Guide To Passing on Credit Card Fees To Customers

Credit card processing fees are a cost of doing business in ecommerce—but they don’t have to cut deeply into your profits. Whether you’re looking to pass these fees on to your customers or find smarter ways to reduce their impact on your business, understanding how processing works can help you make more informed decisions. Here’s a look at what these fees are, how they affect your bottom line, and the most effective (and compliant) ways to manage them.

What are credit card fees?

Credit card processing fees are transaction fees you pay when accepting credit and debit card payments. Merchants spend an average of 1.7% to 3.5% of each transaction on these payment processing fees. The amount you pay can vary based on factors like the way the card is processed, the type of card, and the payment processor.

The fee is usually calculated as a small percentage of the total transaction plus a fixed dollar amount, such as 2.9% + 30¢. On a $100 card transaction, for example, the fee would equal $3.20. That amount is split up accordingly:

• Interchange fee: The interchange portion of the credit card processing fee goes to your customer’s issuing bank (e.g., Chase Bank or Capital One). It helps cover the costs associated with processing card transactions, such as fraud protection, risk management, and the overall infrastructure of the payment system. 

• Assessment fee: This fee is paid to the card networks, like Discover, American Express, Mastercard, and Visa. It covers the costs of operating and maintaining the payment processing infrastructure. 

• Payment processor fee: Your payment processor charges you this fee for handling the transaction. Some providers itemize these costs (interchange-plus pricing), while others roll them into a single rate (flat-rate pricing).

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How to pass on credit card fees to customers

• Determine whether surcharges are legal in your state
• Follow regulations
• Notify the credit card networks
• Display notices
• Only surcharge credit card payments
• Choose your surcharge type

Adding a surcharge to credit card payments allows you to pass along the costs of the credit card processing fees to your customers. A surcharge differs from a convenience fee, which merchants can impose when accepting a payment method outside of their normal checkout flow. 

Consult with an attorney first if you’re considering a surcharge policy. If you decide to proceed with a surcharge policy, you’ll need to follow a few basic guidelines:

Determine whether surcharges are legal in your state

Surcharging a customer’s credit card transaction could make sense for some merchants, but you’ll need to check laws in your state and, if you sell online, the states where your customers live. Three US states (Connecticut, Maine, and Massachusetts) currently ban surcharges. Other states restrict surcharging to a limited degree—and surcharge laws can always change due to court challenges.

You’ll need to comply with the surcharge laws of your state when selling in person. If you sell online and your state allows surcharges, you’ll need to follow the laws in the state or territory where the customer is located. Thus, the same store’s retail POS and online checkout might need to offer different surcharge options.

Follow regulations

The maximum you can charge is the actual cost of accepting credit card payments. Beyond this, credit card networks, federal law, and state laws may also place limits on what you can charge. Within those guidelines, merchants must follow the most restrictive limit that applies to their situation, which is typically the lowest applicable cap:

• Credit card networks: Visa caps surcharges at 3%, while Mastercard sets a higher limit of 4%. 

• Federal law: Federal law limits surcharges to 4% of the transaction amount.

• State laws: Some states set a different maximum or outlaw surcharges altogether. Check your state law (and the state law where the customer lives) for details.

Notify the credit card networks

Visa, Discover, and Mastercard require written notification at least 30 days before you start imposing a credit card surcharge. American Express doesn’t require advance notice. 

Display notices

Merchants must disclose their surcharge policy or the fee itself in three places: 

• At the customer’s point of entry, such as the front door of your physical store or the first page of your website

• At the point of sale, such as your shop’s payment terminal or your website’s checkout page

• As an itemized surcharge fee on the customer’s receipt

Only surcharge credit card payments

All states prohibit surcharging on debit cards or prepaid debit cards. This applies even when the card is run as a signature-based transaction without the PIN.

Choose your surcharge type

Merchants can’t charge a fee for all credit cards and then an additional fee for card products with higher processing costs. You’ll need to choose between “brand-level” or “product-level” surcharge:

• Brand-level: You’ll impose the same surcharge amount for each brand of credit card—Visa, Mastercard, American Express, or Discover—regardless of issuer. The surcharge can’t exceed your average discount rate for a brand’s credit card transactions or 4%, whichever is less.

• Product-level: You’ll impose the same surcharge for each type of credit card—such as rewards cards, premium cards, business cards, etc.—regardless of the issuer. The surcharge can’t exceed either 4% or your average discount rate for credit card transactions of that particular product, within guidelines.

Alternative strategies to reduce credit card fees

• Set a minimum purchase amount
• Offer a discount or dual pricing
• Seek lower credit card processing rates

Surcharging allows you to pass along the costs of credit card processing fees to your customers, but it could impact your business. Customers may switch to a different payment method to avoid the fee—or they may take their business elsewhere if they feel the surcharge is unfair.

If your state outlaws surcharges or you don’t want to impose them on your customers, you still might want to reduce credit card fees where possible. Here are some options: 

Set a minimum purchase amount

You can encourage customers to place larger orders by setting a minimum purchase amount for credit card payments. In the US, businesses are allowed to require a minimum of up to $10 for credit card transactions. While this approach is more common among brick-and-mortar retailers that sell low-cost items, some ecommerce merchants—especially those offering digital goods or inexpensive products—can use it to help offset processing fees.

To use this method, post a clearly visible sign that explains the rule, such as "$10 minimum for credit card purchases," and decline card payments under that threshold. This reduces fees on low-dollar transactions where interchange costs eat into profit margins. This strategy may also help boost sales and lower credit card processing fees, especially for smaller merchants who can’t easily absorb these costs. But it may also frustrate customers, who may decide to shop elsewhere.

Offer a discount or dual pricing

Another option for lowering your card processing fees is offering a small discount to customers who use a cheaper payment method, such as cash or ACH payment. Some businesses use a dual pricing approach, where the regular price includes credit card fees and a discounted price is shown for alternative payment methods.

While this is more commonly seen in person—like at gas stations—some ecommerce merchants apply the same idea by offering a small discount at checkout for customers who pay with bank transfer, PayPal balance, or other low-fee options. With this strategy, merchants aren’t actually passing on credit card fees—they’re avoiding credit cards altogether. And in both cases, the customer can choose how to pay and see the cost difference upfront.

If you want to use the cash discounting or dual pricing methods, you’ll need to use clear signage and train staff to comply with card network rules and avoid confusing customers.

Seek lower credit card processing rates

Instead of passing on credit card fees to customers, you could absorb the fees yourself and use different strategies to offset processing costs:

• Choose interchange-plus pricing if offered: This pricing model is more transparent and often cheaper than flat-rate models, especially as sales volume grows. 

• Negotiate a lower rate: Some payment processors are willing to negotiate a reduced rate in agreement with credit card providers. 

• Compare quotes from multiple processors: Review the fee structure for common processors to determine which best suits your business.

• Settle transactions promptly: Processing (batching) payments within 24 hours helps avoid downgraded interchange fees from Visa and Mastercard.