About a third of all merchants are adding surcharges for customer purchases made with credit cards, J.D. Power reported in January. And even though customers aren’t happy to see those surcharges, most merchants adding them view them as a long-term solution.
“Small business owners are under pressure from both technological and economic perspectives, and as they continue to expand the number and type of payment options they accept, many are seeking more support and guidance from their merchant services providers and passing along their processing costs to customers,” says John Cabell, managing director of payments intelligence at J.D. Power. “And customers are paying attention. Many retail customers — specifically 41% of credit card users — say they decided not to use a card payment method at a large or small business because of a surcharge.”
It's a conundrum for heavy-duty business owners with tight margins. The charge would help them recoup some expenses related to card usage, yes, but it may also alienate customers in what is a relationship-based business.
Why now?
In 2024, U.S. credit card companies earned about $148.5 billion from swipe fees ranging from 1.10% to 3.15% per transaction, the Motley Fool says.
“Let’s be frank: Credit card processors make money on those surcharges,” Phil Acree, vice presidents of payments at Fullbay says. “Shops are in a tough position already; they’re seeing more customers who want to use digital payments because it gives them more control over when money is actually removed from their account, simplifying their cash flow, which can be tight for many fleets. So the shops want to work with their customers and take those payments, but it can be a little too easy for the owner to think, ‘If they want to use a card, they can pay the fee!’ In other words, it becomes easy to pick on card payments.”
Consumers are overwhelmingly using more credit cards as payment. Capital One reported earlier this year cash is used in just 11% of in-store transactions in the U.S. More than 80% of consumers prefer to swipe a card. That’s led more merchants to pass the processing fee along to consumers — or to hike prices.
Sometimes, Javelin Strategy and Research Analyst Craig Lancaster says, it’s not possible for a business to hike prices, so a surcharge is their only avenue for increasing revenue. A bookseller Lancaster visited recently announced a flat fee for credit card transactions. The price of books is baked into the barcode, preventing the business owner from raising prices, and the owner communicated her need clearly to her customers.
“Just raising the price isn’t really feasible for whatever reason,” he says. But with that said, “I still think it’s a bad idea. It puts your cost of doing business in front of your patrons and says, ‘This is your problem.’ That’s a bad message to send.”
Does it make a difference?
Karmak says heavy-duty businesses are trying to protect their margins. The company says it began seeing more interest in surcharges in 2022 and eventually added automated surcharging to its Fusion product.
“The rise in credit card surcharges is largely a response to increasing processing fees and tightening margins,” says Beth Baker, Karmak’s director of product management. “As more states have clarified regulations around surcharging, businesses are now able to recover some of these costs.”
Baker says many clients were adding surcharges manually, but the process was prone to error. Some companies uncovered more than $1 million in lost revenue annually due to inconsistent fee recovery, she says.
CDK also has a solution for surcharging, launching CDK SimplePay at this year’s American Truck Dealers (ATD) conference. Procede's Excede offers payments processing as well as integration with software that allows for surcharging.
And the surcharges appear to be changing behavior.
“While it’s too early for definitive data, there has been a noticeable increase in alternative payment methods like ACH, debit cards and eChecks, which suggests some heavy truck customers are adjusting their payment behavior to avoid surcharges,” says Tom Cunningham, director of payments marketing at CDK.
Among Karmak customers, adoption among merchants is growing, the company says, particularly with high-volume businesses that process large numbers of credit card transactions.
Are there other options?
Fullbay is an outlier. About half of its customers have asked for a surcharge to cover the cost of the card swipe, and the company advises them not to do it.
“Your customers want to use their preferred payment method, and they want to do it quickly and without a fee,” Acree says. “If you want your customers to willingly spend their money with you, you’ve got to make it easy for them to do so. That means cutting down on friction.”
Instead, he says businesses should look at their expenses and work to make themselves whole by considering raising labor rates and other charges. Acree says customers tend to see surcharges as a business nickel-and-diming them, and points to an American Bankers Association survey that found two-thirds of consumers would be less likely to patronize a retailer if a surcharge was added.
“They don’t want to feel like they’re being punished for spending money,” Acree says. “So if a shop charges a higher rate to offset the surcharge fee and then does not take on the surcharge, the customers will likely feel much, much better about things.”
Lancaster agrees.
“It’s risky, risky behavior,” he says. “If you’ve really considered all the alternatives and all the implications, study your card network agreements.”
What about the agreements?
Litigation in the early 2000s means, by and large, surcharges don’t violate card network agreements or state or federal laws. However, there are some states where surcharges remain illegal and there are rules around what kinds of cards can incur a surcharge.
“Surcharges are governed by a mix of federal, state and card brand regulations,” Cunningham says. “Dealers must notify card brands at least 30 days in advance and surcharge limits will vary by card type and jurisdiction. Non-compliance can result in penalties, so it’s essential dealers have a compliant software solution in place.”
Lancaster says businesses also must have clear signage at the point of sale and when people walk in, and to make sure they’re charging the fees according to their network agreements. He says violations do get back to the networks and that can result in fines or even end in a business not being able to accept card payments.
“Surcharges are governed by both card network rules and state regulations,” Baker says. “Businesses should verify compliance, which may include notifying card associations and providing clear, advance disclosure to customers. Open, proactive communication — explaining the reasons for the fee and offering alternative payment methods — helps maintain trust.”
