Credit Card Surcharging: What it is and How it Will Affect Your Business

Brittany Aamodt

Over the last few decades, credit card usage has swiftly taken over the world of commerce and is quickly replacing the use of cash or checks. People are motivated to use their credit cards to take advantage of rewards programs offered by credit card companies. However, customers are often unaware of how their card swiping also swipes away at the merchant’s profit margins. Businesses that accept credit cards are charged processing fees to process the credit card payment. As a result, some companies and service professionals increase the price of their goods or services to combat the marginal decrease. While other businesses employ merchant surcharging.

The term “surcharge” is often used but rarely explained. We’ve all heard it or seen it somewhere at one time or another. However, you may still find yourself inquiring, “what does surcharging even mean?” Well, we’re here to answer that and explain how it can affect you and your business.

What exactly is credit card surcharging?

Essentially, a surcharge, otherwise known as a “checkout fee” or “swipe fee,” is an extra fee, charge, or tax added to the initial price and existing tax of a good or service. In many cases, businesses utilize surcharging to offset regulatory fees imposed by the government and rising costs. The rules that mandate surcharge fees vary depending upon the state in which the business operates; however, most states generally have rules regarding dollar limits and disclosure. Meaning the merchant must disclose the surcharge prior to consumer payment (usually in the form of a sign) and the merchant has a limit as to how high of a surcharge they can charge per transaction (most states have a maximum of 4%).

People often times confuse surcharge with convenience fees and use the two terms interchangeably. Although the differences between the two may be minor, it is important to not mistake one for the other.

In contrast to surcharging, a convenience fee is a fixed dollar amount or percentage enforced when a customer is paying outside of a merchant’s usual payment method. For instance, if a merchant allows a customer to pay over the phone, even though a majority of the transactions take place in person, said merchant can charge the customer a convenience fee.

However, whether you are charging a surcharge fee or convenience fee, it is imperative that you disclose the additional charge to the consumer.

Pros of Surcharging

As previously mentioned, some business and service professionals opt to charge a surcharge to combat the price of credit card processing fees. There are many positive attributes of surcharging. Below we’ve listed a few of the pros to consider.

  1. Surcharging can increase your profit margins.

Credit card processing fees typically range from approximately 1.5% to 3.5%, depending on whether you swipe or manually input the information. A surcharge fee allows you to increase your margins by making the consumer responsible for the surcharge fee.


  1. Surcharging can decrease your credit card transaction rate.

Some customers will choose to avoid the surcharge altogether by opting to use another payment method, such as cash or check. Therefore, resulting in a drop in your credit card transaction rate and a rise in your margins.


  1. Surcharging gives you the leeway to charge more competitive prices.

Relieving your business of the burden of credit card processing fees, you have the newfound ability to charge lower, more competitive prices.

Cons of Surcharging

Getting rid of credit card processing fees sounds like a dream to any modern day business owner. However, we want to stress that there are potential downsides to merchant surcharging. Before making any business decision, you must weigh the negatives as well as the positives. Below we’ve listed a few cons of surcharging.

  1. Surcharging can result in initial customer outrage

There is a possibility that you may experience anger from consumers due to the initial change in price. Regular customers become accustomed to a specific amount and may not react well to a price shift. Prepare yourself for the possibility of having to deal with angry and confused customers.


  1. Surcharging regulations imposed by the state and credit card companies.

Surcharging regulations vary depending upon the state and the credit card company. If you choose to charge surcharge fees, it is imperative that you stay informed of the rules and regulations. We recommend that you do the research yourself and/or seek counsel from an attorney.


  1. You may lose customers as a result of surcharging

Some consumers are stubborn when it comes to price. Some customers are simply unwilling to pay additional fees for a good or service. Surcharging may drive away some of your customers or potential customers.

Should I implement merchant surcharging my business?

Additional factors you must take into consideration when determining if your business should charge a surcharge fee is whether or not credit card surcharging is permitted in your state. Six states in the United States have a ban on surcharging, including Colorado, Connecticut, Kansas, Maine, Massachusetts, and Oklahoma. Do you reside in one of those states?

Once you determine if surcharging is permitted in your state and research the surcharge regulations, ask yourself, “is charging a surcharge fee the best move my business?” Businesses with extremely thin profit margins have the most to gain from surcharging. Even if you have healthy profit margins, you can still reap the rewards of charging a surcharge fee. It is important to note that, regardless of your margins, you should be cautious of surcharging. Similar to any other business decision, you must not make your decision lightly and take into deep consideration the potential risks and rewards. If you decided to utilize surcharge fees, we suggest that you educate your customers on your reasoning behind charging a surcharge fee. While it’s not guaranteed that they will all be understanding, it will help you and them be more comfortable with the transition.

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