What Is A Surcharge? How It Works, Types, and Examples

If your industry is burdened by exorbitant processing fees, credit card surcharges can potentially help. After all, businesses that operate in higher-risk industries often have to deal with steeper costs due to increased fraud risks and chargeback rates.

If you implement surcharges on transactions, you must disclose the total amount to customers before delivering services or accepting credit card payments. Understanding the laws surrounding these charges is also essential. Certain states, including Colorado, Maine, and Massachusetts, restrict or, in some cases, prohibit the use of merchant surcharges. ^[1]Visa. “U.S. Merchant Surcharge Q and A“. Accessed on April 9, 2025.

Credit card processing fees can be frustrating for both businesses and customers. In that respect, surcharges can help mitigate the extra expense of accepting credit cards without raising base prices. In this guide, we’ll discuss everything you need to know about surcharges, including common types, how they affect customer buying patterns, and critical regulatory considerations.

• Surcharges can offset costs associated with providing specialized services, regulatory compliance, or operating during peak business hours.
• Popular examples include convenience fees, credit card surcharges, and service charges.
• Customer transparency should remain a top priority. Be sure to explain why you have instituted these charges and how you will use them.

What Is a Surcharge?

Surcharges are extra fees added to the base price of a service or product. They often exist as flat rates or percentage-based costs added to the total purchase price.

There are several types of surcharges. For example, rideshare companies often charge extra to pick up passengers from rural or off-the-grid areas. Similarly, online stores may charge extra for fast shipping. Amounts can depend on a number of factors, including the industry in question, preferred payment methods, and more.

Types of Surcharges

One overriding goal of instituting surcharges is to lower the overall costs of processing credit card payments. When applied correctly, these charges help cover standard credit card processing fees.

These fees cover the expenses of delivering products to paying customers. For example, you may charge a supplementary fee for the delivery of an unusually heavy package that may require additional fuel and labor to transport.

Businesses may add environmental charges to alleviate the burden of regulations and sustainability practices. This is common in manufacturing, waste management, and the oil and gas industry.

A convenience fee applies when a customer uses an alternative, non-preferred payment method. For instance, a business that typically accepts cash might charge a convenience fee if a customer decides to use a credit card.

Service charges typically cover costs associated with labor-based services and amenities. These fees are standard in hotels, bars, and restaurants.

How Surcharges Work

Businesses sometimes use surcharges to offset costs related to fuel, shipping and handling, and more. Merchants implementing these fees must follow guidelines to steer clear of legal penalties.

The laws that govern surcharges vary by state, country, and industry. Here are a few key regulations to consider:

The Durbin Amendment was passed in 2010 to regulate interchange rates on debit card purchases. While this may seem advantageous for large-scale merchants, some small businesses have suffered because certain banks have increased fees on debit card transactions. This incentivizes consumers to use credit cards as an alternative.

Merchants can also exercise their right to negotiate lower rates with payment processors. However, merchants cannot impose surcharges on purchases made with a debit card.

Below are some of the most commonly encountered categorical methods for calculating surcharge amounts:

• Flat-fee surcharges: The customer is charged a fixed amount.
• Percentage-based surcharges: A surcharge is imposed as a percentage of the customer’s total spend.
• Tiered surcharges: Customers pay depending on specific spending tiers.
• Index-based surcharges: Charges are based on fluctuating indexes (e.g., fuel index rates).

Each method has pros and cons. The flat-fee option is the least complicated, though it may not cover all auxiliary expenses for major purchases. Using percentage-based or tiered surcharges solves this problem; the downside is that it is not as straightforward as the flat-fee alternative. An index-based approach can work if your operating expenses are prone to fluctuation.

Implications for Businesses

Surcharges can help businesses of all shapes and sizes cover costs such as:

Following all legal requirements is critical to implementing surcharges on a state and federal level. As mentioned earlier, card networks also impose rules about when and how these costs can be applied.

Recently, Visa revised its policy regarding the credit card surcharging cap, lowering it within its network from 4% to 3%. This development has led to added challenges for small businesses, especially those in high-risk industries like gambling and firearms.

Regardless of how transparent you are in your disclosures, surcharges still equate to extra fees for your customers. Unexpected checkout fees or charges not disclosed in advance can lead to customer dissatisfaction or cart abandonment. Ideally, you always want your buyers to walk away from a transaction feeling excited about their purchase and ready to recommend your services.

You can build customer trust by transparently disclosing the total purchase amount before delivering services or requesting payment information. Strong communication and responsive customer service are key.

Implications for Consumers

It’s crucial to outline additional fees clearly and explicitly and ensure that your customers know what they’re paying for (e.g., faster shipping and enhanced service during peak hours).

Just as businesses should familiarize themselves with local statutes, customers can better understand their rights and protections by educating themselves on surcharge-related regulations. 

Best Practices for Implementing Surcharges

Giving your customers a heads-up about convenience or delivery fees builds long-term trust. With this in mind, charging unexpected or hidden fees at checkout translates to bad business practices and may even be illegal in certain circumstances. 

Above all, all buyers want a fair deal. To avoid confusing your regular customers, keep fees minimal and find ways to offer viable alternatives.

Macroeconomic conditions, fluctuating input costs, and regulatory changes can all impact the cost of providing goods and services to your customers. Consistently reviewing existing fees ensures that your payment structure is up-to-date and that you are providing your customers with fairness, transparency, and requisite legal compliance.

What Are Some Examples of Surcharges?

Below are some examples of how businesses may impose a surcharge:

Which States Allow Credit Card Surcharges?

Most North American states allow businesses to implement credit card fees and surcharges. However, specific states have outlawed or placed legal restrictions on them.

It is illegal for businesses to impose surcharges in the following states: ^[2]Acquisition.gov. “6.6 Surcharges“. Accessed on April 9, 2025.

Using a Secure Payment Processing System for Managing Payments

When implemented effectively, surcharges can help cover assorted business costs. That said, imposing them fairly and legally is critical. When you choose to work with a reputable merchant services provider, you can ensure that your business thrives while falling well within the boundaries of legal compliance. 

As a trusted leader in high-risk payment solutions, PaymentCloud is ready to support your business needs. Our trained experts are committed to providing dedicated assistance, seamless integration options, and top-tier support. Apply today to experience unmatched security, convenience, and peace of mind.