Credit card processing fees can significantly impact business profitability, but surcharge programs offer a legal solution to offset these costs.
In 2023 alone, U.S. merchants paid an estimated $172 billion in credit card processing fees—up from $160 billion the previous year.
As more businesses seek ways to improve their bottom line, surcharge programs have gained popularity as an effective method to transfer processing costs to customers who choose to pay with credit cards.
This guide will walk you through the mechanics of surcharge programs, legal requirements, implementation steps, and considerations for different business types, helping you make an informed decision about whether this payment strategy is right for your business.
A surcharge program is a payment processing strategy that adds a percentage fee to credit card transactions to cover the cost of transaction processing. Credit card “swipe” fees typically range from 2% to 4% of every transaction, which can significantly erode profit margins.
When a customer chooses to pay with a credit card, they are charged a transaction fee一typically matching the merchant’s processing rate一to offset the cost the business would otherwise incur.
For example, if a customer purchases a service for $100 and pays with a credit card, a surcharge program might add a 3.5% fee, bringing the total to $103.50. This additional $3.50 covers the processing fees that would typically reduce the merchant’s profit margin.
Implementing a surcharge program can provide significant advantages for businesses across various industries:
Surcharge programs can eliminate credit card processing fees, enabling businesses to retain more of their profit margin on credit card transactions.
This approach is gaining traction一nearly one-third of U.S. small businesses now apply a surcharge to credit card payments, according to a recent J.D. Power survey reported by industry news outlet Payments Dive.
These programs provide clear communication of processing costs to customers, creating transparency about the true cost of credit card transactions while offering customers a choice of payment methods.
By eliminating processing fees, businesses retain more cash, creating immediate savings that can be redirected toward operations, growth, or other priorities一a competitive advantage in any market.
Customers have more payment options, giving them greater control over their finances. With a clearer understanding of associated costs, they can make more informed decisions about how and when to pay.
Surcharge programs are effective across various business types, from high-ticket transaction businesses such as auto dealerships and home services to retail environments with varied transaction sizes, service-based businesses with recurring billing, and both B2B and B2C operations.
When surcharges aren’t viable, dealers often turn to cash discount programs or convenience fees—two alternatives with distinct rules and use cases.
Unlike surcharge programs that add a fee to credit card payments, cash discount programs build the processing cost into listed prices and then offer a discount to customers who pay with cash or debit cards. This approach is legal in all 50 states and applies to both debit and cash transactions.
Convenience fees are flat charges applied when a customer uses an alternative or non-standard payment method, such as paying online or by phone instead of in person. Unlike surcharges, the fee amount remains fixed regardless of the transaction size. These fees follow different card network rules and are most commonly used in industries like government services, utilities, education, and toll collection.
Surcharge programs operate on a percentage-based structure, typically matching or closely approximating the merchant’s actual credit card processing rates. When a customer uses a credit card, the system automatically calculates the appropriate surcharge based on the transaction amount and adds it to the total.
To remain compliant, businesses must disclose the surcharge to customers before completing the transaction and offer an alternative payment method, such as cash or debit. This notice can be delivered via point-of-sale signage, on-screen payment prompts, or verbal communication from staff.
Surcharge programs are legal in most U.S. states, with Visa, Mastercard, American Express, and Discover supporting surcharge programs for most business types, though each has slightly different rules and requirements.
Currently, surcharge programs are prohibited in Connecticut and Massachusetts. Businesses operating in these locations should consult with their merchant services provider about compliant alternatives.
Card network requirements form the foundation of any compliant surcharge program. Major networks such as Visa and Mastercard dictate specific rules to ensure surcharges are applied transparently and consistently across all businesses.
Successful surcharge program implementation requires careful planning and execution across multiple phases.
Begin by verifying state regulations and card network requirements specific to your business type and location. Different industries may have additional considerations, and staying current with evolving regulations is essential.
Select a merchant services provider with demonstrated surcharge program expertise and a track record of successful implementations. RevUpX specializes in surcharge program implementation and offers comprehensive compliance support, staff training resources, and equipment compatibility needed for successful deployment. Ensure your chosen provider can work with your existing systems or provide necessary upgrades.
Configure your payment systems to accurately calculate and apply surcharges based on your specific processing rates and business requirements.
Ensure your systems and providers follow PCI DSS (Payment Card Industry Data Security Standard) requirements to protect cardholder data and maintain secure payment processing.
Establish effective disclosure mechanisms that clearly communicate surcharge information to customers and thoroughly test all transaction flows to ensure accuracy and compliance.
Train your staff thoroughly on program explanation, compliance requirements, and customer communication strategies. Install all required signage at appropriate locations and prepare comprehensive customer notification materials that clearly explain the program and its benefits.
Initiate program implementation by closely monitoring performance metrics, customer responses, and system functionality. Track customer acceptance rates, transaction patterns, and any operational challenges, making adjustments as needed to optimize results and maintain compliance.
Understanding how surcharge programs compare to other payment fee structures helps businesses make informed decisions about their payment processing strategy.
While surcharge programs add fees to credit card transactions, cash discount programs set prices at the credit card level and offer discounts for cash payments. These programs are legal in all 50 states, and customer perception is generally more favorable than that of surcharges.
These are typically flat fees applied for using specific, non-standard payment methods and are commonly used in entertainment and utility industries. Unlike surcharges, convenience fees don’t vary based on transaction amount and have different application rules.
Businesses considering surcharge programs often have similar questions about implementation and operation. Common topics include the following:
Customer communication strategies are crucial for success. Develop clear, consistent messaging that explains the program’s benefits and emphasizes customer choice in payment methods. Train staff to handle customer questions professionally and offer alternatives when concerns are expressed.
Technical implementation challenges can be minimized by working with experienced providers who understand system integration and can provide comprehensive support throughout the setup process.
Ongoing compliance maintenance requires regular reviews of program operation, staying current with regulatory changes, and ensuring continued adherence to card network requirements.
Integration with existing business systems should be seamless when working with qualified providers who can assess compatibility and provide necessary upgrades or modifications.
RevUpX helps businesses address common surcharge program concerns by providing expert support at every stage—from compliance and technical integration to customer communication. Its hands-on approach and deep industry expertise ensure a smooth, effective, and compliant implementation.
Surcharge programs provide a powerful solution for businesses looking to eliminate credit card processing fees while maintaining payment flexibility for customers. In fact, the total volume of card swipe fees has more than doubled over the past decade, making fee reduction strategies, such as surcharging, more critical than ever.
The key to success lies in understanding legal requirements, implementing compliant systems, and collaborating with an experienced merchant services provider, such as RevUpX, that can guide you through the process.
By following the step-by-step implementation guide and focusing on proper compliance and customer communication, businesses can successfully deploy surcharge programs that improve profitability without compromising customer satisfaction.
Contact RevUpX today to learn how our team can help you implement a compliant surcharge program that reduces costs and boosts profitability for your business.