The Hidden Costs of Credit Card Surcharging

A surcharge is more complicated than just slapping a fee on a card transaction. For one thing, it’s fraught with myriad compliance and consumer issues. That doesn’t mean there won’t be more of it.

Merchant surcharging on credit card transactions is nothing new, but the practice has become more widespread in recent years. The reasons vary, including merchants’ search for ways to offset card-acceptance costs and the onset of higher operating expenses that squeeze profit margins.

In 2025, 34% of merchants added surcharges on credit card transactions, according to JD Power, which surveyed 3,841 small businesses. The study also found that flat-rate pricing lends impetus to merchants looking to add surcharges on credit card transactions. And new and small merchants are more likely to pass along processing costs to their customers through surcharges.

Visa Inc. and Mastercard Inc. argue surcharging degrades the customer experience, but they acknowledge it is permissible in some U.S. jurisdictions to levy the fees, which in turn provides merchants in those states the rationale to surcharge.

The pathway to surcharging was poised to widen further late last year when the card networks offered a provision to allow surcharging as part of a settlement gambit in their ongoing legal dispute with merchants over swipe fees. Visa and Mastercard propose a cap of 3% on the levies and offer to amend their rules to allow for merchant surcharging.

That’s up quite a bit from a previous offer, in which the networks capped surcharges at 1%. That offer was rejected in June 2024 by Judge Margo Brody, who was overseeing the case. The latest offer reportedly addresses Brody’s concerns with the prior offer, including the surcharging provision.

While the latest settlement offer is pending approval, experts say the fact Visa and Mastercard have again included a surcharging provision indicates they see the practice as part of the cost of settling seemingly endless litigation over swipe fees while insulating themselves against future lawsuits over acceptance costs, payments experts say. Merchants define swipe fees as interchange and network fees.

“Permitting surcharging is part of the price of the settlement that will end U.S. merchants’ decades-long antitrust lawsuit over interchange fees and acceptance rules,” says Eric Grover, principal at Intrepid Ventures, a Minden, Nev.-based consultancy. He adds that “under the settlement, surcharging will be easier and more merchants will surcharge.”

The inclusion of the surcharging provision is not so much a negotiation over merchants’ right to surcharge as it is a way for the networks to secure “immunity” against future antitrust litigation and legislation, says Carter Dougherty, senior fellow for anti-monopoly and finance at Demand Progress, a consumer-advocacy group that has closely followed merchants’ legal battle over swipe fees.

“The networks are not opposed to allowing surcharging and providing merchants interchange breaks if it helps freeze much of the status quo in place,” Dougherty says. “Getting a legal settlement is something [the card networks] can point to and say to Congress that the system works and there is no need for legislation.” Visa and Mastercard did not respond to inquiries for this story.

‘A Lot of Complications’

With the stage set for wider adoption of surcharging, the key questions facing merchants are: what are the challenges they face in implementing surcharges at the point of sale, and how well prepared are processors to support surcharging and ensure compliance with state and card-network guidelines?

In the past year, several processors have rolled out apps that support surcharging and enable different rates for different types of cards. For merchants, the ability to set surcharges by card type—for example, standard, premium or commercial— offers greater flexibility, as opposed to levying a blanket surcharge for all card types.

Product-level surcharging also allows merchants to surcharge more fairly, as some types of cards, such as rewards and commercial cards, are more expensive to accept than others, says Nagendra Jayanty, chief executive of InterPayments, a San Francisco-based provider of managed surcharging technology.

“With product-level surcharging, which is a recent development, there is less subsidization, and merchants can surcharge more accurately as opposed to just surcharging at the brand level, which is what most merchants that surcharge do now,” Jayanty says.

InterPayments last year launched a product-level surcharging service for merchants. The service was developed in response to merchants’ needs, the company says.

The new service calculates in real time the merchant’s acceptance costs for a card being used to pay for a purchase. InterPayments guarantees compliance with more than 70 U.S. and Canadian jurisdictions that govern surcharging, with full indemnification.

“Surcharging is more than just slapping a fee on a credit card transaction, as there are a lot of complications around the practice,” says Jayanty. “Each network has its own rules, as do a variety of states.” These rules, he says, “have to be adjudicated in seconds.”

Transparency Will Be Critical

The variety of state laws around surcharging have made compliance a huge issue for merchants. While most states allow the practice, some, such as California, Colorado, New York, and Oklahoma, have laws governing the practice. These rules can address such matters as full disclosure of the surcharge to consumers prior to the purchase. Other states, including Connecticut, Maine, and Massachusetts, prohibit surcharging outright.

“Merchants must navigate a combination of state laws, card-brand rules, signage requirements, refund obligations, and customer-disclosure standards,” says Randy Modos president and cofounder of PayJunction, a provider of credit card surcharging software. “Even small missteps, such as surcharging a debit card or failing to disclose a fee clearly, can result in penalties or customer complaints.”

From a technical standpoint, the complexity of surcharges increases when they are applied selectively, such as by department, location, or transaction type, Modos adds.

“Processors play an important role in simplifying this process by providing tools that automate compliance and help merchants deliver a consistent, transparent customer experience,” he says. “If not handled carefully, surcharging can lead to customer dissatisfaction or draw unwanted attention from regulators.”

The ability to levy surcharges on specific card products is crucial, as the latest settlement offer from Visa and Mastercard rewrites their honor-all-cards rule, which requires merchants either to accept all cards issued on the network or none. The ability to choose which cards they accept allows merchants to pick and choose on which cards they will surcharge, such as rewards cards.

“Until this settlement offer, merchants had to accept any Mastercard or Visa card, be it a debit card, a no-frills credit card, a commercial card, or an ultra-high-end card with a rich loyalty program attached to it. Since those cards have different pricing levels, the merchant was forced to sacrifice margin on the high-value cards, and they could not differentiate the different card types in their acceptance or pricing policies,” says Thad Peterson, a strategic advisor for Datos Insights, in a blog post.

“This settlement offer,” he adds, “lets them add surcharges for higher-cost card offerings (up to 3%) and even refuse to accept them if they wish. Card issuers will also have to identify the type of card the customer is using on their plastic so that consumers and workers can identify them at the point of sale.”

Transparency regarding merchants’ surcharge policies, however, will be critical, Peterson adds. “The consumer needs to understand the rationale for why a surcharge is levied or a card is not accepted,” says Peterson. “If the customer does not understand the why, it could cost the merchant a sale, as well as a customer.”

Sinking Scores

A poll commissioned by American Express Co. last September revealed 73% of respondents said that, if asked to pay a credit card surcharge, they are likely to make the purchase from a merchant that does not surcharge. AmEx surveyed 1,934 U.S. credit card users.

While just over one-third of businesses in the U.S. surcharge, additional research from J.D. Power reveals that, when credit card holders are levied a surcharge, satisfaction scores drop 39 points, to 602 on a 1,000-point scale. That’s compared to consumers who have not been surcharged.

“Surcharging disregards the benefits to merchants that credit cards provide in attracting customers, providing payment convenience, reducing cash-handling, streamlining payments processes, and providing significant fraud and dispute protections,” argues an AmEx spokesperson.

“We believe surcharging harms merchants in the long run,” the spokesperson continues, “as consumers will choose to patronize businesses that do not surcharge. Surcharging on credit cards unfairly increases prices for customers who prefer to use credit cards for reasons including convenience, rewards, payment flexibility, and/or access to credit.”

While AmEx allows surcharging on its network, it has specific guidelines requiring merchants to levy the same surcharge on all card brands accepted, not just AmEx.

One cardholder segment that may not be as sensitive to surcharging is commercial card holders. InterPayments’ Jayanty recalls how a large business supplier that was losing trade from customers experiencing cash-flow issues during the Covid 19 pandemic added commercial card acceptance to help capture more transactions. The supplier levied a surcharge on card transactions to offset acceptance costs. Despite the surcharge, the move helped the supplier capture more transactions, according to Jayanty.

“A lot of businesses float a large part of their expenses on commercial cards, and they are okay with a surcharge as long as it is transparent so they can properly manage their expenses,” says Jayanty.

Cardholder Backlash

Despite the technological advances that make surcharging a more exact process, payments experts agree it is a high-risk practice that can negatively impact merchants, the card networks, and card issuers. While merchants that surcharge risk losing business, Visa and Mastercard could face pressure to lower network and interchange fees as consumers become educated about card-acceptance costs from merchants that surcharge, says John Cabell, managing director, payment intelligence for JD Power.

“As surcharging becomes more transparent, it will shine the light on card- acceptance fees, and there could be cardholder backlash toward the networks to lower those fees,” Cabell says.

Cabell also points out that if consumers opt to embrace alternative payment methods to avoid surcharges, credit card usage could decline so much that premium card issuers may scale back their rewards, as they will not be earning enough interchange revenue to finance the rewards they currently offer.

“There is a perception [among merchants] that consumers will accept additional fees as they do in other industries, such as resort fees at hotels, but it can also go too far,” Cabell says. That is especially true if consumers start to view surcharges as a way for merchants to pad their bank accounts, he adds.