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The process of surcharging allows you to pass on the cost of certain credit card fees to your customers. Because credit card fees often make up the fourth-biggest expense for a small business (behind rent, payroll, and cost of goods), this can be a great option to help you save some money each month. However, due to certain restrictions and regulations surrounding surcharging, it’s important to make sure you understand exactly how it works and talk to your processor to make sure you’re compliant. Otherwise, you can get hit with some nasty fines.

What is surcharging?

As stated above, surcharging allows you to pass on a portion of the costs of accepting credit cards to your customers. If, for instance, you pay 3% per month to process credit card transactions, you can add an additional 3% to any credit card purchase to cover that amount. You’ll still be responsible for paying your processor, but surcharging allows you to essentially collect that money from your customers and pass it on to your processor instead of having to eat the cost yourself.

If you implement a surcharging program, you can retain anywhere from 20-90% of your processing fees. On average, Gravity customers who use surcharging save between $200 and $800 a month, though some businesses with large credit card volumes save thousands.

Although many states and businesses have traditionally frowned on surcharging, the outbreak of COVID-19 has made it an increasingly enticing option for businesses who are struggling. Meanwhile, consumers are looking for ways to support their favorite small businesses and are increasingly willing to eat these additional costs for the chance to help out.

Challenges/Limitations

There are a few limits on surcharging you should be aware of:

  • It only works on credit cards: Prepaid cards or debit cards cannot be surcharged because the banks consider these to be cash.
  • It requires specific equipment: Only certain terminals or POS systems are set up to handle surcharging because the equipment needs to be able to recognize what type of card is being used. At present, Gravity only offers two or three terminals that meet these requirements. 
  • It can only be used in a card-present environment: You cannot surcharge on a card-not-present, online, or phone transaction.
  • There are no true flat rates: Because of the way we need to set up surcharging accounts, a handful of card brand fees will be passed through to you in addition to whatever flat rate we have set you up with. Because of this limitation on our end, it might be more difficult to determine how much you’re responsible for each month.
  • Statements are more complex: Your statements will not reflect which transactions have been surcharged and which have not, so reconciliation can be more difficult.
  • It reduces processor access: Because of the way we’re required to set up surcharged accounts, Gravity will have reduced ability to service your account. If you spot an error, it may take us longer to access the information we need to resolve it.
  • It can hurt your business’s reputation: Customers may feel like they’re being penalized for using a credit card, which could make them less likely to want to do business with you.

Rules/Regulations

If, despite these challenges, you want to move ahead with surcharging, you’ll need to abide by certain rules and regulations to stay compliant:

  • You’ll need to register with Mastercard and Visa, who require a 30-day waiting period before you can begin surcharging. If you work with Gravity as your processor, we will do this on your behalf.
  • You must verify that surcharging is legal in your state, as a handful of states still prohibit the practice. 
  • You must notify customers that you are surcharging by posting signage at the entrance to your business and near the POS or register. The sign must also include the percentage you’re surcharging.
  • Your surcharge fee cannot be greater than your effective processing rate and no more than 4%.
  • You must display the surcharging amount on the customer receipt (your device will do this automatically).
  • You cannot combine surcharging with any other offer, like a cash discount.
  • You may only add a surcharge to credit cards, not debit or prepaid cards.

If you want help setting up a surcharging program for your business or want to learn more about whether it’s a good choice for you, give us a call at 866-701-4700.

By Ashlie Blaske, Business Analyst, and Rhiannon Leonard, Vendor Communications Specialist

This post was adapted from “Credit Card Processing 101: What You Should Know About Surcharging,” part of the free Gravity Talks webinar program. For more information on past and upcoming webinars, visit www.gravitypayments.com/talks.

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