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Small-business owners who accept card payments for goods or services know that offering choice on how their customers pay comes at a cost. Credit card processing fees can add up quickly. According to data released by the Nilson Report in March 2023, merchants paid $126.35 billion in processing fees to accept credit card payments in 2022 — an increase of 20.2% compared with 2021.
Business owners may want to explore their options for legally offsetting credit card fees. Passing on credit card fees to customers is certainly not something every small-business owner feels comfortable doing, but if you are curious about your options, read on to learn about credit card surcharging and cash discounting.
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If passing on credit card fees to your customers doesn’t feel right for your business, consider shopping around for a more cost-effective payment processor.
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National Processing
National Processing
NerdWallet Rating
5.0
Options for passing on credit card fees to customers
Before deciding whether passing on credit card fees to your customers is the right move for your business, consider your options for doing so and the pros and cons for each.
Credit card surcharging
Credit card surcharging enables a business to charge an additional fee (up to a maximum of 4% of the total transaction) when a customer pays with a credit card. This is meant to cover the cost of the processing fees for the business.
This practice is legal in all but four states — Connecticut, Maine, Massachusetts and Oklahoma — additionally, Colorado caps the surcharge fee at 2%. It is also important to note that surcharging is not allowed for debit cards, even when they are run as a credit transaction. Businesses that plan to add a surcharge to card payments must follow a specific set of rules laid out by the major card networks, notably Visa and Mastercard. One such rule states that any business that plans to add a surcharge must notify the card network in writing at least 30 days before beginning to surcharge.
If you’re considering adding a surcharge for customers who pay by card, know that card networks generally frown upon this practice as it can deter customers from using their credit cards. You’ll likely also want to give consideration to your customer base and how they may react to seeing an additional fee at checkout. It may be useful to first look into whether your competitors surcharge credit card payments and perhaps gather some feedback from your trusted customers on how they may react to it.
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Cash discounting
Cash discounting, sometimes referred to as dual pricing, is another option available to business owners who wish to minimize the impact of credit card processing fees on their bottom line. Instead of adding a fee for card payments, businesses that offer a cash discount advertise both the full cost of a good or service (or the amount owed if purchased with a card) and a discounted price available to customers who pay with cash.
Unlike credit card surcharging, cash discounting is legal in all 50 states. But like surcharging, there are specific rules you must follow to offer a cash discount program in a legal manner. For example, a compliant cash discounting program necessitates that you clearly list the credit card price for all your customers to see before the point of purchase; you cannot list only the cash price and then surprise customers with a higher card price at the time of transaction. Again, it will be important to take into consideration your customers’ likely reaction to a program like this before implementing it.
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Payment processors with solutions for passing on credit card fees
| Product | Payment processing fees | Monthly fee | Learn more |
|---|---|---|---|
National Processing NerdWallet Rating 5.0 Learn more on National Processing's website | 0%-1.5% + 0¢-48¢ for Basic In-Person Package. | $10 for Basic In-Person Package. | Learn more on National Processing's website |
CardX Learn more on CardX's website | 0% for credit cards; 2.91% for debit cards. | $35 for in-person terminal; $29 for virtual terminal. | Learn more on CardX's website |
Dharma Merchant Services NerdWallet Rating 4.5 Read Review | 0.15% + 8¢ plus interchange in-person; 0.20% + 11¢ plus interchange online. | $15 for most industries; $12 for nonprofits. | Read Review |
Increasingly, payment processors are offering compliant solutions for credit card surcharging and cash discounting. Here are several such processors that also make NerdWallet’s lists of Best Payment Processing Companies, Best Credit Card Processing Companies and Best Merchant Services.
Dharma Merchant Services
Solution type: Credit card surcharging
Monthly fee: $25 per month for MX Advantage, which enables surcharging, in addition to the monthly fee below that aligns with your business type.
$12 for nonprofits.
$15 for business to business, e-commerce, hospitality, retail and restaurant.
Payment processing fees:
Interchange plus 0.15% + 8 cents for in-person transactions.
Interchange plus 0.20% + 11 cents for online transactions.
Interchange plus 0.25% + 8 cents for in-person AmEx transactions.
Interchange plus 0.30% + 11 cents for online AmEx transactions.
Why we like it: While Dharma’s surcharging solution comes with an added monthly cost, it also comes with extra benefits, including the ability to surcharge for card-present and card-not-present transactions within Dharma’s virtual terminal and for invoiced and recurring payments. Dharma’s platform that enables the surcharge option also integrates with QuickBooks, which makes for smoother bookkeeping. Read our full Dharma Merchant Services review.
CardX
Solution type: Credit card surcharging
Monthly fee:
Starting at $35 for in-person terminal.
Starting at $29 for virtual terminal.
Payment processing fees:
0% for credit cards (your customers pay 3%).
2.91% for debit cards (your customers pay 0%).
Why we like it: CardX, owned by Stax, is a payments company dedicated solely to offering a compliant credit card surcharge solution. The company was created from the outset of the 2013 ruling that legalized surcharging in most of the United States. CardX works not only with businesses but also with government and education institutions.
National Processing
Solution type: Cash discounting
Monthly fee: There is a $30 monthly fee if you process less than $3,000 per month.
$9.95 for Basic In-Person Package, Basic E-Commerce Package.
$9.95 and up for Premium Package (for businesses with monthly sales volumes exceeding $30,000).
$19 and up for Advanced Package.
Payment processing fees:
Basic In-Person Package: 2.5% plus 10 cents per transaction.
Basic E-Commerce Package: 2.9% plus 30 cents per transaction.
Advanced Package: 2.41% plus 10 cents.
Premium Package: quote-based.
Why we like it: While many processors have begun to offer compliant credit card surcharge programs, National Processing stands apart with its compliant cash discount offering. As long as you meet the monthly processing minimum of $3,000, there’s no additional charge to make use of the cash discount program. Read our full review of National Processing.
