Surcharge vs. Interchange Fees: What Merchants Need to Know

10|2025

Introduction: The Real Cost of Accepting Cards

If your business accepts credit or debit cards, you’re already paying for the privilege — but how and why those fees exist is often misunderstood.

In this guide, we’ll break down the mechanics of interchange and surcharge fees, explain how they differ, outline the legal and regulatory landscape, and share practical insights to help you decide which strategy best fits your business goals.

Understanding the Fee Framework – The Basics

Every time a customer swipes, taps, or enters their card, a series of behind-the-scenes transactions occur — and with them, unavoidable fees.

At the heart of these are interchange fees: the non-negotiable charges paid to the card-issuing bank each time a transaction takes place. These rates are set by the major card networks (Visa, Mastercard, Discover, and American Express) and vary depending on factors like:

• Card type (rewards, standard, etc.)
• Transaction method (in-person vs. online)
• Merchant category and risk level

Because interchange fees typically account for 70–90% of a merchant’s total credit card processing costs, they’re the first place many business owners look when trying to reduce expenses.

Enter the surcharge program — a method that passes a portion (or all) of those costs back to the customer. With a surcharge, an extra fee is added at checkout whenever a customer pays with a credit card, making the cost transparent and offsetting what would otherwise come out of your margin.

It sounds like an easy win — but what’s the catch?

The Pros and Cons of Surcharging

Pros:

• Cost recovery: You can recoup some or all of the card-acceptance cost rather than absorbing it into your base price.
• Profit-protection: If your margin is thin (say 20 %), then a 2-3 % surcharge can prevent card-processing fees from eating into your profitability.

Cons:

• Customer perception risk: Some customers resent surcharges and may abandon the purchase or choose a competitor without one. Surveys show a large portion of card-users would rather find another business than pay a surcharge.
• Competitive disadvantage: If competitors don’t surcharge and you do, you may appear higher cost to customers, even if your net margin is similar or better.
• Compliance burden: Surcharging is heavily regulated. You must notify your acquirer/card network, limit surcharges to certain card types (typically credit only), display clear signage, and follow state laws.
• Limited coverage: You cannot surcharge debit or prepaid cards.
• Setup complexity: Your POS, online checkout, signage, receipts and staff must reflect the surcharge practice properly or risk penalties and customer confusion.
• Technical Requirements: Some devices and software may be unable to support adding a surcharge fee.

Key Differences Between Surcharge and Interchange Fees

Illustrative scenario: You sell a $100 item.

• With a 2.5% interchange fee, The customer pays $100, and you receive $97.50.
• With a 3% surcharge, the customer pays $103, and you receive $100.

Legal and Regulatory Landscape

When you consider surcharging, you must navigate a complex set of rules. For example:

• In the U.S., most merchants may surcharge credit-card transactions if they meet card-network requirements (Visa, Mastercard, etc.).
• Surcharge caps typically limit the fee to a maximum of ~4% of the transaction (and often less, such as 3%).
• Some states restrict or ban surcharging altogether (e.g., in certain jurisdictions).
• Important mandatory disclosures: You must notify the card network/acquirer in advance (e.g., at least 30 days), clearly mark the surcharge on receipts, and display signage at the point of sale.
• You cannot surcharge debit or prepaid card transactions.
• On interchange fees: For debit cards in the U.S., the Durbin Amendment (via Regulation II) limits the fee for large-bank debit transactions to $0.21 + 0.05% of the transaction (plus up to $0.01 fraud adjustment).

Compliance matters: failure to adhere may result in charge-backs, network fines, or even termination of your merchant account. So surcharging isn’t simply a pricing decision — it’s a regulatory one.

Building a Cost-Effective and Compliant Fee Strategy

Here’s how you can approach creating a strategy that balances transparency, cost-control and customer experience:

1. Audit your current processing statement
   • Identify how much you pay in interchange vs. how much you pay in acquirer/processor mark-up.
     Tip: Need help understanding your statement? We’re happy to help break it down, no cost or obligation, just give us a call.
2. Decide on your pricing model
   • Interchange-Plus pricing: You pay interchange (visible) + small fixed markup. Offers transparency and control.
   • Surcharge or Cash-Discount strategy: You shift part of card cost to customers (via surcharge) or discount for paying by cash/debit. Works well where legal and customer base will accept it.
3. Encourage lower-cost payment methods
   • Promote debit cards (often lower interchange) or ACH/cash where feasible.
   • In e-commerce, optimize routing and qualification to meet lowest interchange categories.
4. Monitor market/regulatory changes

Interchange rates and surcharge rules shift periodically (e.g., new legislation, network settlements). Stay informed.

FAQs

Can I apply a surcharge to debit card transactions?
No. In most U.S. jurisdictions, surcharges are only permitted on credit-card transactions.

Are surcharges and “convenience fees” the same?
No. Although both add fee to the customer, convenience fees are a different concept (typically charged for non-standard payment channels) and have separate rules. Surcharges are specifically for paying with a credit card.

How often do interchange fees change?
Interchange rates change periodically, often semi-annually or annually, as networks adjust for risk, regulation, and market dynamics. Merchants should review statements regularly.

Is “Interchange-Plus” pricing always cheaper?
It is generally cheaper than a Flat or Tiered rate, but not as cheap as a program that passes the fee to the customer such as Surcharge.

Conclusion

Accepting cards opens your business to more customers—but it also opens the door to additional cost and complexity. By understanding how interchange fees (the built-in cost of card acceptance) and surcharges (your optional strategy to shift cost to customers) work, you’re better positioned to make strategic decisions.

Instead of reacting to rising fees, take control: review your statements, decide whether you’ll absorb fees (and build them into your pricing) or pass some onto card-using customers via a compliant surcharge, and ensure your approach fits your customer base, margins, and competitive situation.

Next step: Audit your latest merchant-statement, determine your true card-acceptance cost, evaluate your pricing structure, and assess whether a surcharge program might make sense for your business.