Understanding Card Surcharges and Provider Fees
Why the Numbers Don’t Match
Keep in mind that card providers charge their fees on the total transaction amount, which includes any surcharge you add. Because of this, the surcharge percentage you apply can never exactly match the percentage your payment provider charges.
For example:
Invoice amount = $100
You apply a 1% surcharge = $1
Total payment = $101
Card provider charges 1% of $101 = $1.01
So instead of covering exactly $1 in fees, you’re charged $1.01. The difference is small here, but it grows with larger amounts or higher surcharge rates.
This is a very common misunderstanding: business owners often expect that a 1% surcharge will cover a 1% fee. In reality, because the fee is charged on the gross amount (invoice + surcharge), the two will never perfectly align.
The Formula
If you want to calculate the exact surcharge needed to fully cover the provider’s fee, use this formula:
Surcharge % = Provider Fee % ÷ (1 - Provider Fee %)
Example with a 1% provider fee:
Surcharge % = 0.01 ÷ (1 - 0.01)
= 0.01 ÷ 0.99
= 0.0101 (≈ 1.01%)
So to cover a 1% fee, you’d actually need to apply about 1.01% surcharge.
⚠️ Important: Even with the maths, you should never set your surcharge higher than the actual cost you are charged by your provider, as this may breach compliance rules.
Worked Examples
Table 1 – 1% Card Provider Fee vs 1% Surcharge
Invoice Amount | 1% Surcharge Added | Total Payment | Card Fee (1% of Total) | Shortfall |
|---|---|---|---|---|
$100 | $1.00 | $101.00 | $1.01 | $0.01 |
$500 | $5.00 | $505.00 | $5.05 | $0.05 |
$1,000 | $10.00 | $1,010.00 | $10.10 | $0.10 |
$5,000 | $50.00 | $5,050.00 | $50.50 | $0.50 |
Table 2 – 1% Card Provider Fee vs Corrected Surcharge (≈1.01%)
Invoice Amount | Corrected Surcharge (1.01%) | Total Payment | Card Fee (1% of Total) | Shortfall |
|---|---|---|---|---|
$100 | $1.01 | $101.01 | $1.01 | $0.00 |
$500 | $5.05 | $505.05 | $5.05 | $0.00 |
$1,000 | $10.10 | $1,010.10 | $10.10 | $0.00 |
$5,000 | $50.50 | $5,050.50 | $50.50 | $0.00 |
Quick Reference Chart – Corrected Surcharge Rates
Provider Fee % | Corrected Surcharge % Needed to Break Even |
|---|---|
0.5% | 0.5025% (≈0.503%) |
1.0% | 1.0101% (≈1.01%) |
1.5% | 1.5228% (≈1.523%) |
2.0% | 2.0408% (≈2.04%) |
2.5% | 2.5641% (≈2.56%) |
3.0% | 3.0928% (≈3.09%) |
Practical Takeaway
While the maths shows the exact surcharge needed to break even, in practice most businesses round their surcharge down slightly (e.g. charging 1% instead of 1.01%). This keeps things simple for customers and ensures you remain compliant, since regulations generally prohibit surcharging above the actual cost of acceptance.
The important thing to remember is:
Your surcharge % and your provider fee % will never exactly match.
There will always be a very small gap unless you apply the corrected percentage.
It’s best to keep your surcharge conservative and use it only to recover most (not necessarily all) of your costs.