Why Your Business Doesn’t Have to Pay Credit Card Fees Anymore (And Probably Shouldn’t)
Why absorb the cost of credit card payments when you don’t have to?
For business owners, every penny counts. Yet many continue to pay hefty fees—sometimes as much as 4%—just to accept credit card payments. If you’re one of them, it’s time to know that there’s a cost-free way to pass those fees on to your customers.
Thanks to recent regulatory changes, businesses can now post a single price and add a small surcharge when customers opt to pay with a credit card. This means, if you sell a product for $100, you get $100—no hidden fees. It’s a win-win for both businesses and consumers alike.
How Surcharging Works
Back in 2013, new rules allowed businesses in the U.S. to do what many institutions—like universities and government agencies—had been doing for years: pass on credit card fees when customers choose the convenience or rewards of paying with a credit card. This month, the U.S. Ninth Circuit Court of Appeals ruled California’s ban on credit card surcharges unconstitutional, signaling a nationwide shift toward this practice.
Credit card fees have become one of the fastest-growing costs for businesses. In fact, between 2005 and 2009, the cost of many rewards cards increased by 24%, according to the Government Accountability Office. Meanwhile, countries that allowed merchants to pass on the fee saw those costs decrease.
For far too long, credit card issuers have been shielded from market forces due to bans on surcharging. But now that consumers are more aware of the cost, they can make informed decisions about how they pay. This shift creates competition for card companies, ultimately putting downward pressure on credit card fees.
Why This Matters for Your Business
For businesses with slim profit margins, these fees can eat into profits quickly. A 3% fee on credit card transactions can be significant, especially when margins are in the single digits. What’s more, businesses that inflate prices to cover these fees end up passing the extra cost onto cash and debit card users—who pay more than $1,100 extra annually, according to a study by the Federal Reserve Bank of Boston.
Passing on the credit card fee allows small- and medium-sized businesses to accept credit cards without losing profits. It also helps level the playing field for businesses that previously avoided credit card payments because of the high fees.
Finding the Right Partner
To successfully implement a credit card surcharge, you’ll need to work with a compliant payment provider. These experts will help ensure that your business follows the rules set by credit card companies like Visa and MasterCard, so you don’t have to worry about compliance.
Look for providers who offer a turnkey solution that helps your business stay compliant without locking you into a long-term contract. They should provide documentation showing they’re fully compliant and able to guide you through the setup, including notifying card brands and your bank. Be sure to ask for this compliance documentation, and don’t settle for a provider that can’t produce it.
Another important consideration: No surcharge can be applied to debit card payments. Make sure your provider understands this rule and gives customers the option to pay with debit cards at no additional cost.
The Benefits of Surcharging
Introducing a surcharge doesn’t add friction to the checkout process. It’s straightforward: for example, you can display a price of “$10, with a 3.5% surcharge for credit card payments.”
If your business has already factored credit card fees into your pricing, surcharging allows you to lower your prices across the board and become more competitive.
By passing the cost of credit card fees on to customers, businesses can reduce costs, increase transparency, and create a fairer payments system for everyone.