Credit card surcharging has evolved, and it’s worth considering.
Surcharge Definition:
A surcharge is an additional charge a merchant places on top of a credit card purchase to help cover the merchant’s credit card processing fees.
The benefits of surcharging are obvious: credit card processing fees can be a top expense for businesses, and surcharging allows them to offset these fees.
However, to do so properly requires compliance with rules that are sometimes contradictory.
The risks for non-compliance should not be ignored … but they can be overcome with the right expertise and technology.
The Risks:
A merchant who violates the credit card surcharging rules can potentially have its merchant account locked, and be prohibited from taking credit card payments going forward. Thus, it’s crucial that you familiarize yourself with the rules (and any local laws), and comply fully.
In addition to potential legal roadblocks, many consumers have a negative view of surcharging. But for some merchants in states that allow it, the benefit of recuperating merchant service fees through surcharging can outweigh the bad publicity.
Verisave can help. We are merchant account experts and consultants. We work with the processor you already have, as well as surcharging technology partners, to ensure your surcharging is done properly.
Knowing the rules:
In the U.S., businesses must follow specific rules when implementing credit card surcharges to avoid legal or regulatory issues. Here’s a summary of the key guidelines:
State Laws Vary:
- Some states prohibit credit card surcharges altogether (e.g., California, New York, and Texas), while others allow them under certain conditions.
- In states where surcharges are permitted, the amount that can be added may be regulated, often limited to a certain percentage of the transaction (commonly 2–3%).
Disclosure Requirements:
- Businesses must clearly disclose the surcharge before the transaction is completed. This could be on the receipt, website, or at the point of sale.
- Customers must be informed about the surcharge rate (e.g., “a 2% fee applies to credit card payments”).
Surcharge Limitations:
- The surcharge cannot exceed the business’s cost of processing the credit card payment (typically capped at 2–3% of the total purchase price).
- It must apply only to credit card transactions, not debit cards or other forms of payment.
Card Network Rules:
- Major card networks like Visa, MasterCard, and American Express have their own specific rules. For example, Visa and MasterCard allow surcharges, but the business must comply with their guidelines, which can include registering the surcharge with the card network.
- American Express has additional restrictions, and surcharges may not always be allowed depending on the type of transaction.
- Catch-22: Visa and Mastercard require surcharging be applied to all cards equally, meaning one must also surcharge American Express. However, American Express requires that one surcharge all card transactions including debit…which is not permitted. Compliance with conflicting rules requires a much more sophisticated solution.
No Surcharging for Debit Cards:
- Surcharges should not be applied to debit card transactions, even if the debit card is processed as a credit card through a signature.
Clear Communication:
- Businesses must provide clear and easy-to-understand notifications about the surcharge and the final price before the consumer finalizes the payment.
It’s important for businesses to research and stay up-to-date on both federal and state laws, as well as the specific rules of the payment processors they use.
Violating these rules can result in fines, penalties, or losing the ability to process card payments.
Properly implementing a surcharging program:
In its current state, proper surcharging requires a technology solution.
In order for your payments stack to navigate the various rules on-the-fly and apply surcharging properly (and only where appropriate), you will need to integrate with a system capable of doing so.
Some processors claim to have this technology built-in, but beware: many of them are inadequate, and apply blanket surcharges that can be non-compliant.
In most cases, a dedicated third-party solution is the best and safest option.
Some of the advantages include:
- Customization: choose the best surcharge amount for your business
- Customer Exemptions: exempt certain clients from being assessed a surcharge
- Card Type Exemptions: prevent certain card types from being assessed a surcharge
- Automated Surcharge Management: ensure 100% compliance with the surcharging rules
- Risk Management: many third-party solutions place the risk on the technology provider, so that you are protected from any liability
Verisave can help you identify the best solution for your payments stack and transaction mix.
Optimize your fees before you surcharge:
Whether or not you decide that surcharging is a good fit for your business, it’s always a good idea to optimize your merchant account to ensure the processing fees are being calculated correctly (most merchants are being overcharged due to constant rate updates within the industry).
And if you DO chose to surcharge, your customers will benefit from these lower fees.
Verisave can conduct an independent third-party audit of your merchant account to pinpoint setup areas that need to be adjusted. Without any time investment, disruption, risk, or upfront fees, we can easily bring 10%-30% of your credit card processing fees back to your bottom line.
Strategy
We dissect and analyze every fee on your merchant account to find all viable savings tactics, re-classifications, and hidden discounts.
Optimization
We apply these tactics to your existing merchant account, implementing all savings for you. We do all of the work.
Monitoring
We monitor the account every month to ensure your fees do not increase over time, and that any annual rate updates are minimized or avoided.
Is surcharging right for your business? Let us help you identify the best solution.
Verisave is a third-party firm specializing in merchant account setup, payments stack optimization, and credit card processing fees.
There are many ways to reduce processing fees, and surcharging is one option.
Surcharging is not a great fit for everyone.
Verisave can help you identify whether surcharging would be a good fit for your business, identify surcharging trends within your industry, and ensure you are surcharging properly on each and every transaction.