Charging Customers For Using Credit Cards Will Kill Your Business

Why Surcharge a Credit Card Sale?

Charging customers for the use of credit cards is gaining momentum in the United States. This practice, also known as “credit card surcharging” and “zero-cost credit card processing,” may seem very tempting. The cost of accepting credit cards has continually become more expensive over the last decade. This is making businesses begin to question why they should be on the hook for the cost of accepting card payments, especially considering that it has become the preferred method of payment among consumers.

The 2%-4% cost in processing fees (also known as the discount rate) can significantly eat into the profit margins of a business. There are also additional flat fees of 10-50 cents per transaction on top of the discount rate which can significantly the increase cost of small transactions. In some cases, business owners have reported that processing fees can cost upwards 40% of the transaction when factoring in the flat transaction fees on low-dollar sales, such as those at convenience stores.

Why Credit Card Processing Fees are So High

Related: Find Out If You Are Overpaying for Credit Card Processing with Our Merchant Account Calculator

Interchange Fees

The combination of the base cost of the discount rate and transaction fee together is known as the “Interchange rate” in the credit card processing industry. This rate is charged by the bank that issued the customer’s credit card. Banks determine this rate based primarily on three factors:

1. Business Type

First, the industry of business that is accepting the credit card. For example, a grocery store may pay a different Interchange rate than a yoga studio.

2. Collection Method

Second, how the credit card is being accepted. For instance, a card number that is manually keyed into a terminal is often more expensive that one that is swiped or dipped into a credit card terminal.

3. Card Type

And third, the type of credit card the customer is using. In this last case, numerous banks offer customers rewards for using their credit card. These rewards most commonly come in the form of cash back or points that can be used to redeem flights or merchandise. Essentially, the Interchange fees that a business incurs for accepting a credit card pay for the customer’s rewards.

Merchant Account Provider Markups

On top of Interchange, the companies that manage a business’ merchant account also bake in their own profit margins on top of the Interchange fee in the form of both a percentage and flat fee. These markups can vary greatly depending on several factors and are determined by the company that the business is using for its merchant services. Some companies offer transparent markups on top of Interchange (known as Interchange-plus) and others hide their markup in murky tiered pricing buckets, or as a single flat-rate for all transactions. The latter pricing methods are often much more expensive than Interchange-plus.

Monthly, Annual and Other Junk Fees

In addition to transaction fees, most merchant account providers charge additional monthly and annual fees. Again, these fees can vary widely depending on the company that is providing the merchant account. Most, if not all, of these fees are junk fees that can be avoided by selecting providers that do not charge them. Such junk fees are often labeled with obscure industry jargon, but the most common junk fee that businesses experience is the nearly ubiquitous “PCI Compliance” fee. This fee is often touted as a non-optional fee, but several providers have opted to do away with it altogether which clearly makes it nothing more than a profit driver for merchant account providers that do impose them.

Related: This is the Only Credit Card Processor That We Have Found That Has No Junk Fees

Equipment Costs

In most cases where the sale is taking place in a face-to-face environment, such as a retail store, businesses need equipment in order to accept the credit card payment. Some businesses require sophisticated point-of-sale systems that track numerous processes, such as inventory levels, while others only need a device that can read the customer’s credit card. Equipment costs can range from thousands of dollars to free if the processor provides hardware in exchange for gaining a new client. Credit card processing hardware can be bought outright or leased, with leasing often being the most expensive form of obtaining card processing equipment.

At the end of the month, accepting credit cards can cost businesses thousands of dollars so it isn’t surprising that some would want to offset this cost by passing it along the customer as a surcharge during the sale. But is it a good idea to do this?

The Risks of Surcharging Credit Card Payments

Surcharging Compliance

Is it legal to surcharge a customer for paying with a credit card? The short answer is that it depends. Each state has its own laws regarding surcharging credit card transactions. In some states, it has been banned altogether (See: Each State’s Law on Charging for Credit Card Purchases). Additionally, if your customers are in different states than your own business, it can get even more complicated. Do you comply with your state’s laws or the customer’s? In most cases, the answer is unclear. In nearly all states, the fee for surcharging a customer’s credit card cannot exceed the actual cost of the fee incurred by the business owner.

Card Brand Policies

Visa’s policy states that the maximum fee must be the actual cost to the merchant or a maximum of 3%, whichever is less. Violating this policy can cost a business owner $5,000 for the just first offense, with fines increasing if the business doesn’t come into compliance. Mastercard allows businesses to charge up to 4% with no other stipulations, while American Express and Discover offer little to no guidance. Businesses must also inform the card brands of their intent to surcharge 30 days before the begin the practice. Failing to do so could have costly consequences.

Non-Compliant Credit Card Surcharges

Calculating a surcharge correctly can be difficult. In nearly all cases where we’ve researched credit card processing companies that offer surcharging services, the surcharge is not being calculated correctly. In most cases, these processors are adding a flat surcharge of 4%-5% even if the actual fee is only 2%. So what happens to the difference of the fee if the processor is adding a surcharge above the actual cost to the business? The processor is pocketing it, which is often undisclosed to either the business or the customer. Surcharging can be very profitable to processing companies in the short-term, which is why some narrowminded companies are promoting it. However, surcharging discourages credit card use among consumers and will ultimately damage the entire industry in the long-term, along with the businesses that are engaging in it.


Businesses are required to post signage at their entrances and the point of sale stating that they will charge a fee if a customer pays with a credit card. The sales receipt must also be clearly labeled as a fee for paying with their card. Not only can this signage cause a customer to take their purchase elsewhere, but if it is not done correctly, it could result in legal actions and fines.

Debit Card Surcharging

Surcharging debit card transactions is prohibited by both Visa and Mastercard as well as by most legal jurisdictions. Despite this, we have seen several cases wherein processors are still adding surcharge fees to a businesses’ transactions despite the customers paying with a debit card. Failing to add surcharges correctly can result in fines being levied on the business by Visa and Mastercard, potential legal actions by states and cities, and even result in the business losing its ability to accept card payments permanently. See Visa’s rules about card surcharging and Mastercard’s surcharging rules. American Express doesn’t issue debit cards and encourages businesses to comply with state laws. See the American Express Merchant Guide for more information regarding policies regarding accepting Amex cards.

Drastic Impact to Customer Loyalty

By far, the biggest danger posed to a business that charges customers for using credit cards is the negative impact on customer loyalty and repeat business. According to a survey conducted by American Express in 2021, 78% of consumers agreed that getting surcharged makes them feel like a business does not appreciate their patronage or value them as a customer. Another 77% stated that they would take their purchase to competitor who does not charge a such a fee. Have you noticed that chain restaurants do not add surcharges? There’s a good reason for this.

Reduced Consumer Spending and Smaller Sales

Research has shown that consumers are more likely to spend higher dollar amounts when using credit cards over cash. A Federal Reserve Bank of Boston survey found that the average value of card transactions was $112 as compared to $22 for cash transactions. A Dun & Bradstreet study corroborates this data finding that consumers are likely to spend 12%-18% more when paying with a credit card.

There are several factors that contribute to this phenomenon of higher spending with credit cards. First, psychological factors play a role because credit card users lose a concrete sense of how much they are spending since the money is not immediately deducted from their checking account. Secondly, rewards programs incentivize users to spend more in order to earn rewards, which is especially true for purchases made with company or corporate credit cards. Speaking of corporate cards, most employees can only be reimbursed for spending done on their company cards. They don’t have the option to pay in cash.

Thirdly, credit cards are more convenient than cash and allow people to make larger impulse purchases. In fact, consumers are likely to have less than $30 of cash on their person at any given time according the Federal Reserve Bank of Boston survey mentioned in the previous paragraph. Lastly, many people consider cash to be a medium of spreading germs. In fact, numerous studies have shown that almost all cash is contaminated with trace amounts of fecal matter.

Next time you are shopping at a large corporate retailer, like Target or a grocery store chain, check your receipt to see if they are adding a surcharge. It is unlikely that they are. Consider that these companies have dedicated analysts who have researched and vetted adding credit card surcharges. If they are not adding them, its because they have determined that doing so would harm their sales.

Negative Customer Reviews

Consumers hate getting surprised by a credit card surcharge fee after they have paid for a purchase. This sentiment can be even more exaggerated at restaurants if the fee is only noticed at the end of the meal. Businesses risk substantial cost to their online reputations by adding surcharges and negative reviews can result in lost business that far outweighs the costs of credit card processing fees.

Cash Management Costs

They say that cash is king, but managing cash comes with its owns costs and risks. First, many banks charge businesses for depositing large amounts of cash as it requires more time and resources for the bank to manage cash. In some cases, cash management fees may be less than credit card processing fees but a business also needs to secure the cash at their place of business. Such costs can come in the form of requiring expensive safes as well as added security personnel or equipment.

Robbery and Burglary

Businesses that are known for accepting high amounts of cash put themselves at a significant risk of robbery and burglary. Not only does it pose a danger to the life and limb of owners and employees, but one robbery could result in losses that far exceed all processing fees that a business would ever incur. If an employee is harmed during a robbery, this could also result in legal actions and all the costs associated with such an event. Accepting card payments greatly reduces the liability associated criminals targeting a business for nefarious gain.

Employee Theft

Businesses that forgo credit card processing fees by encouraging cash transactions will almost certainly experience losses from employee theft. This not only results in lost revenue from sales but also the loss of the merchandise. It is an unfortunate and sad fact that some employees will be give into the temptation to pocket cash from sales. In the event that an employee is stealing card payments through their own device, such transactions are recorded and trackable. This not only deters employees from stealing, but can provide a paper trail for business owners should they need to take legal action against a thieving employee.

Bottom Line

Businesses that choose to charge customers for using a card for payment put themselves and their businesses at significant risk. Not only can it result an immediate loss of a sale, but can cause the permanent loss of a potentially loyal customer. Futhermore, a business must comply with policies and laws to avoid costly fines and legal actions. These policies and laws may change without an owner’s knowledge, posing even a greater risk of running afoul with compliance. Many merchant account providers are also failing to add surcharges correctly of which the liability may fall on the business owner. A business could even lose its ability to accept card payments for incorrect surcharging, which could spell the end of its operation. Lastly, opting to accept cash over card poses costs that are often overlooked and greatly increases the danger to employees and owners in the event of a robbery. Although credit card processing costs are annoying, it’s a cost that can be greatly reduced by choosing a reputable merchant account provider. See our article comparing the best credit card processors to find a highly rated low cost merchant service provider.

Processors that Offer Credit Card Surcharging

If you plan to add surcharging in spite of the information above, this is the only processor we recommend for credit card surcharging at this time due to the company’s stellar reputation, pricing, and support.

WSJ Explains Why Surcharging is Increasing

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3 Responses

  • Doug

    I refuse to spend money at any business that wants to charge me just to pay with a card. That’s all that I carry! You deserve to go out of business if you do this!

    • Greg Wangler

      Parabellum, Sports, LLC

      You should go into business and see how a little real-world experience changes your perspective. Do these honest, benevolent credit card companies deserve to extort 3-4% of a business that averages a 9% gross profit margin? What value do they add that entitles them to pilfer 33-44% percent of a small business’ livelihood?

      • Phillip CPO

        Hi Greg,

        If you read the entire article you will see that I cite studies that show that people spend more on purchases when using a credit card. I’m not advocating that it should cost a business as much as it currently does; however, it will affect your customer loyalty if you add it. Personally, I refuse to pay a fee just to pay a business for products or services. I believe that it is part of the cost of doing business and that they should bake it into their pricing. If you choose to surcharge anyway, this is who I recommend for it.


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About The Author

Phillip Parker is the creator and author behind this website. He has over 15 years of experience in the credit card processing industry as a journalist, consultant, and former merchant account sales professional. He started this project as a blog to expose merchant services providers that engage in predatory business practices, such as deceptive marketing, misleading pricing, and high-pressure sales tactics. His goal is to help business owners find merchant account providers who serve their industry well while offering fair rates with no junk fees and no long-term commitments.

Phillip has researched over 1,000 payment processors and been quoted in numerous high-profile publications, including the Los Angeles Time, INC Magazine, The Atlantic, and the Miami Herald among others.

Need advice on card acceptance? Schedule a consultation with Phillip.