Surcharging credit cards and calling it a ‘cash discount fee’ — Is it a good idea or bad idea?

Best Card is the endorsed credit card processor of the ADA Member Advantage program and more than 40 state dental associations through which thousands of dental practices across the country are served. We’ve recently fielded a number of calls regarding surcharging, as many credit card processing companies are aggressively promoting the surcharge model under the guise of merchant savings. These processors will often use the term “Cash Discount Program” to describe their surcharge, and it is being heavily marketed because processors can earn significantly higher profits using this model. Is it legal? While surcharging is now legal in all but two states (Connecticut and Massachusetts), there are specific reasons why most businesses decide not to surcharge their customers. In the dental industry, these reasons may have an even greater impact.

Is it risky?  

Often, the real costs of surcharging may not be immediately apparent, so let’s start with a basic question: What does it cost to attract new patients, and what are patients worth to my bottom line?

A few quick datapoints:

• $150-$300 – How much the average a dental office spends in marketing costs per patient acquired.
• 17% – The average dental practice’s attrition rate; you need to exceed this in new patients to have a growing practice.
• $4,500 – The average revenue generated by a single patient in their lifetime with the practice.

The key takeaways from this data are: new clients aren’t cheap to woo; positive word of mouth alone makes it difficult to outpace attrition; and the lifetime value per patient is substantial, so minimizing attrition is vital to the health of a practice.
Credit card surcharging is great for credit card processors, but not for the dentists that sign onto it. Here are a few of the reasons we do not usually recommend it for our dentists:

1. Customers hate being surcharged. Recent studies show that between 65% and 95% of customers who have been surcharged are less likely to visit the business again. In dentistry, where patient loyalty is important to maintaining your patient base, these numbers should be a red flag. There’s a reason that major retailers have decided not to surcharge; competing for customer loyalty is tough enough, and all the more difficult if you’re angering customers.

2. It’s a huge increase in cost. Most surcharge programs have a flat monthly fee to the practice ($40 is common), and then the patients are charged a 3-4% surcharge on their payments. Best Card’s average dental office has an effective rate (all rates & fees divided by total processed in sales) of around 2.18%. If your processor is charging 4% to your patients, they are making an additional 1.82% profit at your patients’ expense. All credit card processors have the same costs, so while Best Card makes a very small amount above that set cost, a processor running cards at 4% would make a huge profit margin. Why not simply raise your prices by 4% and keep the profit margin (that would have been going to the processor) for yourself?

3. Virtual Credit Cards (VCC) issued by insurance companies will not allow a surcharge. These are issued with an exact balance; try to charge a penny more and they will decline. Since regulations require that you surcharge all credit cards if you surcharge any, you’d need to lower your fee for services so that the payment, after the 4% surcharge is added, equals the VCC balance. Which means you’ll be paying the inflated surcharge rate out of your own pocket! Worse still, the surcharge is also reported to the card issuer, and so you risk the insurance company noting the pre-surcharged amount (indicating you have a lower actual cost), prompting an audit that could reduce the UCR (Usual, Customary, and Reasonable) reimbursement that you receive for procedures.
Now, let’s bring it back into our credit card processing wheelhouse. While surcharging is seemingly growing in popularity, market research studies have shown that more than 60% of respondents would not return to a merchant that had surcharged them.

Is it worth the risk? 

Let’s break down the math. Nationwide, dental practices have an average transaction of $250. On a 4% surcharging model, the fee to run a single $250 payment is $10, which is paid by the patient. While this does save your practice on processing costs, that $10 charge means that 60% of your patients may be so unhappy that they would consider switching to an office down the street. So a practice that paid $150-$300 to bring in that patient, and that hopes to make $4,500 in revenue over the course of the relationship, has just set themselves up for thousands of dollars in potential losses to collect a nominal fee (and keep in mind that at Best Card’s 2.18%, the fee would be $5.45).

This is part of why we at Best Card tell offices: most patients don’t price shop, but if you surprise them with a last-minute fee, they may not come back. You’d be better off raising your stated prices for services 4%, keeping the profit, and upsetting far fewer patients.

Is it complicated?  

If you decide that you want to proceed on this course (and we can help you do so) your surcharge must abide by Visa, Mastercard, Discover, and American Express regulations. Here are some of those requirements:
• If you surcharge ANY credit cards, you must surcharge ALL credit cards. You cannot opt out of surcharging for individual transactions or card brands once you begin surcharging.
• You can surcharge credit cards, but cannot surcharge any debit cards.
• You are not allowed to surcharge cards for cardholders from states where surcharging is illegal. If your business is in New York, and the cardholder lives in Massachusetts or Connecticut, you are not allowed to surcharge.
• You must register with all four card brands a minimum of 30 days in advance.
• You must place notifications of surcharge at all payment stations and entrances to the business.

You are allowed to surcharge equal to your average fees paid over the past quarter – up to 4%. To avoid recalculating, many processors will set pretty steep flat rates of 4% on all cards. And it doesn’t matter if your processor calls it a “cash discount”; if a fee is added to credit card transactions, it is a surcharge, and these regulations must be followed.

Bottom line?  

Cost-saving measures that end up costing your business in the long run simply do not make sense. While Best Card can provide surcharging systems, we prefer to offer consistently low rates to ensure that your monthly bill is as low as possible. This is one reason that the average dental practice saves 24% in card processing fees with Best Card. Call 877-739-3952 or visit to learn about the many processing options available, including automatic payment posting into dental software.

Phillip Nieto is the president of Best Card. After leaving behind the legal world, Phil has enjoyed the positivity of working directly with dentists to help them understand the confusing credit card processing industry and save more of their hard-earned money with Best Card. In his free time, he is an avid hiker, constant reader and enjoys sharing those passions with his wife and young son.