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Merchants are increasingly levying surcharges on purchases made with credit cards to help offset processing fees, a new study from J.D. Power finds.
Some 34% of merchants surveyed are adding surcharges for credit card transactions, the study says. The study also found that flat-rate pricing lends merchants greater impetus to add surcharges on credit card transactions. And new and small merchants are more likely to pass along processing costs to their customers through surcharges.
“Card-transaction costs, inflationary pressures, and small-business economic concerns together are the drivers of surcharges,” John Cabell, managing director of payments intelligence for J.D. Power, says by email.
Another factor fueling the surcharging trend is that merchants are becoming more comfortable levying surcharges on credit card transactions due to the “increasingly ubiquitous presence of service fees, tips, and other extra charges that consumers now encounter” Cabell adds. As a result, merchants are “creating an environment where businesses can also afford to gamble with card surcharges,” Cabell says.
Cardholder rewards may also be playing a role. “It is also worth noting that many consumers are relying on payment with credit cards to accumulate ever-increasing rewards, so in some ways surcharges are the cost of U.S. consumers’ thirst for more cashback and points,” Cabell adds.
For its study, J.D. Power surveyed 3,841 small businesses from August through October 2024.
One risk of surcharging on credit card purchases is that the additional fee may sour consumers on using their credit cards. Some 41% of credit card users said they decided not to use a card payment at a large or small business because of a surcharge, according to the study, which was released earlier this month.
“For some consumers a surcharge does increase friction in the payment experience,” Cabell says. “An accumulation of enough friction points, or the wrong friction points, in the customer experience can ultimately cause customer defection in cases where the consumer has a purchase alternative.”
Cabell adds that J.D. Power does not have any direct evidence credit card surcharging is hurting merchants.
The study also found that merchant satisfaction with the overall cost of payment processing services among small businesses that implement these credit card surcharges is 24 points lower on a 1,000-point scale than among those that do not add a credit card surcharge.
Areas where merchant dissatisfaction is most acute include data security and protection and advice and guidance from the processor on running their business, the study says.
“One in five merchants do not feel their processor completely protects them from fraud, and when fraud does occur, 6% now do not think their processor supported them at all,” Cabell says. “These are both significant declines from [the] prior year.”
Cabell adds that as small businesses continue to expand the payment options they accept, many are seeking more support and guidance from their merchant-services providers and passing along their processing costs to customers. Slightly more than half (53%) of the small businesses surveyed said it is extremely or very easy to add a payment method on their processor’s Web site.
“The challenge of changes in the technology and related costs are hurdles for [small businesses] as they expand their payment offerings,” Cabell says.
Overall, Shopify was the highest-ranked processor in the study, with a score of 711, followed by Chase Payments Solutions with a score of 709 and PayPal Holdings Inc. with a score of 708. Square and Bank of America round out the top five with satisfaction scores of 705 and 704, respectively. No other processor posted a satisfaction score above 700.
