Canadian business owners have long voiced their frustration over the high cost of accepting credit card payments.
And up until recently, if you wanted to be able to process credit card transactions, this cost was unavoidable and non-negotiable.
Merchants had no legal way to pass even a portion of these fees on to customers choosing credit over debit, meaning they were forced to absorb the full cost of doing business in this way.
That reality began to shift in October 2022, when new rules allowed Canadian merchants (outside of Quebec) to apply credit card surcharges – a percentage fee added to the purchase price when customers pay with a credit card.
This change followed more than a decade-long class action lawsuit against Visa, Mastercard, and certain banks, which resulted in a settlement that not only reimbursed some past interchange fees, but also opened the door for merchants to apply surcharges moving forward.
These new rules have been in place for a couple of years, but the rollout of this functionality across payment systems has taken some time.
In any case, with most major terminals now equipped for surcharging, business owners have a real opportunity to recover a portion of their processing costs.
So, if you’d like to learn more about credit card surcharges, including how surcharging works, how it can benefit your business, and how to get started, then you’ve got to keep reading.
The Road to Surcharging in Canada
In Canada, the ability to add credit card surcharges didn’t appear overnight.
It’s the result of a long legal battle by Canadian merchants who argued that the interchange fees imposed by Visa, Mastercard, and certain banks were excessive and unfair.
If you’re not sure what interchange fees are, and you need a bit of background on this, you can read our article on What You Need to Know About Interchange Rates in Canada.
In any case, these interchange fees are still added to credit card transactions today, but at one time, merchants had no choice but to absorb these costs or raise prices across the board, as there was no option to impose a surcharge.
Then, in 2010, a group of Canadian merchants launched a class action lawsuit alleging that these fees violated competition laws and restricted merchants from steering customers toward lower-cost payment methods.
After years of legal proceedings, Visa, Mastercard, and several major banks agreed to a settlement that included monetary compensation for eligible merchants covering interchange fees paid between 2001 and 2021, as well as a rule change allowing surcharging (subject to certain restrictions) so merchants could pass some of these costs directly to customers using credit cards.
The settlement officially took effect in October 2022, but payment processors needed time to update systems, program terminals, and establish compliance procedures.
And today, many Canadian businesses finally have the infrastructure in place to add a surcharge to credit card transactions, if they choose to do so.
The Laws Surrounding Credit Card Surcharges in Canada
While surcharging is now allowed in most of Canada, it is not permitted in Quebec due to provincial consumer protection laws.
Everywhere else, merchants can apply a surcharge – but they must follow both federal regulations and applicable card brand rules (Visa, Mastercard, American Express).
What’s more, the surcharge amount cannot exceed your actual cost of accepting the credit card.
At any rate, the maximum amount you can surcharge is 2.40%, and you cannot apply a different rate for different transactions or card types.
For the most part, debit and prepaid cards cannot be surcharged, with the exception of Interac Debit transactions, which may include a maximum fee of $0.25 per transaction.
But no matter what you choose to do, transparency and clear disclosure are required.
For instance, you must display the surcharge rate prominently at both the point-of-sale and point of entry, such as your store entrance or the checkout page on your website.
What’s more, the surcharge must also appear as a separate line item on the customer’s receipt.
If you accept Mastercard, you must register with them 30 days before enabling surcharging, but Visa and American Express do not require this kind of registration.
However, both Visa and Mastercard require you to notify your acquirer (the financial institution that processes your payments) before implementing a surcharge.
Once you choose to surcharge, it must apply to all eligible credit card transactions – you cannot selectively apply it. And if you refund a purchase, you must also refund the surcharge amount.
While the federal rules apply nationwide, some provinces may have additional requirements, so it’s important to verify local compliance before starting.
How Credit Card Surcharges Work on Our Terminals
Here at Lucid Payments, our terminals are fully equipped for surcharging, and they’re designed to make compliance and implementation easy for Canadian merchants.
A 2.40% surcharge is automatically applied to all eligible credit card transactions, and the surcharge appears as a separate, itemized line on the customer’s receipt.
Debit and prepaid transactions are automatically excluded, except for Interac Debit transactions, which may include a $0.25 fee per transaction, should you choose to impose it.
The system ensures the surcharge is applied uniformly, refunds are processed correctly, and all transactions comply with applicable rules.
What’s more, our terminals help you to avoid surcharging errors by automating the process and ensuring compliance with card brand rules and Canadian law.
How to Start Surcharging with Lucid Payments
- Evaluate Your Customer Base
First, you should consider how your customers might react. Some may choose debit to avoid the surcharge, while others won’t mind paying a small fee for the convenience and rewards of credit cards. - Contact Lucid Payments
Your Lucid Payments sales representative will walk you through the sign-up process for our surcharging program. - Register with Mastercard
If you accept Mastercard, Lucid will help ensure your registration is submitted at least 30 days before you enable surcharging. - Prepare Customer Signage
You must display surcharge notices at your entrance and point-of-sale. They should say something like: We impose a surcharge of 2.40% when paying with a credit card, which is not greater than our cost of acceptance. The surcharge amount will appear on your receipt. We do not surcharge debit or prepaid cards, except for Interac Debit. - Enable Surcharging on Your Terminal
Lucid Payments will program your payment terminal to apply the correct surcharge automatically. - Train Your Staff
Make sure your team understands how surcharging works so they can answer customer questions confidently.
The Benefits of Credit Card Surcharges
With surcharging now available to Canadian merchants, many business owners are asking the same question: Is it worth it?
While every business is different, there are several clear advantages to implementing this option –especially when it’s done transparently and with the right payment partner.
With that in mind, here are the key benefits of credit card surcharges:
1) Cost Recovery
Credit card processing fees can significantly impact your bottom line, especially when it comes to high-ticket purchases.
With that in mind, surcharging allows you to pass a portion of those costs on to the customer, which helps to reduce your expenses without raising your base prices.
2) Price Transparency
One of the most important benefits of credit card surcharges is clarity.
Customers will see both the debit and credit card costs for their transaction before paying, so they aren’t forced to pay the surcharge, and they can choose to use debit to avoid it.
3) Customer Choice
Rather than raising prices for everyone to offset card fees, surcharging gives customers the choice to avoid the extra cost by selecting another payment method.
4) Competitive Fairness
Merchants have long felt that they’re at a disadvantage when compared to card issuers and banks, and surcharging helps to level that playing field, so merchants can manage costs more strategically.
5) Ease of Implementation
When you use credit card surcharges on our terminals, you can put your mind at ease, as everything is automated – the correct surcharge rate is applied, debit transactions are excluded, and compliance requirements are built in.
Is Surcharging Right for Your Business?
While surcharging can help to offset the cost of accepting credit cards, it’s not for everyone.
Some customers may view it negatively, especially in industries with strong price competition.
However, many merchants find that when the surcharge is clearly disclosed and customers understand that they have the option to avoid it by paying with debit, pushback is minimal.
So, before implementing a surcharge, you should think about your average transaction size, your customers’ payment preferences, how price-sensitive your clientele is, and the level of competition in your industry.
All things considered, for many Canadian businesses, particularly those with high average tickets or thin margins, the benefits of credit card surcharges tend to outweigh the risks.
The Bottom Line
Credit card surcharges represent a major shift in how Canadian merchants can handle payment processing costs.
For the first time, you have the option to pass some of those costs directly on to the customers who choose to use credit – a move that can improve profitability, increase transparency, and give your customers more choice.
Lucid Payments makes it easy to implement surcharging with full compliance, clear customer disclosure, and no extra fees.
So, if you’ve been looking for ways to manage rising costs without raising prices for everyone, this could be the solution you’ve been waiting for.
Are you ready to use credit card surcharging for your business?
Contact us today to learn more about surcharges and how they can work for you.
