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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

Questions & Comments

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On April 23, 2009 Michael said:

Hello I have a question that I would truly appreciate if you could answer for me. I own a restaurant and have been flagged for charging a convince fee. After reading through your website I now understand that I did not word it properly. How I worded the statement that flagged us was as follows "Due to our remote locations and increased operating costs we have to decided to charge a $1 convince charge to all credit card transactions instead of raising our prices. Our merchant told us that would be ok but then came back and said we got flagged. Now my question is if I word the statement as follows do I run the change of getting flagged again

Due to our remote location a $1 dollar surcharge will be added to all transactions (cash, credit cards, checks, money orders, travelers check)

Then below the above statement say

A $1 discount will be giving to all cash paying customers

Thank You in advance for taken the time to answer my question.


On April 23, 2009 MerchantCouncil said:

Hello Michael,

The article above tends to get buried in searches for some reason, but covers the issue that you're dealing with quite well. I'm not sure if you viewed this article on your last visit to the site, or if you were looking at the topic regarding convenience fees.

For starters, you need to eliminate the words "surcharge" and "convenience" fee from any signage. You'll notice in the article above that Visa states, "you may not impose any surcharge on a Visa transaction" and MasterCard states "merchant must not directly or indirectly require any MasterCard cardholder to pay a surcharge. "

You're on the right track by adding $1 to your prices, but this doesn't need to be expressly stated to customers. As Visa says, "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. "

In your case, a disclosure regarding a $1 cash discount would be best placed on your menus and prominently at your point of sale. Customers paying with a credit card would be charged the normal price, and cash customers would be able to take advantage of the discount. Using this method there is absolutely no mention of a surcharge or convenience fee. There is simply "a discount from the standard price charged for all other forms of payment" just as Visa dictates.

This is a direct interpretation of merchant conduct derived from Visa's Card Acceptance and Chargeback Management Guide for VISA Merchants, 2004. If you have any doubts about these actions we suggest contacting Visa directly using the link at the bottom of the following page:

I hope this information helps you cause.

On April 23, 2009 Michael said:

Thank You for replying to my question, I greatly appreciate it. I have a follow up question regarding the dollar fee I would like to incorporate into my business. Being that we are a restaurant, I can only raise my prices so far. Instead of raising menu items I would like to charge a $1 fee to customers for all transactions and then give a cash discount for a dollar. Being that I can't use the words surcharge or convenience, could I just charge an extra dollar to all transactions and then give a cash discount to cash paying customers. So my verbiage would be...

Due to our remote location we have decided to add a $1 house charge to all transaction instead of raising prices.

A $1 discount will be giving to cash paying customers

Thanks for response in advance

On April 23, 2009 MerchantCouncil said:

What you're implying (adding a dollar to every transaction at the point of sale) is essentially the same as raising your prices by the same amount. The only difference is how obviously and at what time the price increase is being presented to your customers. Unlike a one-time price increase across the board, your method may result in the need to explain the $1 charge to each customer at the point of sale.

With that said, we've never run a restaurant you're the expert there. Your method of charging an additional $1 to every customer and then offering cash customers a discount is within Visa's definition of acceptable behavior.

However, the acquiring bank that holds your merchant account has the final ruling on this. Prior to enacting any new processes at your business, it is strongly suggested that you contact them and discuss your plans.

On February 5, 2010 CG said:

We are a tax office. By law, we can charge for nothing but taxes, but we do offer the convenience of using a debit or credit card. The taxpayer has to pay a convenience fee for the use of the cards. A taxpayer told me today that you could charge the fee over the phone or using a machine, but if they paid directly in our office, the convenience fee was illegal. Is this true, if so where could I find that documentation?

On February 5, 2010 said:

Hi CG,

This page about convenience fees addresses your questions and also references the documentation from the card associations regarding guidelines.

On February 19, 2010 John said:

I find myself stuck in a tough position. I process orders for my clients which often included the billing for fees that I've advanced on their behalf to governmnent agencies. The problem is that the convenience fee charged by the credit card (est. 3%) is often more than the service fee I charge.

Example: I process an order that I have to advance $1,000 for the client. I then charge the client $15. If they pay the invoice for $1,015 by credit card, once the convenience fee is deducted I am paid $984.55. Thus, in the end I've actually lost money on the order and am at a loss of $15.45. How is this legal or fair? Accepting credit cards could put me out of business, yet more and more clients are requesting this. How can I charge the fee to keep my services profitable?

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