Credit card surcharging basics: opportunities and challenges for small businesses

Doing business comes with costs – new equipment, payroll, taxes, and more. While many of the fees and expenses that small businesses incur are out of their control, there are opportunities to more closely manage credit card acceptance costs and optimize interchange costs.

One popular way to do this is surcharging – adding a percentage-based fee on top of the regular posted price when a customer uses a credit card to pay. This can be a helpful tool, but also must comply with state laws across the US and card brand network requirements. Here’s what you need to know.

1. Credit card surcharging is not the same as cash discounting.

First, it is important to clearly define credit card surcharging* and how it works. Credit card surcharging is a percentage-based fee charged by the business on top of the regular posted price when a customer uses a credit card to pay; the business must clearly post and communicate the surcharge rate and cannot surcharge debit card transactions.

This is not the same as cash discounting, a commonly misused term for another type of transaction; if a business chooses to implement cash discounting, posted prices must be shown for both cash and credit, or prices must be raised to properly post the non-cash price. Adding a fee on top of a posted price for the use of a credit card is not compliant with card brand cash discounting rules.

2. Surcharge rules vary by state, and not all states allow surcharging.

There have been a lot of regulatory changes* around surcharging in the past decade or so related to where businesses can collect a credit card surcharge, how much they can apply for the percentage-based fee, and how they must disclose prices and fees. Therefore, it is important for any business interested in implementing a surcharge program to consult their payments processor and legal resources to ensure the state they operate in allows surcharging and all fees comply with state laws.

Generally, businesses in the US can add a credit card surcharge fee up to 3% of the transaction value – some states may have different rules or limits. Elavon offers surcharge program options like 0.25% intervals between 1 and 3% of the allowable surcharge rate.

3. Card brands like Visa and Mastercard also have rules for surcharging.

Beyond state laws, businesses interested in adding credit card surcharging at the point of sale must also learn and understand rules imposed by card brands* like Visa and Mastercard. These rules cover when surcharges can be applied, how they must be disclosed to customers, processors, and card brands, and much more. It is critical that small businesses are deeply familiar with these rules to avoid any potential fines* from card brands due to lack of compliance. Your payment processor can help you navigate these rules and ensure that your surcharge program fits your needs while complying with the card brand rules.

4. Consumer behavior varies by payment method.

Before deciding to implement a surcharge program, businesses should consider if there will be any positive or negative impact on customer experience and sales growth. Research from the Federal Reserve* shows that consumer behavior related to payment choice continues to vary by age, socioeconomic status, and more. How a consumer chooses to pay at checkout can directly affect what they buy, how much, and when. Adding fees for credit card use could unintentionally discourage credit card purchases and subsequently decrease the types of transactions that customers tend to complete with credit cards.

However, research from PYMNTS* shows that consumers are increasingly accustomed to these types of fees and are unlikely to change which businesses customers patronize; surveyed consumers did not report huge changes in merchant satisfaction related to credit card surcharging.

5. Employees should be trained to explain and apply surcharges transparently.

If you decide that credit card surcharging is the right fit for your business, you must ensure that your staff understands fee rules and disclosure requirements:

• You must clearly disclose the surcharge for in-person transactions using signs or stickers at the point of entry and point of sale to alert cardholders prior to completing a credit card payment. Staff should be able to explain surcharge details to customers and answer any questions they may have.
• You must include credit card surcharge details and dollar amounts on every receipt.
• You must disclose credit card surcharge information in descriptive text, prior to checkout, for any online transactions. You should offer customers an easy way to contact your business online with any questions about surcharging.
• You cannot surcharge debit cards, EBT cards, prepaid cards, and other cards issued as debit by card brands like Visa and Mastercard.
• You can apply credit card surcharging for card-present, card-not-present, and key-entered transactions.

Adding credit card surcharging is one way you can optimize the costs of doing business and you don’t have to figure it out on your own – work with your payments processor to understand your options, implement a compliant surcharging program, and ensure your customers have an easy and secure payments experience.

*Certain state or local laws may restrict or limit the amount of the surcharge percentage. Although we offer surcharging in most states, Merchants are responsible for determining the legality of surcharging in their states, and merchants are liable if their activities are found to be unlawful. Credit card surcharge applies to credit card only, not available on debit cards.