Why more businesses are passing credit card fees on to customers

Breaking: San Antonio Merchants Face Fee Pressure as Card-Processing Settlement Moves Forward

Dateline: San Antonio – A landmark settlement proposal shaping credit card interchange fees is rekindling discussions among local business owners who say processing costs are squeezing margins. As nationwide talks unfold, small shops here report mounting swipe fees and the looming possibility of passing those costs to customers.

Betty Dovalina, who runs Betty’s Flower Shop on Southwest Military Drive, says her monthly outlay to card issuers and processors reached about $2,500 before she began charging a small “credit card” fee to customers. She says the shift, prompted by escalating processing costs after Valentine’s Day and Mother’s Day, was painful but necessary to stay afloat.

Across the city, similar struggles are surfacing. Wholesalers and processing partners have added to the burden with their own tariff and service fees, leaving many owners feeling they have little choice but to adjust pricing or acceptance policies.

San Antonio retailers aren’t alone. A long-running federal lawsuit over interchange fees has led to a proposed settlement that would reshape how banks charge merchants for credit card transactions. Major retailers, however, have voiced objections, arguing that the deal does not adequately curb excessive fees.

The Electronic Payments Coalition, which represents Visa, MasterCard and their partner banks, argues that the current fee structure funds essential protections-such as fraud prevention-within the card networks. Critics, including small-business associations, say the reforms don’t go far enough to shield consumers and merchants from rising costs.

Locally,merchants say the impact is real. Blanca Aldaco,owner of Aldaco’s,a Stone Oak restaurant,is nearing a tipping point in passing costs to diners. She currently transfers about $18,000 each month to card companies, totaling more than $200,000 a year. She warns that if costs continue to rise, she may soon add a card-fee line to receipts to preserve pricing for her team and guests.

Restaurant owners like Aaron Selinkoff of Specht’s Texas note that card usage has climbed in recent years and now represents about 90% of their business. He stresses that rewards programs and premium cards drive higher fees, a burden many say is shouldered by merchants rather than card issuers.

The debate stretches beyond fees. Local figures say the burden is worsened by inflation and tariffs, shrinking margins and forcing tough decisions about staffing and reinvestment. Some seasoned operators caution that even modest surcharges can erode loyalty if customers feel nickel-and-dimed.

What’s in Play: The Interchange Settlement and Its Contenders

The core issue centers on interchange fees-the charges banks levy on merchants for processing card transactions. A proposed settlement would,for a defined period,reduce these fees and cap their growth,offering markets more adaptability to negotiate rates. Yet critics argue the reforms insufficiently limit the balance of power held by the networks and banks.

Walmart and other large chains have formally objected to the settlement, contending that the proposed changes do not go far enough to curb what they see as excessive costs. In contrast, trade groups representing merchants say the package would help independents and small businesses maintain pricing while preserving network security.

Key details cited by supporters include a five-year reduction in specific interchange charges and eight years of capped growth. The agreement would apply mainly to banks’ fees linked to card transactions and would not directly regulate all card networks, especially non-customary players like American Express and Discover, which account for a smaller share of the market.

Local observers point to broader implications. If the settlement advances, merchants could enjoy more pricing flexibility, group bargaining options, and potential relief from annual fee creep. If it stalls, small businesses may continue to struggle with unpredictable costs as card adoption grows across sectors.

Two Sides of the Coin: Case Studies from San Antonio

Betty’s Flower Shop has publicly shared how card fees squeezed cash flow, notably on large events were card-based payments spiked. To offset costs, the shop began offering customers a modest credit card surcharge to keep event pricing sustainable.

Aldaco’s and Specht’s Texas describe similar experiences, noting that premium and rewards cards contribute to the fee burden. Both owners say they aim to balance fair pricing with the desire to reward staff and invest in their businesses, while acknowledging that the model relies on consumers’ willingness to pay a small extra for card transactions.

Industry voices emphasize ongoing investments behind the networks. Proponents cite fraud protection improvements and security enhancements as justifications for the current fee structures, while opponents point to rising consumer costs and the need for more competitive practices.

Table: At-a-Glance Facts About the Settlement and Its Local impact

Topic	Details
Parties	Visa, MasterCard, banks; Walmart and other major retailers object; merchant groups support changes.
Fees	Interchange fees charged on card transactions; proposed reductions and caps under the settlement.
Scope	Applies to banks’ processing charges on credit cards; not all networks or cards.
Timeframe	Five-year reduction, eight-year cap on growth (per the proposal).
Local impact	Small businesses considering surcharges, cash discounts, and pricing adjustments to protect margins.
Market share	Visa and MasterCard dominate; American Express and Discover are less affected by the settlement.

Evergreen Takeaways for Merchants

For small businesses nationwide, the core question remains: how to manage card costs without alienating customers. Transferring costs via transparent surcharges or cash discounts is one strategy some shop owners cite as workable, while others prefer absorbing a portion of the fees to maintain customer goodwill. The trend toward high-reward cards and digital payments continues to push processing costs higher, underscoring the importance of clear pricing strategies and regular reviews of payment partners.

What’s Next

Observers say the settlement’s fate hinges on how aggressively lawmakers and regulators balance merchant relief with network security and reliability. As the debate unfolds, business owners are urged to monitor official updates and consult their financial partners on compliant, transparent ways to handle processing costs.

Disclaimer: Fee structures and interpretations can vary by jurisdiction and contract terms. This article provides a summary based on current public data and is not legal advice.

Reader Questions

1) Do you support allowing merchants to charge a small fee for card transactions, or should pricing remain card-free for customers?

2) If you own a business, would you consider cash discounts or surcharges as a practical way to manage processing costs?

for more context on national developments, see ongoing coverage of the interchange-fee settlement and related industry responses from major outlets.

Share your perspective in the comments and tell us how card fees affect your purchasing choices.

The Rising Cost of Payment Processing

• Interchange fees have climbed 12% year‑over‑year as 2022, according to the Federal Reserve’s 2024 Payments Survey.
• Average merchant‑level charge (including processor markup) now sits between 2.5%-3.5% of each transaction, up from 1.8% in 2019.
• PCI‑DSS compliance costs-security audits, hardware upgrades, and ongoing monitoring-add an average of $1,200-$2,500 per merchant annually (Merchant Services Report, 2024).

These mounting expenses are squeezing profit margins, especially for small‑to‑mid‑size businesses that operate on tight cash flow.

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Regulatory Landscape Shaping Surcharging Practices

Region	Current Status (2025)	Key Requirement
United States (most states)	Legal in 40+ states; prohibitions remain in california, New York, and a handful of others.	Must disclose surcharge before the transaction and limit it to the lower of 4% or the actual cost.
European Union	Surcharging on consumer credit cards banned; allowed on commercial cards (e.g., corporate Mastercard).	Clear, itemized billing and pre‑authorization required.
Canada	Federal law permits surcharges on all cards, with a cap of 2.5%.	Disclosure on receipts and websites.

Recent rulings (e.g., Miller v. Visa – 2023) clarified that merchants can pass only the actual cost of processing,not an inflated markup,prompting many businesses to adopt transparent fee‑pass‑through models.

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Consumer Behavior and Expectations

1. Price Sensitivity – A 2024 Nielsen survey found 68% of shoppers consider additional fees a “deal‑breaker” for purchases over $50.
2. Preference for Cash‑less Options – Mobile wallets (apple Pay, Google Pay) grew 18% in usage in 2023, yet still trigger the same interchange fees for merchants.
3. Demand for Clarity – 54% of respondents said they would continue buying from a merchant that clearly explains the surcharge before checkout (eMarketer, 2024).

These insights drive businesses to balance fee recovery with clear communication to avoid cart abandonment.

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Business Models That Amplify Fee Pass‑Through

1. Subscription‑Based Services

• Why it matters: Recurring revenue streams magnify the impact of a 2‑3% fee on each monthly payment.
• Typical response: Adding a “payment processing fee” line item,e.g., $0.30 + 2.9% per transaction, disclosed in the subscription agreement.

2. Hospitality & Travel

• Airlines and hotels routinely face high‑ticket‑price transactions; the average surcharge in 2024 was $5‑$8 per reservation (Airline Economics Report, 2024).
• example: Southwest Airlines introduced a 2.5% surcharge on all credit‑card bookings in Q2 2024 after a 13% rise in processing costs.

3.Retail & E‑Commerce

• Small brick‑and‑mortar shops often lack the economies of scale of large chains, pushing them to adopt POS surcharging.
• Shopify merchants reported a 14% increase in checkout completion rates after implementing a visible “credit‑card fee” (Shopify Insights, 2023).

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Real‑World Examples

Case Study 1 – southwest Airlines (2024)

• Context: Interchange fees rose 11% in the first half of 2024.
• Action: Implemented a 2.5% surcharge on credit‑card tickets, with a clear banner on the booking page.
• Outcome: Net revenue per passenger increased by $3.20, while only a 1.2% drop in ticket sales was recorded (Southwest Financial Report, Q3 2024).

Case Study 2 – The Coffee Bean & Tea Leaf (2023)

• Context: Small‑chain cafes faced a 3% average processing fee on $3‑$5 purchases.
• Action: Added a $0.10 surcharge per card transaction, disclosed on receipts and menus.
• Outcome: Monthly processing cost reduction of $4,200 across 120 locations, with no measurable impact on foot traffic (Internal audit, 2023).

Case Study 3 – Shopify Marketplace (2023‑2024)

• Context: Over 1.2 million merchants using Shopify Payments reported a 2.9% average fee.
• Action: Offered a “Pass‑Through Fee” toggle, letting merchants automatically add a percentage surcharge for card payments.
• Outcome: Merchants who enabled the feature saw an average 5.6% increase in gross margins (Shopify Merchant Survey, 2024).

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Benefits and Risks of Passing Fees to Customers

Benefits

• Improved cash flow – Immediate offset of processing costs without waiting for end‑of‑month settlements.
• Price parity – Ability to keep advertised “cash price” low, appealing to price‑sensitive shoppers.
• Transparency – When disclosed properly, customers perceive fairness and are less likely to blame the merchant for hidden costs.

Risks

• Potential churn – Studies show a 2-3% higher abandonment rate for sites with surcharges over 3% (Baymard Institute, 2024).
• Brand perception – Surcharging can be viewed as “nickel‑and‑diming,” especially in competitive markets.
• Legal compliance – Failure to meet state‑specific disclosure rules can result in fines up to $10,000 per violation (FTC Enforcement Bulletin, 2023).

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Practical Tips for Implementing Surcharges

1. Audit Yoru processing Costs

• Pull your last 12 months of settlement statements.
• Calculate the average cost per transaction (including interchange, assessment, and processor markup).

2. Design a Clear Disclosure

• Use phrasing such as “Credit‑card surcharge: 2.9% + $0.30” and place it before the payment step.
• Include the surcharge information on receipts, invoices, and the website’s FAQ.

3. Stay Within Legal Caps

• Verify the maximum allowable surcharge in each operating jurisdiction.
• Implement automatic location‑based checks in your POS or e‑commerce platform.

4. Leverage Technology

• Choose a payment gateway that supports dynamic surcharge calculation (e.g., Stripe Billing, Square POS).
• Enable real‑time compliance alerts to flag prohibited surcharges.

5. Monitor Customer Feedback

• Set up a short post‑purchase survey asking about the surcharge experience.
• track Net Promoter Score (NPS) changes month‑over‑month; aim for a ≤5‑point dip after surcharge rollout.

6. Educate staff

• Provide scripts for front‑line employees:

> “Because of the cost to process credit cards, we add a small surcharge of 2.9% to cover that fee. Would you prefer to pay with cash or a debit card to avoid the charge?”

7. Review Periodically

• Re‑evaluate surcharge rates quarterly as interchange fees fluctuate.
• Adjust the surcharge proportionally to maintain a break‑even point.

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Emerging Trends Influencing Future Fee Strategies

• Tokenized Payments – As tokenization becomes mainstream (e.g., Apple Pay tokens), some processors offer reduced interchange rates for tokenized transactions, prompting merchants to incentivize token use.
• Buy‑Now‑Pay‑Later (BNPL) – Although BNPL fees are typically higher (3%-5%), merchants may pass those costs to customers, creating a dual‑surcharge environment.
• Legislative Shifts – The U.S. Senate Commerce Committee is reviewing a national surcharge cap of 2.5% in 2025, which could standardize the practice across states.

Staying abreast of these developments helps businesses fine‑tune their fee‑pass‑through models without alienating customers.