convenience of making a payment outside of the merchant’s standard payment channels.

Unlike convenience fees, which cannot be charged in card-present environments, a merchant can decide whether to surcharge both card-present and card-not-present credit card payment methods or just one environment alone.

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The Business Benefits of Surcharging

In the era of growing online and mobile purchases, all merchants have a need to accept credit card payments. While there are still a couple of states (i.e., Connecticut and Massachusetts) that do not permit surcharging, the impact of Covid-19 on businesses has had many recognizing credit card surcharging as an option when done correctly. New bills to allow surcharging continue to be introduced as the benefits of this strategy have been proven by businesses who have successfully maintained and even grown as a result in recent years.

Understanding and properly assessing credit card surcharges can result in significant savings for merchants across industries like retail, food and beverage, and even within field services. This is especially true for those who are cost-sensitive and may fall in sectors where credit card use is growing at a fast pace and becoming increasingly common.

Surcharging provides merchants with the ability to cover the credit card processing costs and pass it directly to the processing company. This in turn also allows a merchant to offer greater flexibility in collecting payments based on customer preferences without the need to take on the cost themselves.

For example, credit card purchases where the card is not physically present tend to have higher rates due to higher risk. Even if they apply surcharges to card-not-present payments alone, businesses are still able to offset the higher interchange rates as they continue to take on the lower card-present costs.

How Surcharging Works 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.

As long as businesses continue to follow payment best practices and use proper payment platforms, 100% compliant surcharging is simple. Stax’ own industry-leading surcharging with automated compliance technology ensures businesses securely surcharge within state and federal guidelines.

Every merchant still needs to consider the following key factors before choosing if and how they want to surcharge. By doing so, businesses can maintain a healthy payments experience for their customers, while also making the best decisions for successfully growing their business.

The potential impact of credit card surcharges on the customer experience

Customers are the lifeblood of every business. When considering adjustments to any pricing and payment offerings, it is always important to look at more than how customers have been paying. Review what channels they are paying through, how much they have paid historically, and where they make the most payments.

When merchants try to balance the customer experience alongside the gains that can come from expanding payment options for new customers, and an added revenue channel, surcharging can increase the return on investment.

What industry competitors might be doing

Merchants should always keep the power of competition in consideration regardless of which market they serve. Successful businesses have a deep understanding of their customers and being aware of brand loyalty is critical. Every merchant and industry is unique, so it is important to consider the implications and continue to work on creating a frictionless payments experience, even with surcharging on the table.

At the same time, competition is the breeding ground for innovative thinking. How customers want to pay, where and why they would decide to pay a certain business over another are all things to consider.

What information must be disclosed to customers and how

Customers trust businesses that remain transparent about their pricing practices and of any costs they should expect. This is especially true when it comes to merchants that are looking to impose a surcharge. Each major credit card issuer has guidelines on where this information needs to be disclosed both in-store and on any credit card transactions that take place outside of the business location, from store signs to receipts and customer invoices.

Between card-present or card-not-present, it is very important to be clear on which credit card transaction type customers will be expected to pay the processing costs.

The cost of credit cards and other forms of payment

Every merchant should know the true costs to their business of each credit card type and the impact of their mix of payment methods. While paying flat rate fees across all card types as a business owner may seem simpler, the reality is that there are lost opportunities to really maximize costs at scale.

Gathering data on how customers are paying and the true costs of each payment type will help businesses determine the right surcharging rate they should charge to accept credit cards from any credit card issuer. Note that regardless of the card type, every merchant looking to surcharge must apply the same rate across all cards equally. For example, if a merchant surcharges 1% for American Express, they must also apply that same rate across Visa and Mastercard.

If the merchant is paying wholesale rates for processing credit cards, they can easily work on determining the highest rate they’re paying and the lowest rate. That is because they will always access the lowest rates instead of trying to work with already high processing rates from flat fee providers.

As a result, they will be able to find a more reasonable way to balance costs by offering their own flat rate costs to cover all or a portion of the processing fee charged by the card providers.

Finding the average effective transaction rate across all payments made with credit cards and using it as a baseline is a great place to start. An effective rate is calculated by dividing the total in processing fees by the total sales volume on the credit card processing statement.

Once there’s a baseline, evaluating the potential impact of applying the charges to payments made using a credit card in comparison to other channels becomes easier.

Here’s an Example:

A field services merchant takes payments through online invoices and over the phone. They key in credit card payments for four $700 sales per day for a total of $84,000 per month in CNP processing. They decide to impose a surcharge of 3.85% for anyone wanting to pay with a credit card.

4 sales per day x $700 per sale x 30 days = $84,000/month

CNP Processing Cost Surcharge Fee Collected Difference
$1824 $3234 +$1410

*For this scenario, we averaged a number of common interchange rates and applied a 2.15% interchange rate for card-not-present purchases +.15c per transaction. The added surcharge is only 1.35% above the rate.

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Is it Legal to Add a Credit Card Surcharge Fee?

In 2017, a Supreme Court ruling protected surcharges as a form of free speech from merchants. As of time of publication, there are only 2 (Connecticut and Massachusetts) states and Puerto Rico with laws that prohibit merchants from charging surcharge fees.

When considering adding a surcharge, review state laws to determine how and whether or not any state surcharge laws apply. Companies also need to account for the guidelines set by each card network, which include not exceeding 4% of the transaction amount and the merchant cannot profit from it, or the amount in fees merchant’s effective processing rate–whichever is less.

Note that in Colorado, merchants can either do a 2% surcharge or implement a surcharge that’s equal to the cost of processing the transaction.

The impacts and potential benefits of adopting a surcharge strategy become clearer the more companies take these and all other key factors into consideration.

It also makes finding the right payment processors to help with adding the proper credit card payment capabilities easier.

The Ability for the Credit Card Processor to 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. Here are some questions to consider when reviewing payment providers:

  • How do they facilitate registrations and compliance with card brands 30 days before beginning to surcharging
  • What is their ability to limit surcharging to credit cards only (and make sure there are no fees added to a customer making payments using debit cards, gift cards or prepaid cards)
  • How do they ensure businesses stay compliant with maintaining the correct surcharge limits?
  • Do they itemize transactions to include credit card surcharges?
  • Do they have the ability to apply surcharges to card-present, card-not-present, or both?
  • How easy and how quickly are they able to safely enable surcharging?
  • Do they charge for surcharging capabilities and if so, how much?

Answers to these questions help provide merchants of any size more clarity on what they can expect from the provider. It also provides a better overview of how the provider’s surcharging capabilities meet what’s needed. This is true as well as for SaaS companies who may have integrated payment capabilities and are looking to give users the ability to add credit card surcharges.

Enabling Credit Card Surcharges as a Software Company

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.

By passing the credit card fees onto the card users, software companies who have integrated payments into their patforms are also able to benefit from the ability to save on processing costs at a larger scale. Not only does it support the ability for their sub-merchants to minimize expenses and save thousands in fees annually, it further differentiates their software platform and provides higher profit margin alternatives for pricing.

Software platforms are also enabled to either control the surcharging experiences by establishing a pre-set surcharging program, or enabling their sub-merchants with the ability to set their own surcharge rates.

The guidelines for surcharging remain the same, regardless of the platform and company facilitating the ability for businesses to collect any payment method.

Benefit from Credit Card Surcharges with Stax

Staxproductcluster Small Business

Enabling surcharging is easy with Stax. Stax’ industry leading compliance technology simplifies the entire surcharging experience while allowing merchants to have quick access to the information they need to maintain compliance and increase business performance.

Easy Enablement

With the support of an award-winning team, businesses and software companies are able to quickly and seamlessly enable surcharging capabilities through the Stax all-in-one platform and API.

Automated Compliance

The Stax platform automatically identifies the credit card type used by a customer and then calculates and applies the surcharge rate to the amount due for the eligible transaction. The customer then pays at no additional cost to you for the transaction.

In 2021 Stax acquired CardX, the industry leader in automated surcharging compliance, to make surcharging more transparent and easier for U.S. merchants and cardholders. By acquiring CardX, Stax provides its merchant customers an easy way to accept credit cards at 0 percent cost. CardX’s capabilities enhanced Stax’s existing surcharging services, specifically helping customers automate surcharging compliance with built-in disclosures, pricing technology to correctly process every card type, and tools for seamless reconciliation and cash application. This eliminates the compliance risks and operational headaches that merchants have often associated with surcharging.

Data and Reporting Dashboard

Easily monitor payment trends and collection totals from a single dashboard. Quickly review all surcharged transactions that include, the original total, the surcharge, and the final total for all applicable payments.


Automatically display the full breakdown and surcharge rate within customer invoices, web payments, and payment receipts.

100% Compliance. 100% Customer Satisfaction

Stax is compliant with major credit card networks and with individual state restrictions.

Dedicated Support

Stax’ in-house team of experts works with each business to maximize revenue while following state and federal surcharge guidelines.

Top-Level Security

No matter how people want to pay, payments are protected by the highest level of PCI security standards available. Stax empowers business owners by providing the tools and expertise they need to become PCI compliant. Card information is encrypted on all processing devices, and sensitive information is never stored after a transaction.

Leverage the best all-in-one software payment solution for every payment need.

Learn more about Stax and find out how you can quickly get started with the market leader in compliant surcharging today.

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