Surcharges on credit card transactions: What merchants need to know

Your business likely accepts many different payment methods, and the associated costs of each one can differ. Many businesses want a way to offset these fluctuating fees, which can be done through a process known as surcharging. 

Surcharging is when a business adds a fee to a customer’s credit card transaction to cover payment processing costs, such as interchange fees. 

In today's globalized economy, the legality and practices of surcharging vary significantly between countries. Card schemes impose their own rules too. Failure to comply with such rules could see you hit with fines, penalties, and processing restrictions. To avoid this, you should take the time to understand how passing on credit card fees to customers works.

Below, we examine how merchant surcharge rules vary around the world, the best practices for credit card surcharging, and how to decide when it’s appropriate to surcharge. 

Surcharge definition

A surcharge is an additional fee charged by merchants to customers on top of a credit card payment. It covers the associated costs that the business incurs for processing the credit card payment, such as interchange fees and payment processor fees, by passing it on to the customer. 

The amount businesses have to pay credit card companies and payment processors is usually a percentage of a credit card transaction’s value, which can add up over time. The percentage differs depending on the agreement between the merchant and payment processor. By adding a surcharge to transactions, businesses can offset up to 90% of these costs. 

Surcharging is legal in most US states, though some explicitly ban it and others have restrictions or rules that are open to interpretation. You may surcharge on both in-person and online payments as long as you let the customer know you’re doing so at checkout.

The European Economic Area (EEA) banned credit and debit card surcharges in 2018 as part of the Payment Services Directive 2 (PSD2), though it’s up to each country to decide how to apply the rules. Payments made using corporate cards are excluded from the ban. The UK also banned surcharging in 2018 and extended it to alternative payment methods (APMs) like PayPal. Surcharging is allowed in Australia and New Zealand.  

Best practices for surcharges

If you do wish to surcharge, you need to understand exactly what’s allowed in your region and by different card schemes. 

Typically, some best practices and things to note are:

• Surcharges can be applied to credit card payments but not debit or prepaid card payments
• The amount you surcharge must not exceed that of the merchant discount rate (MDR) - also known as the processing fee - or the maximum percentage allowed by the card scheme for that payment (whichever is lower)
• You must clearly inform the customer of the exact amount or percentage you’re surcharging at checkout, both online and in person. For ecommerce, that means you must notify the customer both at checkout and on the first webpage to reference which credit card brands are accepted 
• It must be clear that it’s you, the merchant, surcharging and not the card scheme (eg. Visa or Mastercard)
• Both the card scheme and your acquirer must be informed at least 30 days before announcing your intention to surcharge your customers or applying a surcharge to a transaction
• The same surcharge amount or percentage must be applied to card transactions regardless of which scheme they belong to. For example, you must not surcharge a lower amount on Mastercard than Amex payments
• However, you are allowed to surcharge cards from one card scheme and not another 
• Customers must be given the option to opt out of the transaction, without penalty, if they don’t wish to pay the surcharge 

These are just some of the most important rules and best practices to follow as a merchant if you’re planning to surcharge. Before you start, you should take the time to understand local laws and card scheme rules to ensure you aren’t penalized or fined.

Surcharge vs convenience fee

A surcharge and a convenience fee are similar, because both allow you to offset the cost of payment processing, but are not synonymous. 

You charge a convenience fee to customers when they use an APM that’s not standard for your business - for example, if you don’t typically take credit cards. The idea is to disincentivize the customer from paying with a method that could cost you more in fees, hence they’re paying for the convenience of using their credit card.

When it comes to the key differences between surcharge and convenience fees, convenience fees are legal in every US state, whereas surcharging is not. Beyond that, the rules vary from one card scheme to another. 

Visa stipulates that a convenience fee must be a flat rate for convenience fees, whereas a surcharge can be a percentage. Visa also bans charging a convenience fee for ongoing payments like subscriptions or installments.

Mastercard only allows pre-certified government agencies, educational institutions, and their third-party agents to charge convenience fees, which is not a rule applied to surcharges. 

Amex stipulates that merchants can incentivize non-credit card payments as long as they clearly disclose this to the consumer and apply their rules equally to all customers and issuers. 

Laws about surcharges in the US

As mentioned previously, surcharging is allowed in most US states, with varying rules and subject to specific card scheme conditions. 

These rules mostly relate to disclosure of surcharging, the amount you can surcharge, and the circumstances in which surcharging is acceptable. 

As of 2024, the following states have banned or imposed restrictions on surcharging:

• California - surcharging is banned, but a 2018 federal court decision ruled that this could not be enforced. However, as of July 1, 2024, it’s illegal for restaurants to surcharge without clearly advertising the additional cost
• Connecticut - surcharging for one payment type and not another is banned. However, merchants can offer discounts to incentivize payments using non-credit card-related payment methods
• Florida - prohibits surcharging, but this has been deemed unconstitutional by federal courts, meaning it’s effectively unenforceable
• Kansas - surcharging is illegal but, again, is considered unenforceable because the ban was ruled unconstitutional. However, merchants must clearly identify the surcharge amount in their prices
• Maine - surcharging is illegal and the law is enforced 
• Massachusetts - a surcharging ban is enforced but merchants can offer discounts for non-card payments
• Oklahoma - surcharging is illegal but the ban has been ruled unconstitutional. There are strict disclosure requirements
• New York - has recently introduced strict rules on the disclosure of surcharges 
• Texas - only local governments and some private schools can surcharge, though the blanket ban on other merchants is considered unenforceable 

It’s worth noting that there’s an ongoing legal debate over the right to surcharge that’s currently playing out in US courts. The disagreement is rooted in a 2005 class action lawsuit alleging that Visa and Mastercard charged excessive swipe fees to merchants in violation of antitrust laws. 

In March 2024, the card schemes reached a $30bn settlement that would lower and cap fees and allow small businesses to collectively negotiate rates with payment processors. However, the National Retail Federation opposed the settlement and Judge Margo Brodie ruled that it did not treat large and small merchants equitably because the latter stood to benefit more from the low rates and cap. The case will now go to trial. 

Debit card fees are already capped in the US by the Durbin Amendment, though some financial institutions oppose the legislation. 

Mastercard surcharge rules in the US

In states where it’s legal, surcharging on Mastercard credit card payments in the US is allowed up to a maximum of 4%. You cannot surcharge on Mastercard debit or prepaid cards. 

On Mastercard credit cards, you can apply either a brand or product-level surcharge. A brand level surcharge charges the same amount on all Mastercard cards. A product-level surcharge is charged to a particular Mastercard credit product. 

You must clearly disclose the surcharge “at the point of interaction” and specify the amount of the surcharge on the customer’s receipt. 

Visa surcharge rules in the US

To surcharge Visa cards, you must notify your acquirer at least 30 days in advance of your first surcharge. The rules are similar to Mastercard, in that you may only surcharge on credit cards, and the amount you can surcharge is limited. Visa caps the surcharge amount at 3% or no greater than the MDR, whichever is lower. 

You must clearly disclose the surcharge as a merchant (rather than a scheme) fee and notify the customer that you’re surcharging at different stages – point of entry, point of sale, or transaction, and on every receipt.

Visa can levy charges of $1,000 on any merchant found to be improperly surcharging. 

Surcharge rules around the world

Wherever your business is based, you should be aware of how financial regulations differ between countries. This is especially true if you trade internationally. For example, if you’re a US merchant, but you process cards from EEA customers, you need to check if you’re bound by the region’s surcharging rules. 

Surcharges in the EEA

The EEA banned surcharging in 2018 under the PSD2. The ban applies in cases where the cardholder’s bank or issuer and the merchant’s payment provider are both based in the EEA. It also applies to payments in Euros made using direct debit or credit transfer. 

If the business’s bank or card issuer and payment provider are located in the EEA, this ban also applies to business-to-business (B2B) payments made in Euros using debit or credit transfers (but not to corporate credit or debit cards). 

However, if the merchant’s payment services provider (PSP) is not based in the EEA, they may apply a surcharge to an EEA consumer, as long as the amount does not exceed costs incurred by the merchant. The same applies if an EEA merchant is taking a payment from a non-EEA consumer. 

If surcharging in the EEA, you must clearly communicate the amount, and the cardholder must agree to it, before initiating the transaction.

Learn more: PSD2: Everything US businesses need to know

Surcharges in the UK

The UK also banned credit card surcharges in 2018 and included APMs like PayPal in its legislation.

The rules apply to all payments, whether online or in-person, and businesses of all sizes. As with the EEA, the ban does not apply to corporate cards. 

If either the merchant or consumer’s PSP is not based in the EEA, the ban does not apply.  

Surcharging in APAC

In Australia, surcharging is permitted, provided it’s no more than the cost of accepting that payment type for the business. The amount that a business can surcharge is also limited by the size of the business, and the payment method and technology used. As the merchant, you must be able to demonstrate how you have arrived at the surcharge amount.

This excessive surcharge limit doesn’t apply for payments made using BPAY, PayPal, Diners Club, Amex, and for taxi fares.

New Zealand also allows surcharging. 

How to decide whether or not to add a surcharge

To surcharge or not? Aside from whether it’s legal for you to do so, many factors could play into your decision. 

In favor of surcharging is that it prevents the interchange fee from taking a significant bite out of your bottom line over time. Although the interchange fee is only small, it can certainly add up in the long term. 

The main arguments against surcharging relate to customer experience. Is it worth adding an additional fee to a customer’s payment to recoup a small percentage of the cost if it might dissuade them from shopping with you in the future?

Your decision could come down to what your competitors are doing - if they’re surcharging, why shouldn’t you? However, you could also consider that not surcharging could be a key point of difference between you and a competitor when a customer is deciding who to buy from. 

To make a more informed decision, you could incorporate the above considerations into an equation. Calculate the value of sales lost to price competition versus an off-putting consumer experience. 

Many ecommerce merchants do not surcharge unless it’s common practice within their industry. If you’re an online business, a better idea might be to simply offer a wider range of payment options at checkout. That way your customers are more likely to be able to pay using their preferred method, which may not fall under the scope of surcharging. 

Implement surcharges on payments with Checkout.com

As a Checkout.com merchant, you’re allowed to add surcharges to your payments, as long as they’re in the US. It’s up to you to set the surcharge amount for each transaction and manage the program in a manner that’s compliant with local laws, regulations, and card scheme rules.

Alternatively, if you're looking to enhance the customer experience while reducing processing costs, offering multiple payment options alongside a strategic surcharge program can be a win-win. This approach allows customers to choose the best payment method for them, boosting loyalty, maximizing transaction value, and helping you stay competitive. We offer a variety of popular payment methods, and our experts can help design a payment strategy that benefits both you and your customers.