Will Visa Follow Through on Lowering Its Credit Card Surcharge Cap in April?

Visa Inc. may be readying a lower cap on credit card surcharges—moving from 4% to 3%—in April, but there’s no guarantee it will happen then.

While a bulletin sent to large acquirers says the change to the brand rules will go into effect April 15, its implementation could be delayed, says Jonathan Razi, chief product officer at Stax Payments, an Orlando, Fla.-based payments provider. Stax acquired Razi’s former company, CardX LLC, a surcharging specialist, in 2021. Surcharging, capped at 4% of the transaction by both Visa and Mastercard Inc., is meant to help merchants recoup their payment-processing costs for credit cards.

“Visa sent a bulletin to the large acquirers stating that Visa will change their brand rules to set the maximum surcharge at 3%. According to the bulletin, this new rule will go into effect on April 15th, 2023,” Razi tells Digital Transactions in an email. Visa did not respond to a Digital Transactions News inquiry. A Mastercard Inc. spokesperson says there is no change to its surcharging rules. The surcharge is limited to the credit card cost of acceptance, but cannot exceed 4%. “That said, the actual cost of acceptance is typically lower than 4 percent,” the spokesperson says in an email to Digital Transactions News.

Razi says his observations suggest the April 15 deadline may not be a rigid one. “Some of our acquiring partners are directly engaged with Visa on this and are discussing implementation timing,” Razi says. “It’s possible the change goes forward on April 15th, but it’s also possible the implementation may be delayed. Consider that many merchants have signage in their store locations, invoices they send to customers, or online checkout flows that display a higher surcharge rate—all of which will need to be updated.”

Surcharging on credit card transactions is allowed in all but two states, Connecticut and Massachusetts. Colorado was among the latest to lift its prohibition, albeit with some consumer protections in place. The Rocky Mountain state caps interchange at 2% of the transaction amount or the merchant’s actual cost of the transaction, mandates disclosure of the surcharge, and prohibits surcharging on debit cards. No card brand allows surcharging on debit cards.

Credit card surcharging’s origins lie in litigation merchants brought against the major card brands over their interchange rates. Surcharging was first allowed in 2013 following a 2012 settlement on credit card interchange. At that time, a plaintiff in the litigation and the National Retail Federation suggested no merchants intended to add surcharges to their credit card transactions.

Now, however, surcharging is common enough to have become an annoyance for some consumers. Indeed, they may find it annoying enough, says Brian Riley, director of credit at Javelin Strategy & Research, a part of Livonia, Mich.-based Escalent, to consider shopping at a merchant that does not assess the fee.

“From the merchant’s perspective, it helps defray some of the costs,” Riley says. Though merchants may not like the lower cap, should it be implemented, Riley doubts the move will have a big impact on acceptance. “Will it force some merchants not to accept Visa? I doubt it. Will Visa backpedal? I don’t know.”

Similarly, Austin Mac Nab, founder and chief executive of Waukee, Iowa-based payments provider VizyPay LLC, foresees little impact from the lower cap. “The impact will be minimal,” Mac Nab says. “Our job is to ensure business owners follow the guidelines set forth by Visa. Plus, most of our clients decide to do CDP 2.0.” CDP 2.0 is VizyPay’s cash discount program. Mac Nab says fewer than 3% of VizyPay’s active clients assess a surcharge.

For merchants, the impact is that the lower cap still enables them to save money on their credit card transaction fees, Mac Nab says.

“Industry participants and surcharging providers are planning for this change with three goals in mind,” Razi says. “First, they want to maintain a fully compliant solution and incorporate any change required by new rules. Second, they want to deliver strong savings to merchants using surcharging. And, third, they want to realize appropriate margin, corresponding to the value they are providing, in order to support their operations.”

Razi says two aspects remain clear about surcharging. “In this economic environment, with many merchants facing slower growth, saving up to 3% on transaction fees continues to be material. And, as surcharging matures in the market, we will see even more dialogue about what best practices are in this space.”