Study Reveals Surcharging Deters Credit Card Customers

A new study from J.D. Power has uncovered that 32% of credit card customers walk away from a transaction and cancel the purchase when they see a surcharge has been added to the credit card transaction amount. 

Credit card issuers and merchants should consider this when they add surcharges to credit card transactions. There is a risk the customer will walk away without making a purchase. 

Some businesses will not be deterred from applying surcharges. Despite the risk of turning off customers, restaurants and new small businesses show the biggest increase in the practice of using surcharges on credit card purchases, according to the study from J.D. Power.

Overall, 35% of small businesses include surcharges for customers who pay with credit cards making it a popular practice despite the risk of some customers walking away from the transactions.

Sixty-one percent of merchants have at least one default screen on their point-of-sale hardware. These screens, which may include a surcharge, a tip, or a donation, make it easier to add charges to transactions. But the screens are a turnoff for some customers and contribute to higher transaction abandonment, according to the J.D. Power study.

Surcharges on credit cards help merchants cover the costs of credit card processing fees and improve a merchant’s profit margin, according to Business.com.

But not all merchants have the option of adding surcharges to credit card transactions. Merchants in California, Maine, Massachusetts, New York and Connecticut are prohibited from adding surcharges on credit card transactions, Business.com reports.

With or without surcharges consumers like the option of paying by credit card. Even customers who prefer paying for purchases with cash reached for a credit card or debit card for about 40% of in-person payments, according to a study by the Federal Reserve. 

A proposed settlement in November between Visa, Mastercard and merchants would allow merchants to charge higher surcharges on select credit cards such as cash back cards, premium cards, and cards with perks and rewards. 

So there is the possibility of choosing which cards to surcharge rather than assessing a flat surcharge on all credit cards.

Customers have more ways to pay and this means more competition for credit card issuers.

Ninety-two percent of U.S. merchants accept payments from digital wallets.

Buy Now, Pay Later transactions are accepted by 58% of businesses, up from 54% in 2024. In fact, BNPL is the fourth most accepted form of payment. Debit and credit cards remain on top and are accepted by 96% of merchants.

“The data in this year’s study spotlights a rising tension between business owners’ growing pressure to offer multiple payment options and their increased desire to pass processing costs onto retail customers, a shift that can negatively affect the customer experience.” said John Cabell, Managing Director of Payments Intelligence at J.D. Power.

Credit card surcharges are a way for merchants to offset the cost of credit card processing fees and they may help to improve profit margins. But some customers could be lost completely. Some people are so turned off by the additional charge that they walk away.

Losing a customer transaction is the risk of charging customers a surcharge on credit card transactions.