The $847 Wake-Up Call
I'll never forget opening my merchant statement in March 2019 and seeing $847 in processing fees for a single month. My coffee shop had done about $28,000 in sales, which sounds great until you realize nearly 3% vanished into credit card processing costs.
That's when I seriously started asking myself: should I pass credit card fees to customers?
Here's the thing: I'd been eating those costs for two years, thinking it was just "the cost of doing business." And honestly, for a while, it was manageable. But as card usage increased (and it *really* increased after 2020), those fees became my fourth-largest expense after rent, labor, and inventory.
So I did what any desperate business owner would do—I started researching surcharging programs. What I learned changed how I think about payment processing entirely.
What Does It Actually Mean to Pass Credit Card Fees to Customers?
Let me explain the basics first, because there's a lot of confusion out there (and I contributed to it early on).
When we talk about passing credit card fees to customers, we're really talking about three different approaches:
Credit card surcharging: Adding a fee specifically to credit card transactions, typically 2-4%. This is what most people mean when they discuss passing fees along.
Cash discounting: Setting higher "regular" prices but offering a discount for cash payments. It's basically surcharging in reverse.
Convenience fees: Charging extra for specific payment channels, like online or phone payments. (This only works in certain situations, though.)
I've tried all three approaches across different businesses. Each has its own quirks.
The Legal Maze Nobody Warned Me About
Before you do anything, you need to know this: the legality of surcharging varies wildly by state. Back in 2019, some states still banned it outright. As of 2024, most states allow it, but Connecticut, Massachusetts, and Maine still have restrictions.
I learned this the hard way when I almost implemented surcharging at a location in Colorado without realizing there were specific notification requirements. Would've cost me some serious headaches.
You'll also need to follow card brand rules (Visa, Mastercard, etc.), which require you to:
- Register your surcharge program with the card networks 30 days in advance
- Post clear signage at your entry and point of sale
- Show the surcharge as a separate line item on receipts
- Cap surcharges at 4% or your actual processing cost, whichever is lower
- Only surcharge credit cards (NOT debit cards—that's illegal everywhere)
Miss any of these? You could face fines or lose your ability to accept cards. Not worth it.
My Real-World Experience: Three Different Businesses, Three Different Outcomes
I've run businesses in coffee/retail, professional services, and e-commerce. Here's what happened when I experimented with passing credit card fees to customers in each.
The Coffee Shop: A Cautionary Tale
In my coffee shop, I implemented a 3% surcharge in summer 2020. The timing was terrible (though I didn't know it yet).
Within three weeks, I'd lost about 8-10% of my regular customers. People were *not* happy. I got complaints daily. One regular literally said, "You're nickel-and-diming us during a pandemic." That stung.
The math was brutal: I was saving maybe $650/month in fees but losing $1,200+ in revenue from lost customers. I killed the program after two months and never looked back.
Why did it fail? Coffee is an emotional purchase. People have options. And a $4.50 latte suddenly costing $4.64 feels different than it should. The psychology was all wrong.
The Consulting Business: Smooth Sailing
Now, my consulting business was a completely different story.
I implemented credit card surcharging in late 2020, and you know what? Not a single complaint. Clients were paying $2,500-$8,000 per project, and an extra 3% didn't even register. Most didn't even notice it on their invoices.
I saved about $400-600 monthly, which added up to roughly $6,000 annually. For a service business with higher transaction values, it was a no-brainer.
The difference? B2B transactions, higher ticket prices, and less price sensitivity. My clients cared about results, not whether they paid $5,000 or $5,150.
The E-Commerce Store: The Middle Ground
My e-commerce experience fell somewhere in between. I tried cash discounting (since surcharging is trickier online), offering 3% off for ACH transfers or cryptocurrency payments.
About 12% of customers took me up on it, which was honestly better than I expected. That meant I reduced processing fees by roughly 12% without losing any customers. I'll take that trade any day.
The Hidden Costs Nobody Talks About
Here's what I wish someone had told me before I started: passing credit card fees to customers isn't free.
Implementation costs: Setting up a compliant surcharging program cost me around $200-400 depending on the processor. Some processors charge monthly fees for surcharge programs ($15-30/month).
Signage and compliance: I spent about $150 on proper signage, receipt modifications, and website updates. Small potatoes, but still a cost.
Customer service time: This is the big one. I spent *hours* explaining surcharges to confused or angry customers in that first month. If you value your time, this adds up fast.
Potential revenue loss: As I learned with the coffee shop, some customers will leave. Period. You need to calculate whether the fee savings outweigh the revenue loss.
When Passing Fees Actually Makes Sense
After eight years of trial and error, here's my honest assessment of when you should consider passing credit card fees to customers:
High-ticket B2B services: If you're selling $1,000+ services to businesses, absolutely consider it. They understand processing costs and often don't care about the percentage.
Professional services (legal, medical, etc.): Clients expect to pay for convenience. A 3% surcharge on a $3,500 legal retainer rarely causes issues.
Businesses with low margins: If you're operating on 5-10% margins (like many restaurants), those processing fees genuinely hurt. Surcharging might be necessary for survival.
When competitors are doing it: If other businesses in your industry have normalized surcharging, customers expect it. You're not the bad guy.
Government and utility payments: Nobody blinks at convenience fees when paying parking tickets or utility bills online. It's expected.
When You Should Absolutely Avoid It
On the flip side, I'd stay far away from surcharging if you're in:
Competitive retail: Unless everyone in your market is doing it, you'll lose customers to competitors who don't surcharge. Simple as that.
Low-ticket transactions: Adding $0.30 to a $10 purchase feels worse than adding $3 to a $100 purchase, even though the percentage is the same. Psychology matters.
Customer-service-focused businesses: If your brand is built on exceptional service and customer experience, surcharging sends the wrong message.
Businesses with price-sensitive customers: Know your audience. If your customers are watching every penny, they'll notice and care about a 3% increase.
The Alternative Approaches I Actually Recommend
Here's my controversial opinion: for most small businesses, there are better solutions than surcharging.
Negotiate Better Processing Rates
I spent six months in 2021 auditing my payment processing costs and negotiating with different processors. I reduced my effective rate from 3.2% to 2.4% just by switching providers and understanding interchange rates better.
That 0.8% difference saved me more money than surcharging ever did, without annoying a single customer.
Pro tip: If you're doing over $50,000 monthly in card volume, you have serious negotiating power. Use it.
Build Fees Into Your Pricing
This is what I do now in most cases. Instead of charging $100 + 3% surcharge, just charge $103 and eat the fee. Customers don't know the difference, and you avoid all the compliance headaches.
Yes, cash customers "subsidize" card customers. But honestly? In 2024, cash is maybe 10-15% of transactions for most businesses. The simplicity is worth it.
Offer Incentives for Preferred Payment Methods
Instead of punishing card users, reward cash and ACH users. "Pay by bank transfer and save 3%" feels better than "Credit cards cost 3% extra," even though mathematically they're identical.
Humans are weird like that. (And yes, I'm including myself in that assessment.)
Common Misconceptions About Passing Credit Card Fees
Let me clear up some myths I see constantly:
Myth 1: "It's illegal to surcharge credit cards." Not true in most states anymore. It was illegal until 2013, and some business owners haven't updated their information.
Myth 2: "Customers will understand and accept it." Some will. Many won't. Don't assume rationality here—purchases are emotional.
Myth 3: "You can surcharge debit cards too." Nope. This is illegal everywhere under the Durbin Amendment. Only credit cards can be surcharged. I've seen businesses get into trouble over this.
Myth 4: "It's a set-it-and-forget-it solution." You need to monitor compliance, update signage, train staff, and manage customer complaints. It's ongoing work.
Myth 5: "All payment processors support surcharging easily." Ha! I wish. Some processors make it stupidly complicated or charge extra for the privilege. Shop around.
How to Implement Surcharging the Right Way (If You Decide To)
Alright, so you've decided to move forward. Here's the process I follow now, having learned from my mistakes:
Step 1: Check your state laws. Seriously, start here. I can't stress this enough.
Step 2: Talk to your payment processor. Some support surcharging programs (Payment Depot, Stax, and Dharma are solid options I've worked with). Others make it needlessly difficult.
Step 3: Register with card brands. Your processor should help with this, but it's your responsibility to ensure it happens 30 days before you start.
Step 4: Update all customer touchpoints. Signage, website, receipts, invoices—everywhere customers see pricing needs to clearly indicate the surcharge.
Step 5: Train your staff thoroughly. They need to explain it calmly and consistently when customers ask (and they will ask).
Step 6: Monitor and adjust. Watch your sales data, customer feedback, and actual fee savings. Be prepared to kill the program if the math doesn't work.
The Signage That Actually Works
After testing various approaches, here's the wording that generated the fewest complaints:
"We offer a 3% discount for cash payments. Credit card transactions are charged our regular price plus a 3% processing fee, which goes directly to covering the costs charged by credit card companies."
Notice how it frames cash as a discount rather than cards as a penalty? Small thing, but it matters psychologically.
The Processors That Handle Surcharging Well
Since this is an independent resource, I can be honest: not all processors are created equal when it comes to surcharging.
Payment Depot: They've been solid for my higher-volume businesses. Membership-based pricing means you're not paying markup on the surcharge itself (which is ironic but happens with some processors).
Stax: Similar model to Payment Depot. Good for businesses doing $50K+ monthly. Their surcharge implementation is straightforward, which I appreciate.
Square: They added surcharging in 2022, and it's honestly pretty easy to implement. Not the cheapest option, but the simplicity is worth something for small businesses.
Stripe: Technically supports it, but you need to do most of the compliance work yourself. Fine if you're technical; annoying if you're not.
I'm not affiliated with any of these companies—just sharing what I've actually used and can speak to from experience.
My Personal Decision Today
So what do I do in 2024 after all this experimentation?
I don't surcharge in my retail businesses. The customer experience hit isn't worth the savings for me. Instead, I've negotiated better rates and built processing costs into my pricing.
I do surcharge in my consulting business. Clients don't care, and it saves me about $7,000 annually. That's meaningful money.
For e-commerce, I offer payment discounts for ACH and keep credit cards at regular pricing. About 15% of customers take the discount, which helps without creating friction for the other 85%.
Could I be leaving money on the table? Maybe. But I value simplicity and customer relationships over squeezing every dollar of margin. That's a personal choice, though—your situation might be different.
Questions to Ask Yourself Before Deciding
Rather than telling you what to do, here are the questions I'd ask if I were in your shoes:
What's your average transaction size? (Under $50 makes surcharging harder to justify.)
How price-sensitive are your customers? (Be honest here.)
What are your actual processing costs? (If you're paying under 2%, maybe it's not worth the hassle.)
Are competitors surcharging? (This matters more than it should.)
Can you absorb the potential customer loss? (Run the numbers pessimistically.)
Do you have time to manage compliance and customer service? (It's more work than you think.)
Would you rather just raise prices slightly? (Often the easier path.)
The Bottom Line: Should You Pass Credit Card Fees to Customers?
After everything I've learned, here's my honest take: it depends entirely on your business model, customer base, and competitive environment.
For high-ticket B2B services? Probably yes.
For competitive retail or low-ticket consumer businesses? Probably no.
For everything in between? You need to test carefully and be ready to pivot.
The businesses I see succeeding with surcharging share these traits: higher transaction values, less price-sensitive customers, and excellent communication about the fees. If that's not you, I'd explore other options first.
Look, I could be wrong about your specific situation. Every business is unique. But after implementing (and removing) surcharging programs across multiple businesses, I've learned that the "right" answer is usually more nuanced than "yes" or "no."
Start by getting your processing costs as low as possible through negotiation and shopping around. That's money saved without any customer friction. Then, if margins are still too tight, consider surcharging as a last resort rather than a first option.
And whatever you decide, make sure you're compliant. The fines for screwing this up are *way* worse than the fees you're trying to save.
What's been your experience with credit card fees? I'm genuinely curious whether your situation matches mine or if you've found different solutions that work. The payment processing space keeps changing, and I'm always learning.