Surcharging, Cash Discounts, and Dual Pricing
The card network rules and state laws that decide whether you can pass card fees to customers, and how surcharges, cash discounts, and dual pricing differ.
By Are You Losing Money editorial team · Updated · 4 min read
Short answer
A surcharge adds a fee to credit card purchases, a cash discount lowers the posted price for cash, and dual pricing shows both prices side by side. Under Visa's rules a credit surcharge cannot exceed your cost of acceptance or 3%, whichever is lower, requires 30 days' notice to your acquirer and clear disclosure, and can never apply to debit or prepaid cards. Some states restrict surcharging, so check your state's current law first.
Key takeaways
- Surcharges apply to credit cards only. Visa's rules prohibit surcharging debit and prepaid cards, even when the customer chooses credit at the terminal.
- Visa caps a surcharge at the lower of your merchant discount rate for that card or 3%.
- You must notify your acquirer 30 days before you start, and disclose the surcharge at the store entrance, at checkout, and on the receipt.
- Each store must follow the law of the state it sits in, so a business with locations in several states may need different approaches.
Three ways to recover card costs
| Approach | How it works | Who pays more |
|---|---|---|
| Surcharge | A fee added to the bill when a customer pays by credit card | Credit card customers |
| Cash discount | Posted prices include card costs; cash customers receive a discount | Everyone except cash customers pays the posted price |
| Dual pricing | Two prices are shown for each item, one for cash and one for card | Card customers, based on the higher listed price |
The three can look alike to a customer, and the rules for each are different. Card networks, state laws, and your processor all have a say.
Visa's surcharging rules
Visa publishes a merchant question-and-answer guide on surcharging. Its core requirements for U.S. merchants:
- Notify your acquirer at least 30 days before you start. Your acquirer is the bank behind your processor. Your processor can tell you how to submit the notice.
- Surcharge credit cards only. Debit cards and prepaid cards cannot be surcharged. This applies even when a customer presents a debit card and selects credit at the terminal.
- Cap the amount. The surcharge cannot exceed your merchant discount rate for that credit card or 3%, whichever is lower.
- Disclose it. Signs must appear at the point of entry and at the point of sale, online and in store, and the surcharge must appear as a separate line on the receipt.
Visa also provides sample signage. Mastercard, Discover, and American Express each publish their own rules, so read all of them if you accept all four.
State laws
Visa's guide notes that some state laws prohibit or limit surcharging. State rules change, and several have been revised in recent years, so check the current law in each state where you have a location before you start. Visa's guide also makes clear that each store follows the law of the state where it is located. A business with stores in two states may be able to surcharge in one and not the other.
For anything beyond the basics, a short consultation with a lawyer familiar with your state's consumer protection law is inexpensive insurance.
Cash discount programs
A cash discount program builds the cost of card acceptance into your posted prices and gives customers who pay cash a discount. Because the posted price is the card price, debit and credit customers pay the same amount, and cash customers pay less.
Two cautions:
- Signage and receipts must be clear about the posted price and the cash discount.
- A program that adds a fee at the register is a surcharge, whatever it is called. If the price on the shelf goes up when a customer hands over a card, surcharge rules apply, including the ban on surcharging debit cards.
Dual pricing
Dual pricing shows two prices for each item, one for cash and one for card. It is common at gas stations and increasingly common elsewhere. The customer sees both prices before choosing how to pay. As with cash discounts, check your processor's requirements and your state's rules for how both prices must be displayed.
Whether to pass on card costs at all
Recovering card costs can protect thin margins, and many customers accept it when it is disclosed clearly. It also has costs of its own: some customers dislike surcharges, staff must explain them, and setup and compliance take time.
Before adding a fee, make sure the cost you are passing on is fair. If your effective rate is well above what your card mix suggests, lowering it by negotiating or changing your pricing model saves money without asking customers for anything. Our plan for negotiating lower processing fees is a good first step, and our guide to interchange fees explains the costs a surcharge is meant to cover.
Frequently asked questions
Can I surcharge debit card purchases?
Visa's rules prohibit surcharging Visa debit and prepaid cards in the U.S. This includes debit cards run as credit when the customer chooses credit at the terminal.
Do I need to tell my processor before I start surcharging?
Yes. Visa requires merchants to notify their acquirer at least 30 days before they begin surcharging. Your processor can explain how to submit that notice and may have its own setup requirements.
How much can I surcharge?
Under Visa's rules, no more than your merchant discount rate for the credit card used or 3%, whichever is lower. Other card networks publish their own caps, and state laws may set lower limits or ban surcharges.
Is a convenience fee the same as a surcharge?
Convenience fees follow separate card network rules and generally apply to an alternative payment channel, such as paying a bill online instead of in person. Check the network rules and your state's law before charging one.
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