Velocity Insights blog banner for the article on credit card processing fees and the pros and cons of customers paying them.
Arguably the worst part about accepting credit cards at your business. In today’s increasingly cashless environment, credit card transactions have become the norm for businesses of all kinds. However, with the convenience of accepting credit cards comes the unavoidable cost of credit card processing fees. Passing on credit card fees to customers is a strategy many small businesses use to protect their thin profit margins, especially as they face rising operating expenses.
This dilemma arises when business owners debate this idea of: should you pass your processing fees to customers? The option to pass your processing fees or absorb credit card processing fees can have repercussions for both the business’s bottom line and its customer relationships. In fact, swipe fees—costs merchants pay when processing credit card transactions—amount to billions annually, with estimates reaching over $122 billion in 2024. As of 2026, 35% of small businesses use surcharges to recover these costs, but 32% report customer cancellations upon seeing a fee. We will examine the benefits and drawbacks of charging clients for credit card processing, taking into account things like financial concerns, standard practices in the industry, and customer expectations.
Processing Fees, What are They?
A charge made by payment processors or merchant service providers in exchange for processing credit card transactions is known as a credit card processing fee. These processing fees include interchange fees, assessment fees, and other card fees that are charged by credit card networks and issuers.
The owner of the business must use a payment processor, like a bank or third-party provider, to handle credit card payments when a customer makes a transaction. Payment processing fees are a significant consideration for businesses, as credit card processing fees typically range from 2% to 3% of the transaction amount. The processing fee, which enables businesses to accept credit card payments, pays for the expenses related to this service.
How can Business Owners Avoid these Fees?
Well, if you want to be able to accept credit cards at your business, you can’t really avoid them. There will always be processing fees that need to be paid. But, there are ways to lower or get rid of them all together if business owners don’t want to be the ones to pay them. This is where business owners need to contemplate whether or not you want to pass your processing fees on to your customers. This is what’s known as a surcharge, and it is used to offset processing fees.
To help manage these costs and improve customer satisfaction, businesses can offer lower cost payment methods, such as ACH payments, as a preferred payment method. Providing a variety of payment options, including fee-free payment options, gives customers flexibility and can make clients feel more comfortable with the surcharge.
What is a Surcharge?
A credit card surcharge is an additional fee that businesses may add to a transaction when a customer pays with a credit card. This extra fee, also known as a credit card surcharge, is intended to compensate for some of the costs of payment processing. Surcharges are typically a percentage-based fee, often capped at 3% for Visa and 4% for Mastercard. The displayed price within your business is the price when customers pay with cash or debit. Surcharges can only be applied to credit card transactions (credit transactions) and not to debit or prepaid card transactions. It’s actually illegal to put a surcharge or any card fees to customers on debit card transactions, even if the debit card is run as credit. This distinction between credit and debit cards is important for legal compliance. When you charge credit card fees or add extra fees as surcharges, they must be listed as a separate line item on the customer’s bill or invoice to ensure clarity and transparency for customers.
Sometimes people confuse a convenience fee with a surcharge. It’s important to know the difference if you’re considering adding these fees to your card transactions. A convenience fee is manually added by a merchant. Surcharges are pre-programmed on your POS machine. Convenience fees can be added to both credit and debit transactions unlike surcharges. Also, a convenience fee is only allowed to be added for “alternative payments”. An example of this, a business having a convenience fee for customers placing orders over the phone. In this example, the business owner would not be able to have a convenience fee for in-person card transactions. For a deeper dive into this topic, you can review what a convenience fee is.
So there’s really no right answer to this. The decision is up to each specific business owner and their values. Cash makes up less than 20% of all spending as of 2023. And even when it is being used, it’s typically for purchases under $25. This trend will only accelerate as card payments rule in 2026. If you’re a business owner, you’re going to have to take the leap and start accepting credit and debit cards if you haven’t already. Processing fees can add up fast and some small business owners may be finding it hard to make a real profit with the increased popularity of credit card payments. There are definitely pros and cons to adding surcharges and having your customers pay them. Business owners should really think hard about whether or not you want to pass your processing fees or card fees to customers by adding additional fees as a separate line item to the customer’s bill.
Pro’s
There is flexibility with the fee amount. You can decide exactly how much you want to charge your customers, typically as a percentage of each transaction. However, surcharges cannot exceed the actual cost incurred for processing the card and are generally capped at 4% of the total transaction amount, whichever is lower. Visa just changed their surcharges rules so there are limitations on how high of a percentage you’re able to charge based on the total transaction.
Some businesses choose to raise prices across the board instead of adding a surcharge. This approach can help cover processing fees without singling out credit card users, but it may also impact customer satisfaction if all customers see higher prices.
Another pro is that everything is pre-programmed. It’s automatic and hassle free. If you set it up right and are transparent with your customers about the charge, you shouldn’t run into many issues with it. Obviously the biggest pro to having a surcharge, is business owners don’t have to pay them. Your business is saving large amounts of money by not paying processing fees.
Con’s
The only real con to having a surcharge is lower customer satisfaction, and it can even lead to customer dissatisfaction and reduced loyalty. Customers may be annoyed or unhappy about the extra fee, and some may switch to cash or debit to avoid surcharges, or choose competitors that do not impose such fees. If your competition isn’t charging a fee, you may lose customers to them. Transparency in communicating surcharges to customers is crucial for maintaining customer satisfaction and trust. But, surcharges are becoming more and more common within businesses. Also, as of 2023, things are getting a lot more expensive. Customers are more understanding of change, 88% of consumers agree that with inflation and the rising costs of goods – they would understand if their local businesses raised their prices. This is why it’s important to be straight up and honest with your customers if you do want to start adding a surcharge fee and to consider different strategies for passing credit card processing fees to customers in a way that maintains trust.
Credit Card Surcharges Stipulations
Adding a surcharge isn’t cut and dry. There are a lot of different things to be mindful of if you want to start implementing the charge. The legal landscape surrounding passing credit card fees to customers is complex and constantly evolving. State laws, federal law, and federal regulations all play a role in determining the legality of surcharging, and rules vary significantly by state. Local laws and local governments may impose additional requirements or enforcement actions, so it’s essential to stay informed about 2026 credit card surcharge laws merchants must know and state specific rules and local regulations.
Credit card network rules, card network rules, and credit card network regulations require businesses to notify credit card networks of their intent to surcharge and to comply with strict disclosure requirements. This includes informing customers about the surcharge before completing the transaction, listing surcharges as a separate line item on invoices, and ensuring that the fine print does not hide these fees. Ongoing compliance is necessary—businesses should regularly review and adjust their surcharge rates to avoid compliance risk as laws and card network requirements change while also looking for ways to lower credit card processing fees easily.
Maintaining a compliant merchant account depends on adhering to card network rules, including proper disclosure and advance notification. Professional service firms should include surcharge disclosures in engagement letters and display clear notices on the payment page, not just in the fine print, to foster transparency and trust. PCI compliance and protecting cardholder data are also critical to avoid security breaches and regulatory penalties, and choosing the right provider means understanding credit card processors to avoid.
In the US, surcharging is legal in most states but prohibited in Connecticut, Maine, and Massachusetts, with restrictions in states like New York and California. The Supreme Court’s ruling in Expressions Hair Design v. Schneiderman clarified that surcharge bans regulate speech, not conduct, impacting how businesses communicate prices. Merchants must clearly communicate the surcharge fee to consumers before completing the transaction, ensuring transparency and compliance with strict disclosure requirements.
Transparency in billing practices helps maintain trust and positive relationships with clients. Legal professionals should consult their local bar association for the most current regulations and ethical guidelines related to surcharging. Additionally, the Personal Services Directive (PSD2) prohibits surcharging for consumer Visa or Mastercard credit and debit cards issued within the EU/EEA, and in Australia, surcharging is permitted only for the actual cost of processing, with a ban on debit card surcharges expected in 2026.
Make sure you’re knowledgeable of your state’s rules revolving around surcharging, and regularly check for updates to laws and card brand rules to ensure ongoing compliance.
Different Businesses and their Credit Card Processing Fees
Surcharging works better with certain businesses more than others. Many business owners face challenges with payment processing and payment processing fees, as these processing costs can significantly impact a business’s bottom line, especially for high-value transactions. Understanding what your credit card processing statement really means can help reveal exactly where these costs are coming from. For example, a small niche boutique with a low profit margin may benefit from surcharging. Many businesses are considering implementing surcharges to recover processing costs, particularly in industries with thin profit margins. Or, a business that has high transactions regularly may use surcharging because of the significant fees. Non-profits usually don’t have surcharges because it could discourage people from donating. Schools and universities usually don’t impose surcharges either because it adds unnecessary financial stress on families and students.
The Processing Fee Loophole
Wouldn’t it be great if there was a way to pass your processing fees onto your customers but still maintain loyal customers? Well, there is and it’s legal in every state! Having a cash discount program, also known as dual pricing, at your business is the easiest way to lower or get rid of your processing fees. Implementing a compliant Cash Discount Program involves clear pricing, proper signage, and passing on processing costs transparently. Cash discounting, or dual pricing, involves advertising two costs: one for card payments and a discounted price for cash payments. The displayed prices of all your goods and services include the processing fees, so the posted price is what customers pay if they’re paying with a credit card. If they want to pay with cash, they get a discount because there are no processing fees that need to get paid.
Having a cash discount program not only easily lowers your processing fees, but it gives customers incentive to pay with cash. This increases your business’s cash flow and gives your customers more of a reason to keep coming back by delivering the benefits of cash discounts. At VMS, our machines have the ability to be pre-programmed for either a cash discount program (dual pricing) or surcharges, which is exactly what we recommend when examining what Shark Tank would say about your card processor. If you’re interested in lowering your processing fees with either a cash discount program or by surcharging, visit getvms.com or fill out the form below.
