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FAQ / Knowledge Base -- Merchant Account Operation -- Passing credit card fees to customers

Can a merchant charge customers to pay with a credit card?

This is a great question because the answer is a loop-hole that can save your business valuable revenue. While you can't directly invoice a customer for processing fees, you can effectively pass the cost of processing to them by integrating the processing fees into the price of the product or service. However, if done improperly you could wind up in violation of your merchant service agreement and be faced with cancellation or fines - so please read this carefully.

If merchants were to begin charging consumers a surcharge when they paid with a credit/debit card usage of bankcard would inevitably decline. When bankcard usage declines the Card Associations and banks begin to lose money. Needless to say, banks really hate to lose money. Discrimination also becomes an issue when you single out consumers for using a specific form of payment, IE bankcards.

With these and other factors in consideration the practice of surcharging customers for processing fees is prohibited. In VISA's publication, "Card Acceptance and Chargeback Management Guide for Visa Merchants" VISA specifically state that "you may not impose any surcharge on a Visa transaction" (page #9). Similarly, MasterCard states in their "Merchant Rules Manual" that, "A merchant must not directly or indirectly require any MasterCard cardholder to pay a surcharge or any part of any merchant discount or any contemporaneous finance charge in connection with a MasterCard card transaction." (page #2-22).

However, and this is a big however - In the very same documents VISA continues to state that, "You may, however, offer a discount for cash transactions, provided that the offer is clearly disclosed to customers and the cash price is presented as a discount from the standard price charged for all other forms of payment." MasterCard goes on to say that, "A merchant may provide a discount to its customers for cash payments. A merchant is permitted to charge a fee (such as a bona fide commission, postage, expedited service or convenience fees, and the like) if the fee is imposed on all like transactions regardless of the form of payment used."

In these declarations lie the loop-holes that allow merchants to pass processing fees along to customers in the form of a cash discount.

Each of these documents is available for download from VISA and MasterCard's site.

Card Acceptance and Chargeback Management Guide for Visa Merchants
MasterCard Merchant Manual

Back in 2004 published an article that explains this topic quite well. Rather than revisiting the topic, that article has been posted below.

Credit Card Processing: Beat the System by Passing Merchant Account Processing Fees to Customers

Imposing surcharges on credit card transactions is illegal, and it will only lead to problems. The secret to beating the credit card processing system is not charging more for credit card sales, but instead is charging less for cash sales. It may sound like the same thing, but there is a big difference.

The increasing costs associated with accepting credit cards are leaving many merchants searching for ways to pass along at least a portion of processing expenses to their customers. Card originators such as VISA and MasterCard are becoming wary of this new trend and are enforcing strict regulations specifically designed to hinder any such efforts by merchants to impose surcharges on credit card purchases.

Discount fees, transaction costs, and other expenses associated with the acceptance of electronic bank cards (credit and debit cards) are putting a strangle hold on to the NET profits of businesses of all sizes. To help minimize the impact that processing costs are having on profits, many businesses are charging a surcharge to customers that choose to pay for products or services using a credit or debit card.
Card originators such as VISA, MasterCard, American Express, and Discover have a lot to lose if the practice of imposing surcharges on credit card transactions becomes popular among merchants. When merchants impose surcharges on credit transactions, they make purchasing on credit a less appealing option to consumers, and many consumers choose to avoid the additional cost by simply paying with cash or a check. A decrease in the use of credit cards by consumers translates directly into lost revenue for processing banks. Not only do banks lose out on the processing fees that they would have collected from the merchant, but they lose any finance charges that would have been incurred by the customer as well.

You may wonder why so many businesses still choose to place a surcharge on credit transactions, even though it is strictly forbidden in the processing agreement they had to sign when opening their merchant account. Quite frankly, many business people choose to ignore this clause in their processing agreement and impose a surcharge anyway. This approach is not recommended. When and if these businesses are discovered, their merchant accounts will be terminated, and they may even be placed on the Terminated Merchant File (TMF) which will make it nearly impossible for them to acquire another merchant account.

Card originators and banks have control over credit card (bankcard) transactions, and they can legally ban a merchant from imposing surcharges. However, they do not have any legal control over other forms of payment such as cash and checks. The largest card originator (VISA) has even published information stating that, "You may, however, offer a discount for cash transactions, provided that the offer is clearly disclosed to customers and the cash piece is presented as a discount from the standard price charged for all other forms of payment".*
Most merchant accounts operate on a tiered discount pricing grid and, ironically, the secret to beating credit card processing fees is to impose tiered pricing on your products and services as well. The old saying, "if you can’t beat em’, join em’" applies perfectly.

While you can’t charge extra for credit card sales, you can charge less for cash as long as all prices are clearly stated to customers, and the cash price is reflected as a discount from the original purchase price. For example: if the price tag on an item states that the item costs $10, the cash price must be represented as a discount from that price. The price tag for this particular item should look something like this:

Price: $10.00
5% discount for cash payment @ $9.50
5% Discount for Check Payment @ $9.50

By utilizing a tiered pricing grid, merchants can alleviate the cost of accepting credit cards while still providing their customers with the freedom to choose their preferred method of payment.

* Published by VISA in the Card Acceptance and Chargeback Management Guide for VISA Merchants, ©2004

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