Published On: September 11th, 2023 / By / 3.5 min read /

Visa’s surcharge cap continues the trend of placing control away from merchants.

Visa’s intent to decrease the surcharge U.S. merchants can apply on credit sales is becoming a reality, yet independent sales organizations (ISOs) and other processors remain in limbo over the specifics.

In an announcement on Jan. 12 through Visa Business News, the card titan mentioned that its surcharge cap will drop from 4% to 3% on April 15, aligning with a surcharge rules revision. 

“The maximum amount for a credit card surcharge in the U.S. and merchants will be left to flip the bill.”

Although some industry players commend Visa’s implicit recognition of surcharges, others bemoan its ambiguous communication regarding this policy amendment. Requests for clarity from the San Francisco-headquartered card network, the U.S.’s largest, have yet to yield a response.

Merchants have traditionally applied surcharges to recuperate some interchange fees charged by card issuers and networks, such as Visa and Mastercard. With interchange fees seeing a growth of 16.7% in 2022, reaching a staggering $160.7 billion, this practice became more prevalent.

Contrastingly, Mastercard, the second-largest player, has opted to keep its 4% surcharge cap intact.

ISOs and agents that equip merchants with the necessary tools to process credit card transactions are still grappling with Visa’s decision. This, coupled with Visa’s enhanced scrutiny over surcharge infractions, has been a growing concern.

Jeremy Lessaris, CEO of Payment Brokers, emphasized that Visa’s distaste for varied surcharging and discounting initiatives aims to curtail them. “I believe Visa’s objective is to diminish differential pricing programs. This move seems like a continuation of their efforts to restrict merchants from managing their fees,” stated Lessaris, noting Visa’s past legal battles with merchants over surcharges.

Lessaris further delved into the practicality of the surcharge cap. The imposition of a 3% cap, in his view, might not cover the operational costs of some processors, let alone guarantee a profit.

Litigation seems a probable outcome of this policy shift. Only entities with significant resources, like major banks or processors, might challenge Visa’s stronghold, says Lessaris.

Lessaris also noted Visa’s punitive approach, which could spell trouble for merchants lacking ISO or processor support. As a precautionary measure, he’s been urging his clients to ensure both credit and cash pricing are visibly displayed to customers, advocating for a transparent pricing mechanism.

Lessaris’ concern isn’t isolated. As businesses grow increasingly integrated with POS and software systems with built-in payment functionalities, a monopolistic behavior emerges. This integration often binds businesses, creating a dependency which in turn makes alternatives expensive and less tempting, thereby suppressing free market choices.

One of the more overlooked aspects, however, is the sheer lack of transparency in this realm. The incorporation of unexpected fees, often buried deep within contractual jargon or masked in extensive statements, remains a significant burden for U.S.-based merchants. Over time, these stealthy increments can dramatically outpace the average merchant pricing, with some rates even surpassing 6%.

Jeremy Lessaris comments on this trend, saying, “The encroaching nature of these hidden fees jeopardizes the equilibrium of a competitive market. Merchants should be in a position to decipher their fees with ease, delegate these costs to customers when necessary, and encourage affordable payment options. But, with Visa’s latest move, steering towards these economical choices becomes even harder.”

This perspective underscores the need for an overhaul in the card processing sector. While Visa’s decision on the surcharge cap might seem like a singular event, it reflects a deeper systemic issue, where merchants are often placed on the back foot, struggling to navigate a maze of fees and policies.

Visa’s reluctance to shed light on their new policies further complicates matters. As Lessaris aptly put it, “In an industry where transparency is already a challenge, decisions like this push merchants further into the dark.”

The debate on surcharge caps is just a facet of the broader conversation about the power dynamic between card networks and merchants. As Visa moves ahead with its decision, many industry experts, including Lessaris, advocate for clearer communication and policies that put merchants in a position of understanding and control, rather than one of reaction and adjustment. Only time will tell if their voices will lead to a more balanced and transparent payments industry.

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