FAQ / Knowledge Base -- Merchant Account Operation -- Charging Customers a Fee to Pay with a Credit Card

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Passing Credit Card Processing Charges to Customers

Yes! You can pass credit card processing fees to customers, but you must do it properly.

As credit card processing gets more expensive, a burning merchant account question on the mind of many business owners is, "can I pass credit card processing fees on to my customers, and if so, how?" In short, the answer is yes; you can charge customers a fee for paying with a credit card, but the issue is far more complex than that.

For merchants, the ability to accept credit cards comes with many benefits with the only real downside being the cost of doing so. It's possible to eliminate this cost by passing it to customers, but originators like VISA, MasterCard, American Express and Discover don't want merchants to charge customers a fee to pay with a credit card. The reason is pretty obvious. A fee would deter people from using their credit card which would ultimately cause originators to lose money.

Here's what the originators have to say about passing credit card processing fees to customers.

VISA states that "you may not impose any surcharges on VISA transactions. You may, however, offer a discount for cash or another form of payment (e.g., proprietary card or gift certificate) 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"1

MasterCard states that "A Merchant must not directly or indirectly require any Cardholder to pay a surcharge or any part of any Merchant discount or any contemporaneous finance charge in connection with a Transaction. A Merchant may provide a discount to its customers for cash payments."2

Discover states that "You may assess a surcharge on a Card Sale conducted using a Credit Card provided that (i) the amount of the surcharge may not exceed the Merchant Fee payable by you to us for the Card Sale, and (ii) you assess surcharges on card sales conducted using other credit cards accepted by you."3

American Express states that "You must not accept the Card for costs or fees over the normal price of your goods or services (plus applicable taxes) or Charges that Cardmembers have not specifically approved."4

Every originator except for Discover forbids surcharging credit card sales, however, as MasterCard so clearly states, "A Merchant may provide a discount to its customers for cash payments." This statement holds the secret to passing credit card processing fees on to customers. The trick isn't charging customers more for using a credit card; it's charging them less for using cash.

In order to charge customers for credit card processing fees you must create a dual pricing model. To accomplish this, raise all prices to offset processing fees and then offer a discount on cash purchases that's equal to the price increase.

The catch is that the cash price must be presented as a discount to the true price. This means that price tags, signage and advertisements must display the higher (credit card) price first and then display the lower (cash discount) price as a discount. For example, many gas stations offer a cash discount but they post the higher (credit card) price on their roadside signage.

Passing credit card processing fees to customers may seem like a great business idea at first but it's possible that it could hurt business. Consider this; if customers fail to look past the higher (credit card) price to notice the lower (cash discount) price they may assume that your business has higher prices than your competitors.

Perhaps the biggest issue to consider before charging customers to pay with a credit card is that some customers want or even need to pay with their card. If paying with a card means a higher cost at your business, these customers will likely go elsewhere. This is especially true in tough economic times when consumers are more likely to spend on credit.

It is possible to pass credit card processing fees to customers by offering a discounted cash price, but doing so may cost more in lost sales than the processing fees that you're avoiding.

Note: Charging a convenience fee is a direct way of charging customers for using a credit but it's far more complicated than offering a cash discount. The subject of convenience fees is beyond the scope of this particular article. You can read more about this topic by reading the article about convenience fees.

1 - Source: "Card Acceptance and Chargeback Management Guidelines for VISA Merchants", Section "VISA Rules", "No Surcharging"
2 - Source: "MasterCard Rules" page 124, "Charges to Cardholders"
3 - Source: "Discover Operating Manual", page 24, "Surcharges"
4 - Source: "American Express Operating Procedures for US Merchants" section 1.7, "Prohibited Use of the Card"

Questions & Comments

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On April 15, 2009 Rosie said:

Do you know if these same limitations apply to Homeowners Associations for the payment of dues or assessments?

On April 15, 2009 MerchantCouncil said:

That's a good question, Rosie.

The method described in this article makes it possible to circumvent the limitations imposed by card brands by offering a cash discount instead of surcharging credit card transactions.

If your Association chose to adopt this method, you wouldn't have to worry about limitations from card brands so long as you clearly state that any lower pricing is a discount for using cash or check as a form of payment. For example, you would notify your members that yearly dues are $100 and a $5 discount is offered to those that pay with cash or check.

Your Association may also be able to charge a convenience fee for members that would like to pay with a credit card. The regulations surrounding convenience fee regulations are a little more specific, but it sounds as though you qualify.

If you don't currently accept credit cards as a form of payment, but you're considering doing so as a bona-fide convenience to your members, you would be able to charge a convenience fee so long as you abide by the following rules.

The fee is disclosed to members as a charge for an alternate payment channel convenience
For example, if your Homeowners Association only accepts checks via mail, the option for a member to pay via credit card at your office is an alternate payment method outside of the standard payment channels and thereby subject to a convenience fee.

You only apply the convenience fee to non face-to-face transactions.

The fee must be a flat or fixed amount regardless of the amount of payment due.

The fee is included as part of the total transaction.

The fee cannot be added to recurring transactions
If your Homeowner Association charges dues on a recurring basis, you would not be able to charge a convenience fee on credit card payments.

Is assessed by the merchant that provides goods and services to the cardholder and not by a third party
If you Homeowner Associate uses a third-party billing service to collect dues, you would not be able to apply a convenience fee to credit card transactions.
There's a complete article about convenience fees that's linked from the bottom of the article on this page. If you haven't already read that article I would suggest that you give it a read.

On April 22, 2009 Harold said:

I recently heard that property managers are now allowed to charge a surcharge to tenants that want to pay their rent by credit card. Is there any truth to this, or do the same rules from above apply.

On April 23, 2009 MerchantCouncil said:

That's not quite true, Harold. There rules surrounding surcharging and convenience fees have remained pretty consistent in recent years. Visa's policies in their Card Acceptance and Chargeback Management Guidelines for VISA Merchants has remained virtually unchanged from the 2004 to the most recent 2007 version now available for download from the merchant section of Visa's web site.

You can pass processing costs to customers via a convenience fee, but you need to follow the appropriate channels. In fact, your situation is virtually identical to the previous visitor. The earlier response to Rosie's inquiry regarding charging a convenience fee for Homeowner Association dues would apply to your situation also. Substitute "landlord" for "Homeowner Association" in the above response and you've got your answer.

On June 1, 2009 Joan said:

If you are charging a fee to use a credit card, according to this article you are not able to call it a convenience fee. What is the proper terminology? How do you word it to your customers that you are charging them a fee for not using a lower cost method to make a payment? The customer is not looking for some long explanation, just a simple word or two. Thanks!

On June 2, 2009 Ben said:

Hi Joan,

This is an area that's going to require an explanation no matter how you slice it. Charging more for credit card transactions is going to draw heat from some customers and there's really no way around it. This web site gets traffic every day from people inquiring where they can report merchants that charge for the use of cards.

With that said, if you're willing to accept the burden of an occasional explanation, most customers tend to shrug and accept the policy with little resistance.

The way to explain the fee charged to use a credit quickly or in signage is to address the fee as a discount. You're correct in that you're not supposed to charge a convenience fee. In fact, you're not supposed to charge customers any fees for using a credit card, regardless of what you call it.

You need to make it clear that you're not surcharging credit card purchases, but that you're offering a discount for cash-based transactions. I know it sounds like the same thing, but it's not.

I think the problem arises is that many merchants hide the fact that they offer a cash discount until the customer gets to the point of sale. Once they present their credit card for payment, they're confronted with a price that's greater than what they expected.

Perhaps the best way to present a discounted cash-based price is to have two prices for each item. Such an approach would labor intensive at first, but it would clearly convey your policy regarding a cash discount for product.

Perhaps as some visitors that have actively tried offering cash discounts can offer a better solution?

On June 2, 2009 Joan said:

Is there a proper word(s) for the fee? Usage fee, user fee or just plain fee? In looking on the web I see many sites that call it a convenience fee. If this is incorrect, what are they doing to make it correct? Or are the credit card companies just ignoring it because they are making money anyway?

On June 2, 2009 Ben said:

Your processing agreement forbids charging customers a fee to pay by credit card. In light of this, you don't want to use the word "fee" at all. Try not to think of yourself as charging customers to use credit cards, but instead offering them a discount if they pay cash. You want to use the word "discount."

You would be able to use the term "convenience fee" if by Visa's definition you qualified to do so, but it's a pretty narrow definition at that and most business won't fall into this category. There's more on convenience fees here.

You want to avoid using the words, "fee," "charge," or "surcharge."

On June 2, 2009 Joan said:

One last question. If we are not going to accept Visa because we are charging a % of the amount charged and not a flat fee and using a third party to process the payment. Can it be called a fee? The third party is the one charging the "fee" not us. Thanks for your reponses you have been very helpful on this very confusing topic!

On June 2, 2009 Ben said:

You're getting into specifics where you should seek advice from your provider. Give your provider or the third party that's processing your payments a call and inquire as to how you should handle the situation. If they're unable to answer your question, tell them to contact their acquirer. The acquiring bank will know for sure.

Additionally, you can contact Visa and ask them to shed some light on your situation. I don't mean to defer you, but I don't want to give you the wrong information.

On April 8, 2010 Gloria said:

Can a merchant pose a minimum purchase amount before acceping visa credit card?

On April 8, 2010 said:

Hi Gloria,

Please check out the article on charging a minimum on credit card purchases.

On December 21, 2011 Brian said:

I'd much rather set prices in a more simpler way.

Prices will be computed as follows:
1. Figure maximum tax rate I'm able to charge as per my business/company 'registration' allows. It's figured as part of the profit margin. Any item that's not taxable simply means pure profit.
2. Add in the maximum of any specific fees as part of profit margin. This includes fees for accepting CCs.
3. All other costs I'd have to pay out for whatever reason(s). Some, such as shipping (if needed), will only be added on anything being shipped.

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