Just the other day I was on the road and stopped for a much needed coffee and croissant. As is very common in today’s marketplace the merchant had signage that it cost 4% to use a credit card. I paid with my Visa card and was still charged 4% to “cover the cost of payment processing merchant services fees”.
This “surcharge” exceeds the new threshold set by Visa. This merchant was using the dual pricing model, however is (likely unknowingly) in jeopardy of losing their merchant account or being fined if discovered. So the question is, is dual pricing or cash discounting creating more problems than it is solving?
In today’s evolving world of payment processing, more merchants are leaning on surcharge and dual pricing models to offset rising card acceptance costs. At first glance, it seems like a reasonable strategy—after all, credit card processing merchant services is expensive. But there’s a growing number of businesses being sold on 4% for ALL credit card transactions, and that raises a serious question: how long before Visa cracks down?
Visa’s rules are crystal clear: the maximum allowable surcharge (yes, this applies to cash discount and dual pricing) on credit card transactions is 3%. Yet we’re seeing more and more merchants charge 4%, usually under the guidance of a sales rep or processor promising a “zero-cost” solution.
So, is it sustainable? Is it ethical? And more importantly—is it fair to the merchant’s customers?
The Real Cost of Payment Processing
Let’s be clear— BIG offers dual pricing and we think it is a great tool for some merchants to use in offsetting their expenses and succeeding. We understand the very real burden merchants face when it comes to payment acceptance. Between interchange, assessments, monthly fees, and processor markups, it’s not uncommon for the total cost of merchant services to hit 3.25% or more, especially in high-risk or low-ticket verticals. However, most retail locations with an average ticket of $50 or more have an average effective rate under 3%.
These payment processing fees often make up one of the top three expenses to retail merchants and top two for ecommerce merchants.
So, it makes sense that many merchants are looking for relief. Dual pricing, cash discount, and surcharging programs offer a way to recover some of those costs by passing them on to the consumer. But there’s a fine line between cost recovery and crossing the compliance line. There is also no “one size fits all” price for merchants looking to offset their payment processing fees.
Who Really Benefits From That Extra % of Payment Processing Fees?
Here’s the part that often gets overlooked: merchants aren’t the ones profiting from these inflated surcharges. In fact, many business owners don’t realize they’re charging more than what’s allowed by the card networks and much more than the reasonable cost of merchant services.
What’s actually happening is this—representatives selling dual pricing programs are padding their margins by marking up the surcharge beyond what’s necessary to the maximum allowable amount. That extra 80 basis points (or so) becomes margin. Which can be great for an industry that runs on fractions of a percentage point, but is it good for the industry?
Look—we’re not here to knock hustle. Everyone deserves to make money for the services they provide. But when sales tactics drive non-compliant or misleading pricing models just to boost residuals, it becomes a problem for everyone:
- The merchant, who may face customer backlash or card brand penalties being passed down.
- The customer, who feels like they’re being nickel-and-dimed or bait and switched due to poor pricing displays.
- The integrity of the payment processing industry, which suffers from a growing trust gap and is often rated below that of used car salesmen (sorry car salesmen!).
Customers Are Starting to Push Back on Merchant Services Costs
We’re seeing more complaints from customers confused and irritated by surprise fees at checkout. Whether it’s labeled as “convenience fee,” “service fee,” or “non-cash adjustment,” or “employee benefits fee”; customers know when they’re being overcharged—and they’re voting with their wallets.
In industries where alternatives exist (retail, restaurants, service businesses), customer loyalty can be fragile. If your merchant services setup becomes a friction point in the transaction experience, that customer might not come back.
Merchants need to negotiate on surcharge models just like they would if they were paying the bill. Passing on excessive fees isn’t good for anyone. Is the short-term savings on payment processing worth the long-term damage to your brand? Or the lower ticket sizes due to customers using cash? Or for Salespeople and ISOs is the extra – extra profit worth your brand reputation?
Think That Your “Dual Pricing” Set Up is Exempt from Visa’s Surcharge Cap?
Want to see Visa’s written standpoint on the matter? Check out page 2 under the question “What is the difference between a “cash discount” and a surcharge?” in VISA’S U.S. Merchant Surcharge Q and A
“Moreover, when the cardholder is presented with their final bill for payment, the total price to be paid on a card must be displayed in full based on the total of the items being purchased as displayed by the merchant and not achieved by applying an additional fee for a card payment as it may appear to be, and may be treated as, a surcharge and subject to Visa’s surcharge rules. “
Where is the Balance in a Dual Pricing or Surcharge Program for Payment Processing Fees?
When it comes to payment processing costs, merchants often face the dilemma of whether to offset 100% of their fees or simply reduce them through smarter merchant services strategies. While surcharging and dual pricing programs can help recover or eliminate costs, it’s worth asking:
Should businesses really aim to eliminate every penny of processing fees?
After all, accepting card payments isn’t just a cost—it’s a convenience, a trust signal, and a proven driver of higher sales. The ability to accept credit cards expands your customer base, improves cash flow, and increases average transaction size. Isn’t that worth something?
Rather than trying to pass on the entire burden to customers—potentially creating friction at the point of sale—many merchants would benefit more from reducing costs through customized surcharge/dual pricing models, interchange optimization, ACH alternatives, and negotiating better merchant services agreements.
Ultimately, a reasonable investment in payment processing should be seen as part of doing business in a modern economy, not just a line item to eliminate at all costs.
When Will Visa Crack Down on Payment Processing Surcharging?
Visa has already made it clear that anything above 3% violates their rules – regardless of what the program is called or how it is presented. Visa claims that its main objective is for consumers to have transparent pricing presented to them…
So far, enforcement has been light—but that won’t last forever. As more consumers complain, and more processors push the envelope, Visa and other card brands will likely tighten enforcement.
We anticipate:
- More audits and secret shopper programs
- Increased pressure on acquirers and ISOs to monitor their merchant portfolios
- Stricter penalties for non-compliance
Merchants (and salespeople) relying on non-compliant programs should seriously reconsider their options—because when enforcement comes, it won’t be subtle.
While Visa’s official written ruling on if it considers Dual Pricing/Cash Discounting a surcharge are still murky they have verbally stated that the cap applies to all programs.
Merchants may refer to Visa’s “Merchant Surcharge Q & A” for more information on how to comply with Visa’s regulations. However, it states that a Cash Discount/Dual Pricing model “… be treated as, a surcharge and subject to Visa’s surcharge rules.” Thus no Visa card may have a card differential of 4%.
There’s a Better Way to Approach Merchant Services
At Bankcard International Group, we help businesses reduce the cost of payment processing through compliant and customer-friendly strategies. Whether that’s a properly structured surcharge or dual pricing program, ACH and eCheck solutions, or interchange optimization, we believe in helping merchants save money or eliminate costs without risking penalties or damaging customer relationships.
There’s no shortcut worth losing a customer—or your merchant account—over.
Zero Cost Payment Processing, Done Right
The “Zero Cost” payment processing movement has been great for some in the merchant services industry but it has created lazy service representation, deceptive sales tactics, and created friction at the checkout. The increasing cost of merchant services is a real problem, and merchants have every right to seek relief. But there’s a difference between recovering costs and pushing the limits for profit. Charging more than Visa’s 3% cap isn’t just risky—it’s short-sighted.
If your business is currently using a 4% model, now’s the time to re-evaluate. There are smarter, more sustainable ways to manage payment processing costs—and we’re here to help you find them.
BIG is more than a payment provider -we are a partner in your success and will consult with you to find the best possible solution for your specific business model. One that keeps your customers happy and your sales growing!
Want a second opinion on your current setup?
Contact us today for a free consultation and see how we can help you stay compliant, reduce fees, and keep your customers happy.
