Charging Customers to Pay with a Credit Card

As credit card processing gets more expensive, a burning questions 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.

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"

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