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Published: July 6, 2023

Fair and Square: Legal Ways to Pass On Credit Card Processing Fees to Customers

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According to recent news, VISA declared its intention to reduce the cap on maximum surcharges imposed by merchants. In the past, businesses were able to levy surcharges up to 4% on transactions, but now, the threshold is being lowered to 3%. 

While this adjustment aims to foster a more customer-centric approach, it undeniably presents new challenges for businesses already grappling with costly payment processing expenses.

Merchants have long relied on surcharging as a strategic tool to alleviate credit card processing fees, particularly during periods of economic downturn. Navigating the ever-evolving payment landscape and optimizing profits has become increasingly crucial for businesses. 

In this blog post, we delve into the world of surcharges, exploring the legal implementation methods available to merchants, as well as providing a comprehensive analysis of their associated benefits and drawbacks.


What is surcharging?   

A surcharge is an additional fee that merchants impose when customers choose to pay with a credit card. It's essential to understand that surcharge fees apply exclusively to credit card payments and are not permitted for debit and prepaid card transactions.

Merchants have the discretion to apply surcharges either at the "brand level" or the "product level," but not both simultaneously. 

A brand-level surcharge is a uniform surcharge applied to all credit card transactions within a particular brand (such as VISA or Mastercard). On the other hand, a product-level surcharge is specific to a particular type of Visa or Mastercard credit card.

Here are the regulations for brand-level and product-level surcharges:

  • The surcharge must be applied uniformly to all credit card transactions of that particular brand/product, irrespective of the card issuer.
  • The surcharge cannot exceed the merchant's average discount rate for credit card transactions within that brand/product.
  • The surcharge imposed on transactions should not exceed 3% of the transaction amount. 


Are surcharges legal?

The legality of imposing surcharges is hinged on numerous factors such as location and compliance with card associations. Currently, in the US, surcharging is considered legal across all states except for Connecticut and Massachusetts. 

After determining that surcharging can be implemented in your state, you must ensure that your business adheres to the guidelines set by card associations. 

For businesses whose processors accept all major credit cards, they must conduct research on their prerequisites before imposing surcharges. 

Alternatively, businesses have the option to partner with merchant services providers that offer approved processors capable of implementing surcharges. 

Merchant services providers also provide the added benefit of customizing payment solutions, tools, and resources that enable omnichannel payments, as well as concierge services in the package. 


Pros and cons

On one hand, surcharging gives flexibility to merchants with small businesses that simply can’t absorb extra fees.

For surcharging, the benefit is that everything is automatic. Without needing to have a conversation about it, the processing costs are passed on. If the customer doesn’t want this, they can pay instead with a debit card or cash.

Cash discounting, minimum purchase requirements, and convenience fees allow merchants to be selective. It’s reasonable to try and minimize credit card purchases that do not benefit the business. A stick of gum, for example, is not worth absorbing a $0.20-$0.40 fee.

On the other hand, surcharging is challenging to set up. Equipment needs to be specially programmed to add surcharges. Merchants have to put up signages in-store to notify customers of surcharging. 

Depending on your location, it’s best to know what the rules and regulations are in surcharging before implementing this in your establishment. 

Other ways to pass fees onto your customers

Aside from surcharging, there are also other ways to legally pass on payment processing costs: 


Cash discounting

Cash discounting’s popularity has been at par with surcharging over the past couple of years. A cash discount is a discount applied to the total amount when a customer pays with cash. 


The customer pays less than the advertised price for paying with a credit card. Service fees or a “non-cash fee,” is considered a surcharge because of how these are added at the register. 


Minimum purchase requirement

Merchants set a minimum amount to accept a credit or debit card transaction. Any amounts below the requirement must be paid in cash.

Small businesses with low transaction amounts tend to adopt this practice. Convenience stores, for example. Low-volume merchants usually have to pay a flat fee plus a percentage of the transaction amount, resulting in high processing costs.

Unlike cash discounting, this doesn’t impact the bottom line.


Convenience fee

A convenience fee is added to a transaction for the convenience of paying with an alternative payment channel that is not standard for the business. 

An excellent example is how theaters charge a convenience fee for online tickets. This fee is not paid for when the customer purchases a ticket in-store. 



In today's competitive business landscape, merchants face the challenge of reducing credit card processing fees while maintaining profitability.  

Surcharging offers merchants a valuable opportunity to alleviate the burden of credit card processing fees. Despite recent adjustments to surcharge limits, it remains an effective and legal strategy for optimizing profits. 

To fully capitalize on this approach and reduce processing costs, merchants are strongly encouraged to partner with a reliable service provider. 

By collaborating with a trusted provider enabling surcharging and offering tailored payment solutions, merchants can take control of their expenses and unlock their business's potential. 

AGAPAY - Transactions that give

Agapay was founded on the idea that payment processing should be ethical and give back to the community. In pricing, structure and service, we will always do our best to give the most value and maximize service.
Agapay is a Registered Partner/ISO of Elavon, Inc. Georgia [a wholly owned subsidiary of U.S. Bancorp, Minneapolis, MN]
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