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The Effect of Visa’s Surcharging Maximum Decrease on Businesses and Customers from 4% to 3%

Date Updated: April 6, 2023

Although the proposal is sure to encounter opposition, Visa intends to reduce the maximum surcharge that retailers and other merchants may apply when customers use their credit cards to make a purchase. This announcement is causing a commotion in the world of surcharging and payment processing.

The Basics

Visa, one of the largest payment networks for credit cards in the world, has revealed plans to restrict credit card surcharges by reducing the maximum credit card surcharge limit. This decision can significantly impact the small businesses that charge an additional fee on credit card transactions to cover the merchant’s cost of processing payments.

Visa credit card surcharge maximum brand level surcharge

In the article, we will delve deeper into the concept of adding additional convenience fees to purchases made using credit cards, as well as Visa’s own policies surrounding the legality of credit card surcharges, their reasoning for this shift, and the potential repercussions of this decision on the payment ecosystem.

Surcharging Fees Explained

wooden blocks fees charged financial institution implement surcharges

Surcharging is the practice of adding a small fee on top of a credit card transaction as a convenience fee. The practice of collecting an extra fee on credit card transactions allows businesses to recover some of the costs associated with accepting credit card payments from their clients. Such fees are typically a percentage of the total amount paid using a credit card. As costs continue to rise, merchants are learning to use credit card surcharges to pay their processing costs and maintain their business’ profitability.

Processing costs have been an ongoing conflict between merchants and the card brands who control them for years. Government agencies enforce strict credit card surcharge laws, such as listing the surcharge amount as a separate line item on a receipt, and some states even prohibit credit card surcharges entirely. Today, a few states allow the practice, making it a less vital option to help merchants pay their processing costs.

Surcharging vs. Cash Discount Programs

While both surcharging and cash discount programs seek to alleviate the expense of processing costs a merchant pays, they work in very different ways. Understanding these distinctions is crucial for retailers looking to navigate the evolving payment market and build the most affordable business management practices.

Credit Card Surcharging

Surcharging is the practice of applying an additional convenience fee, typically a percentage of the entire transaction value, to credit card purchases. As previously indicated, this strategy enables businesses to charge consumers for the cost of their credit card surcharges and processing expenses. In contrast, surcharging is governed by laws and caps, as demonstrated by Visa’s recent decision to lower its maximum fee threshold.

Cash Discounting

On the other hand, cash discount campaigns encourage customers to use money or other non-credit card payment methods by offering a discount on the total transaction value. Customers who pay with a recognized form of payment other than a credit card receive a discount on the merchant’s fees at the time of sale, even though the actual cost and quoted pricing for using a credit card are more significant under this strategy. This reduction of the cash price, up to 4%, helps merchants pay credit card processing expenses without explicitly punishing customers who pay with a credit card.

What’s the Difference?

The only noticeable difference between these two techniques of passing the cost of credit card processing to the user is that the additional cost is tacked on to the quoted price with surcharging. Cash discounting reduces the cost from the stated price when a means other than a credit card is used to make the payment.

The biggest compliance difference between these two payment options for retailers is that while surcharging credit cards is still illegal in some states and territories, cash discounts are accepted everywhere in the US.

Credit Card Surcharge Laws

Government agencies at both the state and the federal levels have guidelines regarding surcharging, and in some places, it is prohibited entirely. If a merchant adds a surcharge, it must disclose the fee amount to customers and is not permitted to charge more than what it actually costs to complete the transaction.

Customers who desire to avoid the surcharge fee can use an alternative payment method, such as physical money or a debit card, instead of using the credit card option. Merchants not looking to charge convenience fees may opt for other ways to reduce the total cost of their payment processing services, such as a cash discount program.

Restrictions on Credit Card Surcharges

Only two states and one US territory will continue to forbid credit card surcharging as of early 2023:

  • Connecticut

  • Massachusetts

  • Puerto Rico

Anti-surcharging laws in these states are still in existence. However, they are no longer entirely valid because of recent court rulings:

  • California

  • Florida

  • Kansas

  • Maine

  • New York

  • Oklahoma

  • Texas

  • Utah

Some states have even created their own rules for imposing surcharges on credit card purchases. In New York and Maine, state law requires merchants to post both the cash and credit card prices, including any convenience fees, as a separate line item. Government agencies and educational institutions can impose surcharges under different state laws and regulations, even in states where consumer firms are not permitted to do so.

Visa’s Reason for Reducing the Surcharging Maximum:

visa protect customers who use their card

Visa’s most significant motivation for lowering its maximum credit card surcharge level was a commitment to maintaining a fair and transparent payment system for consumers. By lowering the credit card surcharge level cap, Visa aims to protect customers from potentially exorbitant credit card surcharge fees and promote a more equitable payment environment.

Many regions have different anti-surcharging laws, and some have already set a cap on or prohibit surcharges entirely. Others have specifically outlawed the practice of adding a surcharge fee on debit cards and prepaid cards. The decision by Visa to lower its surcharge maximum lines up nicely with this legislation and shows the company’s dedication to protecting consumers.

The Effect on Merchants:

visa card brand surcharge maximum encourages customers to pay with credit

Before, businesses could add a processing fee of up to 4% to the total cost when customers paid with a credit card. Visa’s new maximum surcharge cap has been lowered to 3%, making it more enticing for customers to use their Visa cards for purchases rather than cash.

Visa’s new surcharge fee maximum will likely confuse financial institutions and merchant account providers alike. Small businesses that have been absorbing the cost of their credit card fees may benefit from a more level playing field due to lower credit card surcharges and convenience fees. They can effectively compete with merchants who have utilized a brand-level surcharge to cover their credit card fees.

In light of the card brand reducing the maximum surcharge cap placed on Visa cards, companies who have relied on credit card surcharges to cover the merchant’s costs for processing payments may want to reevaluate their pricing strategy and look into alternative ways of cutting costs. However, the potential for smaller firms’ financial viability to become increasingly insecure due to the reduction in Visa’s card surcharge maximum is real.

Consumer Effects on Credit Card Surcharging:

Visa’s decision to reduce its credit card surcharge maximum could result in lower overall credit card surcharging and merchant transaction charges. When businesses respond to the card brand’s new merchant surcharge cap, consumers may benefit from lower overall costs and merchant transaction credit card surcharges. This could result in more inexpensive credit card purchases, which could be balanced by requiring minimum purchase amounts.

Yet, it is crucial to be mindful that merchants’ responses to the shift will decide the extent to which customers are affected. To compensate for the revenue loss from the reduction of credit card surcharges, some businesses may raise product prices.

On the other hand, some businesses may opt to absorb their credit card and debit card fees or explore alternate payment methods with cheaper pricing for credit card surcharges and credit card processing fees.

Why Businesses May Still Offer Cash Discounts of Up to 4%:

Despite the changes in Visa’s surcharge limit, merchants can continue to run their cash-discount programs. This is because cash discount programs are not subject to the same restrictions and separate laws as surcharging. These types of discount programs are commonly viewed as a legitimate method through which merchants can avoid incurring additional costs due to credit card processing.

Benefits of CashDiscount Programs:

Cost Savings:

Cashdiscount program alternative method to eliminate processing fees

Merchants and financial institutions can encourage non-credit card transactions by offering discounted pricing and choosing not to charge convenience fees on these purchases. Businesses and educational institutions conducting a large amount of credit card transactions may save considerable money.

Cash discount programs are not required to follow the same restrictions and rules as surcharging programs since they do not include convenience fees for credit card transactions. This makes cash discount programs appealing to businesses trying to save money or offset processing expenses without violating payment card network restrictions, unlike credit card surcharges legal.

Customer Satisfaction:

These programs can assist in sustaining customer happiness by providing concrete incentives for utilizing other payment methods rather than credit card purchases. Rather than charge fees to save money, the merchant offers a discounted price to customers. This technique gives customers the impression that they are getting a discount for using a specific payment method instead of being charged a surcharge fee.


happy customer paying with credit card

The payment card network may face short-term interruptions while merchants and consumers adjust to specific rules around the new fee cap. Nonetheless, this move can potentially create a more egalitarian and cost-effective environment for credit card and debit card transactions in the long run.

Merchant and consumer reactions will ultimately determine the impact on financial institutions that Visa’s decision will have. Businesses can adjust to the ever-changing financial world of credit card processing by remaining updated about developments in the industry’s legal landscape and altering their pricing tactics accordingly.

While Visa’s move to lower its maximum cap for surcharge fees may impact surcharge strategies for managing credit card processing fees, cash discount programs remain viable and legally permitted. Merchants should make informed decisions regarding the best methods to offset processing costs while adhering to applicable state and federal laws and payment network guidelines and boosting customer satisfaction by understanding the differences between surcharge programs and cash discount programs.