While credit card processing fees are a necessary expense for many merchants, they can adversely affect business performance by cutting into profit margins and making it challenging to manage expenses. As digital payments and credit card usage continue to tick upward, so do these associated costs for businesses.

One strategy merchants can use to mitigate these expenses is credit card surcharging, or adding a fee to a customer’s total when they use a credit card to cover the cost of processing the transaction. This fee helps offset the interchange fees, assessments, and processor costs that merchants typically pay.

But before implementing a surcharging program, it’s important to have a solid understanding of card brand rules, legal considerations, and best practices to ensure compliance while maintaining customer satisfaction. Here are four pros and cons to consider when evaluating credit card surcharging:

Pros 

  1. Offsets Processing Costs – By passing the cost of processing onto the customer, businesses can preserve their profit margins without raising overall prices. 
  2. Encourages Cost-Effective Payment Methods – Customers may choose to pay with cash, debit cards, or ACH payments, which do not incur surcharge fees. This can help merchants avoid processing fees altogether, but could increase time-to-payment. 
  3. Provides Pricing Transparency – Customers who pay with credit cards see the actual cost of accepting credit card payments, which can encourage them to use lower-cost payment methods. 
  4. Legal in Several U.S. States – Following various legal challenges, many states now allow surcharging.  

Cons

  1. Potential Customer Resistance – Some customers may view surcharges as an extra cost, leading to dissatisfaction or loss of business to competitors who do not charge a surcharge. 
  2. Compliance Complexity – Credit card networks have strict rules regarding how surcharges must be disclosed and applied. Failing to comply can result in penalties or loss of processing privileges. 
  3. State Regulations Vary – While surcharging is permitted in many U.S. states, some states still have restrictions. Merchants are encouraged to seek legal counsel to ensure their surcharge program is compliant with all applicable laws. 
  4. Limited to Credit Cards – Merchants cannot apply surcharges to debit or prepaid card transactions, even if processed as “credit.” This can lead to confusion at checkout.  

If a business does opt to put a surcharging program into practice, careful implementation and ongoing monitoring is essential in order to ensure compliance.

“Surcharging can be an effective tool for offsetting credit card processing fees, but ultimately it depends on the merchant's industry, customer base, and overall business goals,” said Ryan Soto, head of PNC C&IB Merchant Services Sales. “By understanding card network rules, following best practices, and clearly communicating with customers, merchants can successfully incorporate surcharges while minimizing potential drawbacks."

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