Who Should Pay Credit Card Fees? Business vs. Customer – Pros and Cons
When it comes to accepting credit cards, one unavoidable question for businesses is: who should cover the processing fees — you, the business owner, or your customers? With providers like Stripe, Square, and others charging 2.9% to 3.5% per transaction, that cost adds up. Below, we break down the pros and cons of each approach to help you decide what's best for your business and your customers.
Option 1: The Business Covers Credit Card Fees
✅ Pros:
Customer-Friendly Experience: Most customers appreciate not seeing surprise charges at checkout. Absorbing the cost creates a smoother, more pleasant purchasing experience.
- Builds Trust & Loyalty: When businesses don't add processing fees, it can help foster long-term trust. Many consumers perceive it as a sign of professionalism and good customer service.
- Competitive Advantage: If your competitors charge fees and you don't, that can give you an edge.
❌ Cons:
- Reduces Your Margins: On every $100 purchase, you may lose $3–$4 to processing fees. For businesses with tight margins, this can quietly erode profitability.
- "Silent Tax" on Growth: As you grow and process more payments, the hidden cost of those fees can grow significantly.
- Can Dissuade High-Volume Sales: These fees take a larger bite over time for big-ticket items or recurring charges.
Option 2: The Customer Covers Credit Card Fees
✅ Pros:
- Protects Your Profit Margin: Keeping the full transaction value helps preserve your earnings and allows more flexibility for reinvestment or scaling.
- More Transparent Pricing: Some business owners prefer to keep pricing and processing separate so the customer understands the true cost of convenience.
- Encourages Cash or ACH Payments: Surcharges can push customers toward lower-fee payment methods like ACH or checks.
❌ Cons:
- Risk of Customer Friction: Many customers feel "nickel and dimed" by extra service fees, especially when not expecting them. It can create a negative impression.
- Possible Lost Business: Some shoppers will go elsewhere if another business includes fees in their prices rather than passing them on.
- Legal Restrictions: In some states or regions, adding a credit card surcharge is regulated or prohibited. Always check local laws before charging extra.
Final Thoughts
Ultimately, deciding who should pay credit card processing fees depends on your business model, profit margins, customer base, and competitive landscape. There's no one-size-fits-all answer — just trade-offs to weigh carefully. Whether you absorb the cost or pass it along, be transparent and consistent with how you handle it. Your customers will appreciate clarity, and your business will benefit from a well-thought-out approach.