For the decade that Dana Jones has run NailChic in Dormont, she has been happy to let customers pay by credit card. But rising fees over the past two years have pushed her to make changes: She launched a loyalty program rewarding customers who pay via Venmo, Zelle or Cash App instead of credit cards.
“Whenever you start seeing you’re losing money and finances are going down, you start looking into things,” Jones said. “I was paying so much in fees.”
As credit card processing fees eat into slim margins, more businesses are passing the cost on to customers or looking for alternative options.
Passing it on
Card companies charge businesses processing fees for the ability to accept plastic.
Businesses typically pay between 1.5% and 3.5% of each credit card transaction in processing fees.
For a business with $120,000 in yearly sales, this results in an annual cost of $1,800 to $4,200 or more, according to Bankrate, an online platform for financial guidance.
Todd Elliott, a Pittsburgh-based lawyer who handles cases involving credit card surcharges, said not every merchant can absorb those fees.
“Not many businesses can afford 3% off the gross, especially small mom-and-pop companies. (A small business) might have a month where their margins are only 3% total,” Elliott said.
Penn State Lehigh Council for Retail and Sales Board Member Denise Ogden, who is a professor of marketing, said credit card processing fees began popping up within supply chain woes during the covid-19 pandemic. Now, with inflation elevated, more businesses have begun tacking on convenience fees.
Convenience fees are particularly popular within the service industry, Ogden said.
NailChic’s online policy said a $2 fee will be charged when customers use a credit card. However, Jones said about 70% of nail salon clients understand the struggle of being a small business and pay through alternative apps.
Small business owner Rylee Dallo opened Bear Roots cafe in Washington Township about a year ago.
The business was not charging a credit card processing fee for the first two months. Dallo and her business partners found the coffee shop was losing about $50 monthly and decided it was necessary to add a 3.15% convenience fee onto bills.
“It’s something we would love to just cover, but it’s just not reasonable,” Dallo said.
Dallo said starting a business is expensive and processing fees became “hard to eat” while dealing with expenses needed to get the company off the ground.
Is it legal?
California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas, as well as Puerto Rico, have laws that prohibit merchants from charging consumers surcharges on credit card transactions, according to the National Conference of State Legislatures.
Pennsylvania does not.
“In practice, it is completely legal as long as they’re transparent about it,” Elliott said.
Enacted in 1968, Pennsylvania’s Unfair Trade Practices and Consumer Protection Law protects consumers from deceptive and unfair business practices. Under the law, Elliot said, it is illegal to impose a surcharge for using a credit card on a consumer if the charge is not clearly disclosed.
The Credit Card Competition Act, aimed at reducing high “swipe fees” for small businesses, enhancing security and increasing competition, was introduced in Congress in 2023.
If passed, the bill would prevent credit card companies such as Visa and Mastercard — the two largest networks, which control 80% of the market — from imposing certain limitations on the routing of electronic credit transactions.
Elliott said some credit card companies or processing equipment companies discourage merchants from charging fees.
“What (the businesses) do is they’ll buy or lease credit card processing equipment from the credit card company or a third party intermediary, and as part of that contract, it’ll say you can’t charge more to the consumer for taking a credit card,” Elliot said.
The key question, Elliott said, is whether a merchant’s agreement with a credit card or processing company allows transaction fees to be passed on to customers.
“Often the consumer is not that thrilled about it, but we get used to it,” said Ogden, the Penn State professor.
The price of business
Some companies absorb the fees as part of doing business.
Caesar Azzam owns Caesar’s Designs, a jewelry shop in Shadyside. He said that although credit card transaction fees add up, he just considers it another business expense.
“As a matter of principle, we’ve always paid it,” Azzam said.
Azzam said he thinks it would be “insulting to the client” to ask them to cover the cost of the fee.
About 70% of sales made at the boutique stores Love, and Love, Pittsburgh are paid for by credit card, said co-owner Monica Grunick.
Despite this, the company doesn’t ask customers to pay a surcharge or request people pay in cash.
“People can be price sensitive,” Grunick said. “However they want to pay is good.”
Making up the losses
For some businesses, whether to tack on the added fee depends on the goods or service for sale.
Eric Voll, vice president of Soergel Orchards in Franklin Park, said the business does not charge customers a convenience fee for using a credit card in any of its retail operations — including the market, garden center, cider press, ice cream parlor and bakery.
However, an additional fee is applied when customers book events through Soergel Orchards.
Voll said the business has wrestled with the differences between charging a fee for retail compared with events. The company decided to charge event fees, he said, because it has become more common for events and activities to include extra costs. He noted this trend is especially evident with the rise of Ticketmaster and similar services that add processing fees.
Eliminating event fees would force the business to raise prices, Voll said.
Mike McCoy, owner of Moonlit Burgers, said instead of charging a convenience fee, he incorporates the monthly processing costs into the menu prices.
“We’ve raised prices two times (since opening in November 2021),” McCoy said.
Although he understands why businesses need to add such fees, he said he worries it leaves a bad taste in people’s mouths.
“People don’t want to see those additional fees,” he said.