The world’s largest payment network is making changes to how it deals with merchants who want to charge customers extra when paying with a credit card.

In recent months, Visa Inc. lowered the maximum amount retailers can charge consumers using the firm’s cards. The company has also started sending in-person auditors to ensure stores are complying with its rules when levying such surcharges.

Visa’s moves come as a growing number of small businesses say they’re feeling pinched by the fees they pay to banks to accept electronic payments. They’ve increasingly turned to card surcharges as a way to cover those costs, which are also known as interchange fees.

“We’re just making sure that when consumers do get surcharged, it’s something that’s fair and equitable,” Visa Chief Executive Officer Ryan McInerney said on a conference call this week. “We don’t feel great that consumers get surcharged. But, of course, in certain jurisdictions in the US and around the world, merchants have the ability to do that.”

It’s become a familiar sight at small businesses across the country: signs at checkout noting that if a consumer pays with a credit card, there will be an additional fee. Or, at restaurants, waiters will deliver the bill and there will be one price for paying with cash and another for using a card. About 23% of small businesses said they charge an extra fee to customers using credit cards, according to a survey last year by payments consultancy Strawhecker Group.

Free Speech

It was a 2017 US Supreme Court ruling that paved the way for more widespread use of surcharges. The court ordered closer scrutiny of a New York law that barred merchants from imposing surcharges on credit-card purchases, saying the measure might violate retailers’ free-speech rights.

Today, all but two states allow merchants to impose surcharges on customers at checkout, though retailers still face a bevy of rules and restrictions on the practice imposed by Visa and rival Mastercard Inc., as well as myriad state and federal laws.

In New York, a growing number of bodegas and restaurants have turned to surcharges to counter the cost of accepting credit cards. While businesses are allowed to offer a discount if consumers pay with cash, they aren’t allowed to advertise one price and then add a surcharge at checkout if customers want to pay with a card.

There are signs that consumers are becoming frustrated with businesses’ widely varying surcharge policies. So far this year, the New York State Division of Consumer Protection has fielded 172 complaints tied to credit-card surcharges, almost as many as the 196 it received all of last year.

In recent months, Visa began sending in-person auditors to ensure merchants were applying surcharges properly, according to a client notice from payment processor Worldpay seen by Bloomberg News.

At the start of the year, the network could also begin fining merchants it found to be non-compliant, according to the notice. While the first violation results in only a warning letter, the second and third violations carry fines of $5,000 and $25,000, respectively.

Then, in April, the payments giant limited the amount merchants can surcharge to 3%, down from 4%. San Francisco-based Visa has long required merchants to give their payment processor 30 days’ notice before starting to surcharge consumers, and businesses aren’t allowed to impose a fee that’s more than the cost of accepting the card.

Interchange Fees

At the center of the debate are interchange fees. While Visa and Mastercard set the rates for those fees, it’s the banks that issue the cards that keep most of the fees.

Even if they amount to just pennies per purchase, those costs have been rising in recent years as more consumers use credit cards, which typically carry steeper interchange fees than debit cards. In all, US merchants shelled out a record $160.7 billion on these so-called swipe fees last year, up 16.7% from 2021, according to the Nilson Report industry publication.

It’s not just mom and pop shops increasingly leaning on surcharges. A growing number of businesses that have in the past been paid by check or through direct bank transfers — think consultants, general contractors or lawn-care providers — are using surcharges to counter the cost of accepting credit cards for the first time.

CardX, a card processor that helps merchants impose surcharging fees in a way that complies with state laws and Visa and Mastercard’s rules, saw payment volume jump 78% in 2022 from the previous year.

“A lot of merchants won’t even take cards unless they have the option to surcharge,” CardX CEO Jonathan Razi said in an interview. “When done consistent with best practices, surcharging is actually a way for a lot of merchants to start taking cards for the first time.”