A credit card surcharge is an additional fee that a business may add to a transaction when a customer pays with a credit card. The purpose of this surcharge is to cover the costs that the business incurs for processing credit card payments. These fees, which businesses pay to credit card companies and payment processors, are typically a percentage of the transaction value—and they represent a significant cost. In 2024, US businesses paid over $236 billion in processing fees to accept about $10 trillion in credit, debit, and prepaid card payments​​.

The surcharge can vary based on the agreement between the business and its payment processor. Often, the fee is a small percentage of the total transaction amount. The intention behind the surcharge is to offset the business’s cost of accepting credit cards, which includes fees such as interchange fees, assessment fees, and payment processor fees.

Below we’ll explain credit card surcharges for businesses: how they work, what benefits they can provide, and best practices for implementing credit card surcharges in a strategic way that doesn’t undermine customer satisfaction. Here’s what you should know.

What’s in this article?

• Why do businesses apply credit card surcharges?
  
• Differences between surcharges, convenience fees, and cash discounting
  
• Rules of credit card surcharges
  
• What factors should businesses consider before applying surcharges?
  
• How to implement a surcharge step by step
  
• Best practices for surcharge policies
  
• The pros and cons of credit card surcharges
  
• Alternatives to credit card surcharges
  
• How Stripe Payments can help
  
• FAQs about credit card surcharges
  

Why do businesses apply credit card surcharges?

Businesses apply credit card surcharges to offset the costs associated with processing credit card transactions. When customers pay with a credit card, businesses incur fees from their bank or payment processor. These fees can include a percentage of the transaction amount plus a fixed charge per transaction. Businesses apply surcharges with the intention of recovering these costs instead of absorbing them, which can be particularly important for small businesses or those with thin profit margins.

In addition to direct processing fees, there are other costs related to accepting credit cards. These include the costs of maintaining the necessary hardware and software, as well as compliance with security standards to protect cardholder data. Credit card fraud is another concern, and businesses often bear the cost of chargebacks in the case of fraudulent transactions.

Surcharges can also be a strategic decision for businesses. Businesses may use them as a way to encourage customers to use alternative payment methods that incur lower or no processing fees, such as cash or debit cards.

Differences between surcharges, convenience fees, and cash discounting

Surcharges are often confused with two other pricing tools businesses use to offset card costs.

Surcharges vs. convenience fees

A convenience fee applies when a customer pays through a nonstandard channel, such as by phone or online, rather than in person. Unlike a surcharge, it applies no matter the payment method—card, debit, or check—and it's typically a flat dollar amount rather than a percentage, disclosed to the customer before payment. Businesses can only charge one if they also offer a standard payment option, and Visa and Mastercard don't allow a surcharge and convenience fee on the same transaction, or convenience fees on recurring payments.

Surcharges vs. cash discounting

Cash discounting flips the model: instead of adding a fee for card use, the business builds card costs into one posted price, then discounts it for cash payers. To stay compliant, it must show both a cash and a credit price, or clearly offer a cash reduction off the posted price. Simply adding a fee on top of an existing price when someone pays by card isn't a valid cash discount—it's a surcharge, and it has to follow surcharge rules instead. Confusing the two is a compliance mistake to avoid.

Rules of credit card surcharges

In the US, not every state has the same regulations around credit card surcharges. Here’s an overview of the regulatory environment in different jurisdictions.

Nationwide rules on surcharges in the US

• Credit card surcharges are generally permissible in the United States.
  
  • These surcharges are added to credit card transactions to cover processing fees.
    
  • The surcharge amount is typically a percentage of the transaction.
    
  • Businesses must inform customers about the surcharge before the transaction.
    
  • Credit card networks (such as Visa and Mastercard) have guidelines on surcharges. These include surcharge limits and notification requirements for both the network and customers.
    

States where surcharges are allowed

Many states permit credit card surcharges, generally with a cap (typically 2%–3%) and disclosure requirements such as clear notice to customers before checkout, at the point of sale, and on receipts. States that explicitly allow surcharging are:

• Alabama
  
• Alaska
  
• Arizona
  
• Arkansas
  
• California
  
• Colorado
  
• Delaware
  
• Washington, D.C.
  
• Florida
  
• Georgia
  
• Hawaii
  
• Idaho
  
• Kentucky
  
• Louisiana
  
• Maryland
  
• Michigan
  
• Minnesota
  
• Mississippi
  
• Missouri
  
• Montana
  
• Ohio
  
• Oklahoma
  
• Oregon
  
• Pennsylvania
  
• Rhode Island
  
• South Carolina
  
• South Dakota
  
• Tennessee
  
• Texas
  
• Utah
  
• Vermont
  
• Virginia
  
• Washington
  
• West Virginia
  
• Wisconsin
  
• Wyoming
  

Requirements vary by state—for example, Colorado caps surcharges at 2% or the actual cost of processing, whichever a merchant chooses.

States and territories where surcharges are illegal

Surcharging is currently prohibited in:

• Connecticut
  
• Maine
  
• Massachusetts
  
• Puerto Rico
  

Because this landscape can shift through legislation or litigation, businesses should confirm current rules with their state attorney general or a payments attorney before implementing a surcharge.

Each state has its own way of regulating credit card surcharges, reflecting different policies on consumer protection and business operations. While some states allow surcharges with certain conditions, others have stricter rules or outright bans. Businesses that operate internationally or in multiple states must be aware of these regulations and comply with them; otherwise they risk legal issues and other complications.

Global considerations

• In some countries outside the US, surcharges are either regulated differently or prohibited.
  
• Compliance with local laws and credit card network rules is particularly important for multinational businesses.
  

Credit card network rules

Businesses must understand and comply with the rules set by credit card networks such as Visa, Mastercard, and American Express. These rules include limits on surcharge amounts and requirements for customer notification. Visa caps credit card surcharges at 3% and Mastercard’s limit is 4%.

What factors should businesses consider before applying surcharges?

Before applying surcharges, businesses should consider these factors:

• Legal compliance: Businesses must make sure that applying surcharges is legal in their state or region. This means understanding local laws and regulations regarding surcharges.

• Customer transparency: Clear communication with customers about any additional charges is key. Businesses can achieve this through visible signage, statements on websites, or verbal notifications during transactions.

• Impact on customer behavior: Consider how surcharges might influence customer choices. Some customers may choose alternative payment methods, or even different businesses if they feel the surcharge is unfair.

• Cost-benefit analysis: Businesses should assess whether the additional revenue from surcharges outweighs the potential loss of business from customers who might seek alternatives due to the extra fees.

• Administrative overhead: Implementing and managing surcharges may require changes to billing systems and additional administrative work.

• Market position and competition: It’s important to know how competitors handle credit card fees. If competitors are absorbing these costs, adding a surcharge might put a business at a disadvantage.

• Customer relations and satisfaction: Some customers may see surcharges as a substantial drawback, so it’s important to balance financial gains with customer satisfaction.

• Frequency of credit card transactions: Businesses with high volumes of credit card transactions may find that surcharges help offset processing fees, but businesses with fewer credit card purchases may see limited impact.

• Alternative payment incentives: Instead of relying on surcharges, providing incentives for customers to use lower-fee payment methods such as cash or debit cards can be a more customer-friendly method.

• Surcharge starting date: At least 30 days before implementing the surcharge, US merchants need to notify the card issuer and their inquirer.

Carefully considering these factors can help businesses make an informed decision about whether to implement surcharges, and how to do so in a way that balances their financial needs with customer expectations and legal requirements.

How to implement a surcharge step-by-step

Implementing a surcharge requires the following steps.

1. Confirm surcharges are legal where you operate: Connecticut, Massachusetts, Maine, and Puerto Rico enforce outright bans; other states cap rates or add conditions. Apply the strictest rule if you operate in multiple states.

2. Choose a processor and point-of-sale (POS) equipment that support surcharging: Look for one that auto-detects debit or prepaid cards, calculates the surcharge within legal limits, and itemizes it on receipts.

3. Notify your card networks: Notify your card network and payment processor at least 30 days in advance.

4. Set your rate: In general, use your actual processing cost or 3%, whichever is lower. Some states cap it further.

5. Exclude debit and prepaid cards: Surcharges apply to credit cards only—never debit, prepaid, checks, or cash.

6. Post disclosures everywhere customers see prices: Disclose clearly at the entrance, point of sale, and online wherever cards are first mentioned.

7. Itemize it on receipts: List the surcharge as a separate line item, not folded into the price.

8. Train staff: Make sure employees can explain the fee and how it's calculated.

9. Refund the surcharge when transactions are refunded: Return the surcharge along with the rest of the purchase on refunded transactions.

10. Review periodically: Revisit your rate and stay current on state law changes.

Best practices for surcharge policies

Businesses have to strike a delicate balance with surcharges: they need to cover their costs and keep customers happy. Applying too high a surcharge for credit card payments might save money on transaction fees, but it can risk customer happiness and loyalty.

Best practices for implementing surcharge policies require careful consideration in several areas:

• Ensuring compliance with laws and regulations: Make sure your surcharge policy complies with local laws and credit card network regulations. This includes adhering to any restrictions on the maximum allowable surcharge, and making sure that your surcharges cover the cost of transaction processing but do not generate profit.

• Maintaining transparent communication with customers: Disclose the surcharge policy to customers clearly. You can do this through visible signage at physical locations, explicit mentions during transactions, and statements on websites and receipts. It’s important that customers are aware of the surcharge before they complete their transaction.

• Setting reasonable surcharge levels: Set surcharges at a level that covers your costs but is also fair to customers. Excessive surcharging can drive customers away. A common practice is to set the surcharge at a level equivalent to what credit card companies charge you for transactions.

• Conducting regular reviews and adjustments: Regularly review and adjust your surcharge rates if necessary, especially if your processing costs change. This ensures that your surcharges remain in line with real costs and legal requirements.

• Educating staff: Train your staff so they can explain the surcharge policy effectively to customers. Staff should be able to answer questions and provide explanations about why the surcharge is in place and how it’s calculated.

• Offering multiple payment options: Provide customers with a variety of payment options, including those that do not incur surcharges such as cash and debit cards. Some businesses also offer discounts for non–credit-card payments.

• Analyzing customer feedback: Pay attention to customer feedback around the surcharge. In order to maintain positive customer relationships, adjust your strategy if you find measurable customer dissatisfaction or confusion.

• Documenting the policy: Make sure your surcharge policy is well-documented. This should include details on how the surcharge is calculated, how it’s applied, and any relevant legal compliance information. This documentation can be useful for staff training and addressing any customer inquiries.

• Avoiding discrimination among card types: Apply the surcharge uniformly across all types of credit cards if your local laws and agreements with credit card networks allow. Discriminating between card types can lead to complications and customer dissatisfaction.

• Monitoring for legal changes regularly: Stay informed about changes in laws and credit card network rules. Surcharging practices can be affected by new laws, court decisions, or changes in credit card network policies. Regular updates verify ongoing compliance and operational efficiency.

Businesses that follow these practices can implement surcharge policies that are fair, legal, transparent, and minimally disruptive to customer relations.

The pros and cons of credit card surcharges

A business’s surcharge policy should reflect the kind of customer experience it wants to provide. While the financial upside of recouping transaction costs is obvious, it’s important to consider the bigger picture of how surcharges play into customer relationships and influence the way customers spend. Here’s a quick look at the pros and cons of credit card surcharges.

Pros of implementing a surcharge policy

• Recovers transaction costs: One of the main benefits for businesses is the ability to recover the costs incurred from processing credit card payments, which can include percentage-based fees, per-transaction fees, and monthly fees from payment processors.

• Reduces overhead: By adding a surcharge, businesses can reduce the overhead associated with credit card transactions, potentially making products or services more affordable by avoiding the need to raise prices across the board.

• Encourages alternative payments: Surcharges can incentivize customers to use alternative, less expensive payment methods such as cash or debit cards, which can result in lower overall transaction fees for businesses.

Cons of implementing a surcharge policy

• Negative customer reaction: Customers may view surcharges negatively, perceiving them as a penalty for using their preferred payment method. This can lead to dissatisfaction or the potential loss of business to competitors who don’t add such charges.

• Complexity in pricing: Implementing surcharges can complicate the pricing structure, potentially leading to confusion at the point of sale as customers may not be aware of the additional cost until the last minute.

• Inhibition of spending: Some customers may alter their spending habits to avoid credit card purchases, which could mean businesses risk losing out on larger sales.

• Regulatory navigation: Keeping up with regulations and compliance requirements can be daunting. These rules can vary by location and even by credit card network, and they require diligent oversight.

Alternatives to credit card surcharges

Businesses have a range of options to consider if they want to sidestep credit card surcharges. These include:

• Using cost-effective payment processors: Payment processors such as Stripe provide competitive rates and pricing structures that may reduce transaction costs. By analyzing different payment processors and selecting one with lower fees, a business may reduce or eliminate the need to add surcharges.

• Choosing optimal point-of-sale systems: Selecting the right POS system is key for transactions. Some systems offer more favorable rates or are more tailored to business-specific transaction patterns. A POS system that integrates easily with business operations can reduce processing times and costs.

• Negotiating with merchant services: Businesses can negotiate terms with their merchant services provider. Some providers may offer lower rates based on transaction volume or long-term customer loyalty.

• Incentivizing lower-cost payment methods: Giving discounts for using cash, check, or ACH transfers can motivate customers to use these lower-cost methods. This can indirectly reduce the volume of credit card transactions and associated fees.

• Batching transactions: By processing transactions in batches rather than individually, businesses can reduce the per-transaction fees often charged by credit card processors.

• Implementing a service fee: Instead of a specific credit card surcharge, some businesses apply a small service fee to all transactions. This can be a more palatable method for customers and may avoid the negative perception associated with credit card surcharges.

• Offering membership or loyalty programs: Introducing programs that include payment processing fees in the membership cost can distribute the processing costs over a larger base, reducing the impact on individual transactions.

• Reducing card payment acceptance: Some businesses limit credit card acceptance for small transactions, since fees would take a sizable portion of the revenue.

• Improving operational efficiency: Streamlining business operations to cut costs can offset payment processing fees. This might involve optimizing inventory management, reducing waste, or improving customer service to increase retention.

• Allowing cost absorption: Some businesses may decide to absorb the fees, balancing this by adjusting prices slightly across all products and services.

Choosing the right credit card surcharge alternative should be an extension of a business’s commitment to customer service and fit with its operations. The goal is to stay profitable while keeping transactions fair and convenient for customers.

How Stripe Payments can help

Stripe Payments provides a unified, global payments solution that helps any business—from scaling startups to global enterprises—accept payments online, in person, and around the world.

Stripe Payments can help you:

• Optimize your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs, access to 125+ payment methods, and Link, a wallet built by Stripe.
  
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Learn more about how Stripe Payments can power your online and in-person payments, or get started today.

FAQs about credit card surcharges

Here are quick answers to some of the most common questions businesses have about credit card surcharges.