Rising credit card processing fees are putting pressure on merchants across every industry. For Independent Software Vendors (ISVs), this presents both a challenge and an opportunity: can your platform support merchants in offsetting costs without hurting customer experience?
That’s where surcharging comes in. But can businesses charge a credit card surcharge legally and effectively? The answer is yes, under the right conditions. For ISVs, enabling compliant surcharging isn’t just about reducing costs. It’s about delivering value, maintaining trust, and differentiating your platform.
What Is Surcharging and How Does It Work?
A surcharge fee is an additional charge added when a customer pays with a credit card. Its purpose: to cover credit card processing fees, which typically range from 1% to 3% of the transaction amount.
ISVs that embed surcharging capabilities into their platforms can help merchants implement these programs compliantly. To support this, it’s important to distinguish between:
Surcharge Fees – Added only to credit card purchases to offset processing costs.
Convenience Fees – Applied when a customer chooses a specific payment method for convenience (e.g., paying online).
Cash Discounts – Merchants reduce prices when customers pay with cash or lower-cost payment methods.
Card networks such as Visa and Mastercard enforce strict rules about maximum surcharge amounts, eligible transactions, and disclosure requirements. ISVs must ensure their technology supports these conditions to protect merchants.
Evaluating Surcharging for ISVs: Key Benefits and Challenges
Benefits
Reduce Merchant Costs – Helps merchants offset processing costs, protecting their profit margins.
Strong Value Proposition – Gives ISVs a way to deliver tools that directly impact a merchant’s bottom line.
Transparency in Pricing – When presented clearly, surcharges demonstrate honesty about the cost of accepting credit cards.
Challenges
Customer Sensitivity – Poorly disclosed surcharges may frustrate end customers and lead to churn.
State Law Restrictions – Some states prohibit or tightly regulate surcharging, creating complexity for merchants.
Compliance Burden – Missteps in disclosure, signage, or calculation could result in disputes or penalties.
For ISVs, these challenges highlight the need for built-in compliance features, automated fee calculation, and education for merchant users.
Compliance and Legal Considerations for ISVs
Implementing surcharging isn’t as simple as “add a fee.” ISVs must build features that account for multiple layers of compliance:
Federal and State Laws – Some states restrict or prohibit surcharges altogether. ISVs must offer location-based logic to ensure merchant compliance.
Card Network Rules – Visa and Mastercard cap surcharges at 3% (or the actual processing cost, whichever is lower).
Debit vs. Credit Cards – Surcharges cannot be applied to debit or prepaid card transactions. Your system must detect and apply rules accordingly.
Disclosure Requirements – Clear messaging at checkout, on receipts, and even signage for in-person payments is required.
By addressing these areas inside the platform, ISVs reduce risk for their merchants and simplify adoption.
Which Merchants Benefit Most From Surcharging?
Surcharging isn’t a one-size-fits-all solution. ISVs should position it for merchants in industries where it delivers the most value:
High-Ticket Transactions – Jewelry, automotive, and B2B services, where surcharges are easier for customers to accept.
Tight Margin Industries – Fuel, healthcare, and restaurants, where absorbing fees could severely impact profitability.
Less Suitable Cases – Competitive retail or highly customer-sensitive sectors, where even small surcharges could damage loyalty.
Framing these use cases helps ISVs guide merchants toward smarter adoption.
Alternatives ISVs Can Offer Beyond Surcharging
Not every merchant will want or be able to surcharge. ISVs can strengthen their platform by offering alternatives:
Cash Discounting – Provide merchants with tools to incentivize cash or ACH payments.
Absorbing Fees Into Pricing – Adjusting product or service prices to cover processing costs.
Negotiated Processing Rates – Helping merchants access lower-cost options through your platform partnerships.
Offering flexibility positions ISVs as consultative partners rather than pushing a single solution.
How MSG Helps ISVs Deliver Compliant Surcharging
MSG equips ISVs with the tools and support needed to bridge the gap between technical integration and business enablement:
Seamless Integration – API-driven solutions to embed surcharging directly into your platform.
Compliance Automation – Logic to apply surcharges only where legal, within card network rules, and with proper disclosures.
Merchant Onboarding – Simplified workflows that help merchants adopt surcharging without friction.
Ongoing Education & Support – Guidance for ISV teams and merchants to implement surcharging strategically.
With MSG, ISVs don’t just check a compliance box. They deliver a revenue-preserving solution merchants actually trust.
Conclusion: Help Merchants Protect Margins Without Losing Customers
Surcharging can be an effective way for merchants to offset credit card processing costs, but it requires careful planning and compliance. For ISVs, offering surcharging capabilities strengthens your platform, adds measurable value to your merchant base, and positions you as a strategic partner.
Ready to differentiate your platform with compliant surcharging solutions? Contact MSG today to explore how our embedded payment tools can help you empower merchants while protecting their margins.
