What Is Credit Card Surcharging? What Every Business Owner Needs to Know

If you’re a business owner and you process credit cards, you’re probably already familiar with the fees that come with it. If you’re not aware of these fees, we’ve got a quick article to help you understand the breakdown of fees on a typical transaction.

In recent years though, you may have noticed some new signage or notices on your favourite neighbourhood businesses—with signs appearing, like “2.4% fee for credit card” or “2% credit card surcharge”.

In this article, we’re covering:

• What is credit card surcharging? 
• How does credit card surcharging work?
• Why do businesses choose to pass on the fees to customers?
• What are the legal things you need to know about credit card surcharging?
• A few of the pros and cons of surcharging
• Key considerations when choosing the right pricing model for your business

What is credit card surcharging?

You may have seen credit card surcharging advertised as free credit card processing or 0% credit card processing fees, but for the purpose of this article, we’ll use the term credit card surcharging.

Credit card surcharging is when a business adds a small fee to a customer’s bill when they choose to pay with a credit card. The goal is to recoup the processing fee that the business would otherwise pay to the card network (like Visa, Mastercard, or Amex). Typically a credit card surcharge might be 2.4% on top of the value of the purchase.

How does credit card surcharging work?

If you’re familiar with how a typical transaction is broken down, you’ll know that the fee that you’ll see on your merchant statement includes an interchange fee (paid to the issuing bank), assessment fee (paid to the card brand), authorization fee (paid to the acquiring bank), and a markup (which also goes to the acquiring bank and/or the independent merchant services provider, if involved).

Scenario 1:
Let’s say a customer makes a $100 purchase at Store A using a Visa Infinite credit card processed through Elavon.

Under an Interchange Plus pricing model, here’s how the processing fees might look:

• Interchange Fee: $1.57
• Assessment Fee: $0.10
• Authorization Fee: $0.05
• Processor Markup: $0.25

Scenario 2:
Let’s say a customer makes a $100 purchase at Store B using that same credit card, but the merchant has opted for credit card surcharging.

Here’s how that might go down:

• A customer buys a $100 item
• You apply a 2.4% surcharge at checkout
• The customer pays $102.40
• You receive the full $100 after processing fees

Total Fees: $0 for you, $2.40 for your customer
Your Net Revenue: $100

See the difference?

Even though some companies explain credit card surcharging as “free credit card processing”, it’s not really “free” per se. It’s just passing off the fees to customers (which is another phrase you might hear when looking into this topic).

Note that this surcharging program is specifically for credit card payments, but does not include pre-paid credit cards like Visa gift cards, Visa/Mastercard debit cards and Interact. 

Why do businesses choose to pass off the fees to customers?

For many businesses, especially small or high-volume ones, credit card fees represent a major operating cost.

Surcharging offers a way to:

• Preserve profit margins
• Avoid raising prices across the board
• Be more transparent about transaction costs
• Encourage alternative (lower-cost) payment methods like debit, EFT (Electronic Funds Transfer), or cash

What are the legal things you need to know about credit card surcharging?

Before implementing surcharges, it's essential to understand the legal landscape—which varies based on your country, state or province, and the card brands involved.

In general, credit card surcharging is legal in most of the United States and Canada—but with strict rules and a few important exceptions. Merchants must comply with card network guidelines (like those from Visa and Mastercard), as well as any applicable state, provincial, or national laws.

Surcharging in Canada

Canada permits surcharging in most areas, but there are some limitations.

• Quebec Exception: Quebec is subject to different consumer protection rules, so you can not pass on the fees to customers.
  
  
• Surcharge Cap: The maximum allowed surcharge in Canada is 2.4%, regardless of the card network.
  
  
• Credit Cards Only: Surcharges may be applied only to credit cards, not debit or prepaid cards.
  
  
• Disclosure Requirements:
  • You must display signage in-store or provide notice during online checkout.
  • The surcharge must appear as a separate line item on the customer’s receipt.
    
    
• Network Notification: You are required to notify card brands in advance. Your payment processor may support this step.
  
  
• No Additional Fees: You may not apply a surcharge in addition to a convenience fee or other service charge.
  
  

A few of the pros and cons of credit card surcharging

Like anything in life, credit card surcharging comes with pros and cons.

And to be honest, whether or not it’s the right fit for you will depend largely on the type of business you run.

That’s why it’s important for you to think about what your competitors are doing, your customers’ perception and tolerance to this change, and if there are other factors that might impact your choice.

Pros of Credit Card Surcharging

1. Protects Profit Margins
   Surcharging helps offset rising credit card processing fees without requiring you to raise your base prices across the board.
   
   
2. Encourages Lower-Cost Payment Methods
   Customers may choose to pay with debit or cash to avoid the fee—which can lower your overall transaction costs.
   
   
3. Promotes Pricing Transparency
   Rather than baking card fees into prices for everyone, surcharging shows the true cost of accepting credit cards and gives customers a choice.
   
   

Cons of Credit Card Surcharging

1. May Impact Sales or Loyalty
   Some customers may perceive the fee as unfair or annoying, especially if they're used to businesses that don’t charge for credit card use. If competitors don't surcharge and you do, price-sensitive customers might go elsewhere or feel less loyalty to your business.
   
   
2. Adds Operational Complexity
   Surcharging requires additional compliance with laws, card network rules, and proper disclosure — which can be a burden for smaller teams.
   
   
3. Impact on Your Cashflow
   Depending on the type of business you run and the size of the transaction, an additional surcharge fee could be quite significant for your customers. For example, certain service businesses who are used to accepting credit card payments might see some customers paying with cheques. This creates more administrative work, like trips to the bank, and time waiting for cheques to clear.

These are just a few considerations. But we’ve got a comprehensive list of things to consider when deciding whether or not credit card surcharging is the right choice for your business.    

Key considerations when choosing the right pricing model for your business 

Credit card surcharging is a great way to save money on your payment processing fees by passing the cost off to your customers, but there’s a lot to consider about how it might impact loyalty and your bottom line long-term.

A few considerations on our list:

• Your customers’ tolerance for change (and what your competitors are doing)
  
  
• The average transaction cost (you might not care about an extra 9 cents on a coffee, but if your average transaction is substantially larger then it might be a tough pill for customers to swallow)
  
  
• Brand perception (will this make your company look stingy and cheap or is this the norm in your industry?)
  
  
• Training for employees on how to answer customer questions and clearly communicate this fee to customers
  
  
• All the legal stuff obviously (see legal section of this article)
  
  
• Other pricing models that might be a good fit 
  
  
• Brand loyalty (if you’re worried about this frustrating your customers, is it worth implementing a loyalty program to make customers feel like you’re giving them value in other ways)
  
  
• And finally, the cost savings of passing off the fees to customers (and more importantly what you can do with the money by reinvesting it in your business and customer experiences)

Our Final Thoughts

Credit card surcharging can be an effective way for some businesses to manage rising payment processing costs—but it’s not a one-size-fits-all solution. 

As you’ve seen, there are clear benefits, like preserving margins and encouraging lower-cost payment options, but there are also important trade-offs, including potential friction with customers and added operational complexity. 

For businesses that operate on thin margins or handle high-volume transactions, surcharging might feel like a smart financial move. For others however, particularly those competing on customer experience or brand perception, the downsides may outweigh the gains.

Before making any decisions, take the time to understand your customers’ expectations, your legal responsibilities, and how your competitors are approaching pricing. Most importantly, whatever approach you choose should align with your business goals and values, while keeping the customer experience front and centre.

Ultimately, no one knows your business (and your customers) like you do. Whether you decide to implement it now, in the future, or not at all, having a clear understanding of the landscape will help you make a confident, informed choice. And if you need help navigating the legal or technical setup, don’t hesitate to consult your payment processor or a compliance expert.