Understanding Surcharging: Types, Pros & Cons, and Regulations

Surcharging is a payment processing practice where a merchant charges a customer an additional fee, above the listed price of the goods or services being purchased, to cover the costs associated with processing the transaction. This can include fees for card brand interchange, assessments, and other expenses.

There are different types of surcharging, including:

1. Card-present surcharging: This type of surcharging is applied when the customer uses a credit or debit card to make a purchase in person, at a store or restaurant, for example. The merchant will add a surcharge to the total amount of the sale to cover the costs of processing the transaction.
2. Card-not-present surcharging: This type of surcharging is applied when the customer makes a purchase online or over the phone, as these transactions are considered higher risk and require additional security measures. The surcharge is typically added to the total amount of the sale, plus any shipping or handling fees.
3. Selective surcharging: This type of surcharging allows merchants to apply a surcharge only to certain types of cards, such as rewards cards or premium credit cards, which have higher interchange fees.
4. Tiered surcharging: This type of surcharging involves applying different surcharges based on the type of card used and the transaction amount. For example, a merchant might charge a lower surcharge for small transactions, but a higher surcharge for larger transactions.

Surcharging can be a controversial practice, as some consumers may feel that it is unfair to be charged an additional fee for using a credit or debit card. However, merchants argue that surcharging helps them to offset the costs associated with processing card payments, which can be significant, especially for small businesses. Some states and countries have laws regulating surcharging, so it's important for merchants to understand the rules and regulations in their area before implementing a surcharging program.