Surcharge, Cash Discount and Cost Recovery Explained

By: Bart Kohler ETA CPP, Paynuity

Simply put, If you go to purchase something and the price goes up when you pull out your card instead of cash, that is a surcharge. A fee that is in addition to the posted price. Many businesses are now implementing these methods to recover fees from processing the cards by passing those fees in part to the customer.

Depending on the state or country you are in surcharging may be prohibited, capped or controlled by the processor or their policies. When implemented incorrectly a surcharge can be confused with other types of fees and can also be construed as a non-compliant deployment of a surcharge program resulting in potentially high monthly fines until remediated.

Surcharging differs from other forms of cost recovery programs. If the cost goes DOWN at the register when the customer pays with cash, that would typically be called a discount or cash discount program. We will dig into that a little deeper soon. For now we will stick to just surcharging.

Example: You see a product priced at $50.00 but you are charged $51.50 In this case you have been charged a surcharge of 3% the price went UP at the register that is a surcharge.

Compliant Surcharging has rules, caps. NCA noncompliant acceptance methods are risky and penalties can be very stiff for ISO’s and merchants. Be in the know and keep up with the changes.

What’s the Hubbub Bub?
Recently there has been a lot of attention on the practice of surcharging and more specifically the mis application of surcharging. The practice of non-compliant surcharging poses potential financial implications to the merchant, the ISO, and the acquirer as it can result in violations and associated fee assessments issued by payments networks. If not resolved these violations can lead to determination of non-compliant surcharging also an NCA / Non-Compliant Assessment.

Understanding the rules related to surcharging is essential for a merchant to comply with legal requirements, maintain customer trust, enhance the overall customer experience, and manage financial aspects effectively. It also helps the merchant navigate the complexities of payment processing and potential risks associated with non-compliance acceptance methods.

The Cons
The implementation of a compliant cost recovery method can be complex. Laws and regulations are fluid and subject to changes which sometimes are not widely known. An uninformed business may suffer from the down side and potential risks of operating a non-compliant cost recovery program. Some important risks for the merchant to consider when considering or evaluating a surcharge program include customer dissatisfaction and reduced customer loyalty,

Complexity in pricing structures increase the potential for confusion and frustration for both customers and merchants. Merchants may realize a negative impact on their businesses reputation if not implemented with clear communication and transparency. Steering customers towards less expensive payment methods may create additional risks and inefficiencies for emergent compliance with varying regulations and payment network rules it can be complex for business owners. Keeping up with changing rules and laws can be time consuming or a costly if the merchant experiences legal issues and fines for non-compliance.

What Lies Ahead
Predicting the future of surcharging, Cash Discounting, and other Compliant Cost Recovery methods can be challenging as it can be influenced by various factors including changes in laws, consumer behavior, and payment industry trends. The expectation is that surcharging will continue to grow under the current framework. There is no indication that the surcharging that is in place in the market today will ease or go away. The legalities and the future of surcharging will depend on the legal and regulatory environments in different countries, regions and states. Some places may continue to ban a restrict surcharging while others may implement new regulations to govern it’s usage. This could lead to a patchwork of rules and varying acceptance of surcharging globally.

End User
Consumer acceptance and tolerance for these practices will play a role in their future if consumers continue to express dissatisfaction with cost recovery programs businesses may be hesitant to implement them to avoid negative impacts on their customer base and brand reputation.

The policies of payment processors and card networks can influence the adoption of cost recovery programs if these entities change their guidelines or fee structures it may impact how businesses approach cost recovery programs whether they can even choose to implement it at all. As payment technologies and regulations evolve businesses will need to adopt their practices to remain compliant and customer centric at the same time.

As the payments industry continues to evolve new innovative payment methods may emerge that have different fee structures businesses may shift towards encouraging the use of more cost effective payment methods like digital wallets or contactless payments rather than relying on traditional credit card charges.

Businesses Utilizing different forms of Cost Recovery
Cost recovery methods are utilized by various types of merchants or businesses, especially those that accept credit card payments or other payment methods that come with processing fees. Some examples of merchants that may impose fees for card usage include:

    Some retailers utilize cost recovery methods to offset the cost of credit card processing
    fees if a customer uses a card to make a payments.
    Utility providers may impose convenience fees on a customer who chooses to pay
    their bill using a credit card or other form of payment.
    Some hospitals may apply surcharges on certain payment methods like credit cards
    to cover the fees incurred during electronic transactions.
    Local governments or municipalities may also impose convenience fees on residents
    who pay their bills using credit cards or other payment methods.
    Restaurants may apply surcharges on specific payment methods, such as credit
    cards, in order to cover the fees associated with electronic transactions.
    Ticket purchases for events or travel may have a fee added to cover the cost of
    payment processing.
    Online businesses sometimes charge their customers who pay with payment cards
    that cost them money in fees.
    When making a donation to a nonprofit organization, the organization may ask the
    donor to pay a fee to cover the processing cost associated with the contribution.

By implementing cost recovery methods, these merchants or businesses aim to offset the expenses incurred from payment processing fees and maintain their profitability.


Is it necessary to display a sign regarding surcharges?
According to payment network rules, merchants are required to have signage at both the entrance and the point of sale. These rules outline specific requirements for the signage to ensure compliance. The language on the signs must not criticize the payment networks or imply that the fee is imposed by or benefits anyone other than the merchant. Visa provides surcharge disclosure signage in the appropriate typeface and font size, and the service charge disclosures signage is available on

Can I offer a discount by charging a non-cash adjustment when a customer uses a payment card?
No, according to payment network rules, it is not allowed. A surcharge refers to any fee charged by the merchant for using a payment card, which means that utilizing a non-cash adjustment (NCA) would fall under the surcharging rules specified in the MasterCard rules, Visa core rules, or Discover acquire regulations.

Why is cash discounting allowed?
Cash discounting is permitted by the Cash Discounting Act established under 15 US Code 1666F, which is a federal law in the United States. This law allows merchants to offer a discount for cash payments, also known as cash discounting.

About the Author
Bart Kohler, ETA CPP is the Chief Revenue Officer, Head of Payment Processing at Paynuity.
As a Certified Payments Professional of the ETA, Bart is a 20 year veteran of the electronic payments industry. He has formed several successful payments companies including Merchant Services Center and AllCardUSA. Bart is currently the Chief Revenue Officer and head of Payment Processing for Paynuity.