How Much Can I Charge for a Credit Card Processing Fee?

In most states, it’s now legal to “pass on” credit card fees to your customers - a practice called surcharging that can be equally helpful for small or low-margin businesses or those with a large volume of transactions. But knowing how much to charge - and when you can/can’t charge a fee at all - can seem tricky when laws vary from state to state. Fortunately, charging the right credit card processing fees can be simplified. Here’s how:

Know Which States Allow Surcharging

A federal ruling in 2018 set a precedent that rendered most states’ anti-surcharging laws unenforceable. Connecticut and Massachusetts are the only two remaining states that absolutely prohibit passing on credit card fees to customers.

Never Charge More than Your Actual Cost When Surcharging

Many businesses receive the well-meaning advice to “just charge a flat fee” or “just don’t charge more than 3%” when surcharging, but choosing a “one size fits all” surcharge can cause trouble when you - accidentally or not - make a profit on your surcharge. No matter what the maximum allowable surcharge percentage is in your state, making a profit on surcharging is a no-go, which is why we recommend that you always charge the exact cost of your credit card processing fees - no more, and no less. Even in states like Colorado, where the “maximum” surcharge percentage guideline is a low 2%, businesses who charge the exact cost of their fees are allowed to exceed that 2% maximum.

Calculate Your Actual Credit Card Processing Costs

Credit card processing fees are composed of three different layers:

• Interchange Fees: The bank that issued the card (e.g., Wells Fargo, Bank of America) charges an interchange fee for each transaction. Interchange fees can vary throughout the year, and they’re a large chunk of your total fees - between 70-90%. If they’re not itemized on your statement, you’ll have to do some digging - contacting your payment processor, banks, and/or the credit card companies directly.
  

• Assessment Fees: Assessment fees, also known as “card brand fees,” are a percentage of your monthly sales total, and they’re charged by credit card companies themselves (e.g., Visa, MasterCard). They’ll appear differently on your statement depending on your pricing structure.
  

• Payment Processor's Markup: Your payment processor (the company providing your tech/service that actually processes your credit card transactions) usually charges a fee for their services, too - you can contact them directly to find out how much this fee is, and how that breaks down per transaction.

If this sounds like a lot of calculating, don’t worry - we literally built a service to do these calculations for you, and make sure that you’re surcharging your customers only the exact amount of your credit card processing costs on each transaction. Check out Prio.

Communicate Clearly with Customers and Credit Card Companies

Credit card companies require that you notify them 30 days in advance, in writing, of your intention to start surcharging. You are also required to post clear signage at your store entrance and at your point-of-sale - as well as on the Checkout page of your website - notifying your customers about the surcharge. You also have to disclose the exact amount of each surcharge as a separate line item on your customers’ receipts. We wrote a whole article that outlines these and a handful of other important legal steps to take when deciding to pass on credit card fees to your customers. You can read it here.

(Important side note: Don’t surcharge for debit cards, even if they’re run as credit. It’s not legal. Fortunately, debit card processing fees are typically capped much lower than credit card processing fees.) 

Alternatives to Charging a Credit Card Processing Fee

Whether you’re looking for alternate payment options to offer your customers or a different kind of solution entirely, there are alternatives to passing on your credit card processing fees.

Offer a “cash-pay discount”: You can choose to offset your credit card processing costs by raising your prices. Offer customers who pay with cash a discount for doing so. This isn’t the most elegant solution, and carrying cash is going out of style rapidly, but it is an option if you don’t want to pass on fees.

‍Make bank-to-bank payments easy: Prio offers a one-tap bank-to-bank transfer solution that you can use in place of credit cards, or as a secondary option. It’s faster than swiping a credit card once set up, and offers a way for both you and your customers to avoid credit card processing fees completely.

“No-Fee” Credit Card Processing and One-Tap Bank Transfers: A Two-Fold Solution

Customers expect convenience, and you need to make a profit. Prio offers a “best of both worlds” option: We automatically calculate and pass on the exact fees to customers who use credit cards and we make one-tap bank payments accessible and easy for customers who want to avoid fees entirely. Either way, you pay zero credit card processing fees and save on every transaction - while keeping your customers happy. Get started today, and wave goodbye to credit card fees.