Credit card surcharging in Hawaii is permitted for merchants and small businesses; the state does not have specific laws restricting the practice (as of December 2024).
Nevertheless, MSPs operating in the state must still follow federal regulations and card brand rules to ensure their surcharging practices remain transparent, fair, and legally compliant.
Credit card surcharging is a strategy many businesses use to reduce their credit card processing fees. Managed service providers can improve their bottom line by passing these fees on to clients and reducing operational costs.
This article will guide MSPs based in Hawaii through the necessary steps to comply with state credit card surcharging rules. It will also outline how a payment automation platform can simplify the process while ensuring compliance and client satisfaction.
Disclaimer: This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, legal advice. Conduct thorough due diligence and consult with a qualified legal professional to address specific questions related to your MSP.
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What is Credit Card Surcharging for MSPs in Hawaii?
Credit card processing fees are the cost of accepting credit card payments. They cover verification, processing, and associated transaction risks and are paid to card networks, issuing banks, and payment processors.
They can also significantly reduce a business’s profit margin.
Credit card surcharging is a method to help merchants offset payment processing costs. It involves adding a fee to a customer’s credit card transaction to cover some or all of the costs associated with processing the payment.
When each client is responsible for their own fees rather than the business absorbing the entire cost, the financial burden is distributed more evenly, leading to increased cost efficiency for the MSP.
For example, an MSP that processes $50,000 of monthly credit card payments and charges a 3% average processing fee would pay $1,500 in monthly fees or $18,000 annually.
As the Merchants Payments Coalition explains, processing fees total about $160 billion yearly, making them the second-highest operating cost after labor.
Considering how quickly these fees add up, it is unsurprising many MSPs are eager to reduce them.
Credit card surcharging is one method to accomplish this goal, and some businesses also prioritize strategies such as minimizing chargebacks and encouraging ACH payments to save money.
As advantageous as this strategy can be for MSPs in Hawaii, credit card surcharging must be approached with care to ensure compliance with applicable laws and regulations.
Understanding Credit Card Surcharging Laws in Hawaii
As of December 2024, Hawaii does not have specific laws prohibiting credit card surcharging. However, businesses must still adhere to federal regulations and the guidelines set forth by major card brands.
According to federal rules, merchants in U.S. states that permit credit card surcharging can impose surcharges on credit card payments, provided these do not surpass 4% of the overall transaction amount.
Surcharges cannot be applied to debit or prepaid cards under the Durbin Amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Nationwide rules limit surcharge rates and mandate that businesses communicate their surcharge policies to clients clearly and transparently.
This requires notifying clients regarding the presence and value of the surcharge before finalizing the transaction.
We recommend consulting with a lawyer or qualified legal professional if you are unsure of your surcharging options in Hawaii.
Businesses must also consider the regulations set by the card brands themselves. For example, credit card surcharges cannot exceed 3% in certain situations, such as processing Visa and MasterCard payments.
Understanding and adhering to these regulations is crucial for ensuring compliance, preventing penalties, and fostering client trust.
Implementing Credit Card Surcharging for Hawaii MSPs
A well-defined approach that integrates operational efficiency, transparency, and compliance is necessary to implement credit card surcharging successfully.
This helps MSPs in Hawaii implement surcharges equitably, legally, and with the least disturbance to client relationships.
Here is a step-by-step guide for implementing a surcharging policy for your MSP in Hawaii.
Several best practices for credit card surcharging in Hawaii are also included throughout.
Step 1: Establish a Clear Surcharge Policy and Structure
The first step for Hawaii MSPs is to establish a clear surcharging policy.
The policy must specify how much of a surcharge can be charged (the surcharge cap), when it can be imposed, and which credit card transactions would be affected and how.
This cap cannot exceed the actual cost of processing the credit card transaction.
Although the federal surcharging limit is 4%, some card brands have their own guidelines for surcharging, which we will discuss in a later section.
MSPs must also determine the structure they will use to implement surcharges.
Most businesses choose a fixed percentage structure, but others use a flat fee or a tiered surcharge system.
1. Fixed Percentage Surcharge
A consistent percentage is added to all credit card transactions.
Example: A $5,000 invoice with a 3% surcharge results in a $150 fee, totaling $5,150.
2. Tiered Surcharge System
Rates vary based on transaction size.
Example: 2% for transactions under $2,000 and 3% for transactions over $2,000.
Step 2: Notify Credit Card Institutions and Clients
In addition to Visa’s 3% credit card surcharging cap, merchants must comply with other regulations if they intend to implement these charges. For example, merchants must notify their acquirer at least 30 days before commencing surcharging.
Merchants must notify their clients as well as acquirers/payment platforms. To do so, service agreements should explicitly state surcharge rates and guidelines.
This should outline the relevant surcharge rate, the justification for its application—covering credit card processing fees—and any circumstances under which the surcharge might vary.
Provide the surcharge amount, rate, and total cost on every invoice. This information reinforces transparency and helps clients understand exactly what they are paying for.
Failing to offer this kind of information to clients in advance can lead to payment disputes and chargebacks.
For example, one client expects to pay $8,000 but sees an additional $200 charge for a 2.5% surcharge on their invoice.
Without prior communication, they might assume this is a mistake or fraudulent activity and dispute the transaction with their card-issuing bank.
Disputes of this nature can result in chargeback fees, lost surcharge revenue, and additional costs for arbitration.
As Swipesum reports, the average chargeback cost for a business is $190 per dispute. While not all chargebacks are caused by undisclosed surcharges, they are a significant risk to businesses that fail to maintain transparency.
Step 3: Update Invoicing & Payment Systems
When introducing surcharges for the first time, update invoicing procedures to accurately represent these costs. Again, this entails putting surcharges as distinct line items on each invoice.
This allows clients to clearly identify how much of their entire payment is related to the surcharge and understand why the cost exists. This level of openness minimizes the possibility of misunderstandings, disputes, or chargebacks.
For instance, FlexPoint's MSP-specific automated billing and payment solutions make this process easier by precisely calculating surcharge amounts and clearly presenting them on invoices.
Step 4: Monitor and Review Compliance
Finally, MSPs should regularly review their surcharging methods to ensure they are still in compliance with state and federal regulations.
All of these measures are necessary, including regularly assessing surcharge prices, soliciting customer input, and considering changes in legislation or other laws that may influence surcharging.
In addition to federal regulations, card brand rules impose specific caps and disclosure requirements.
Visa recently lowered its surcharge cap to 3%, requiring merchants to adjust their practices.
Mastercard permits surcharges of up to 4%, but this only applies when the merchant’s cost of Mastercard acceptance exceeds 4%.
“If a merchant’s merchant discount rate for Mastercard credit cards is 2.50%, the cap on the surcharge that this merchant may charge a consumer is 2.50%, not 4%.
The 4% cap only becomes relevant in the rare instances where a merchant is paying more than 4% for Mastercard acceptance.”
This demonstrates the need for MSPs to stay updated on changes that may affect their ability to charge fees and the specific aspects of each payment network's rules.
By regularly examining and adjusting surcharging processes, MSPs can prevent costly penalties, preserve transparency with clients, and improve financial operations.
The Role of FlexPoint in Streamlining Credit Card Surcharging
Considering the range of transactions MSPs handle, credit card processing fees can become understandably complicated.
For example, recurring payments and large transaction volumes can diminish profit margins if not carefully managed.
Some of FlexPoint’s MSP-specific payment automation features and plans are tailored to address these issues. FlexPoint offers two distinct payment processing plans designed to cater to the unique needs of MSPs:
- Interchange+ Plan
- Customer Surcharge Plan
Payment Processing Plans
FlexPoint offers two tailored payment processing plans designed to address the specific needs of MSPs in Hawaii.
a. Interchange+ Plan
The Interchange+ plan provides a transparent pricing model that adjusts based on the interchange rates tied to each card type. This approach allows MSPs to benefit from lower processing fees for certain transactions.
For example, cards like Discover typically have lower interchange rates, leading to reduced fees.
On the other hand, premium cards such as American Express or those offering high rewards come with higher interchange rates, resulting in higher processing fees for those transactions.
The Interchange+plan is ideal for MSPs in Hawaii who prefer to absorb credit card processing fees instead of passing them on to clients.
b. Customer Surcharge Plan
The second plan is known as Customer Surcharge.
With the Customer Surcharge plan, MSPs apply a flat percentage surcharge to credit card transactions, effectively shifting the cost of processing fees to clients. This option eliminates processing fees from the MSP’s overhead.
The plan simplifies billing by applying a consistent surcharge to all credit card payments, offering predictability for both MSPs and their clients.
This approach mainly benefits MSPs seeking to maintain margins while providing clients with transparent, upfront fee structures.
FlexPoint also offers the flexibility to split processing fees with clients.
For instance, an MSP could cover half the fees while surcharging the remaining percentage. This balanced approach reduces operational costs while preserving positive client relationships
How FlexPoint Enhances Surcharging Compliance and Transparency
FlexPoint ensures surcharges are always within allowable limits in Hawaii and properly disclosed on invoices. FlexPoint’s reporting features also help MSPs track trends, monitor compliance, and adjust practices when regulations change.
For example, when Visa lowered its surcharging cap from 4% to 3%, businesses had to adjust their surcharging protocols.
Fortunately, FlexPoint’s platform means changes like this are easy to implement without sacrificing transparency.
Here’s how an invoice might look that properly discloses surcharges separately from the service fee:
Hawaii MSP Client INVOICE
FlexPoint’s Integration with MSP Tools for Seamless Billing
With integrations to platforms like QuickBooks Online, QuickBooks Desktop, Xero, ConnectWise, and SuperOps, FlexPoint can produce real-time reports that illustrate trends, pinpoint areas for improvement, and demonstrate how surcharges affect cash flow.
FlexPoint also frees MSPs from the burden of complicated billing by simplifying procedures and lowering administrative demands, allowing them to concentrate more on their core offerings and client development.
Ultimately, this operational improvement results in a more robust and competitive business position.
FlexPoint increases MSPs' operational efficiency by automating surcharge calculations, billing, and reconciliation.
With its reporting and analytics features, FlexPoint'sautomation also gives MSPs a comprehensive picture of their financial operations.
FlexPoint's branded client payment portals provide additional transparency. FlexPoint provides a client-facing, branded payment portal where clients can view an itemized invoice and update payment details.
FlexPoint itemizes surcharges on invoices and client-facing portals, leaving no room for misunderstanding or payment friction.
Clients will appreciate this transparent approach, and MSPs will benefit from better client trust and loyalty.
Offering Flexibility in Surcharging
FlexPoint allows MSPs to implement surcharges on a client-by-client basis.
This feature allows MSPs to manage varying client relationships.
For example, an MSP might cover credit card processing expenses for long-term or high-value clients as a courtesy while still utilizing surcharges for other clients.
With this flexibility, MSPs can better balance recovering costs and maintaining high client satisfaction ratings.
Conclusion: Streamlining Credit Card Payments with Effective Surcharging Strategies for Hawaii MSPs
Credit card surcharging offers many benefits for Hawaii MSPs, including improved cash flow and lower operational costs.
However, maximizing these benefits hinges on careful implementation, transparency, and strict adherence to legal requirements and card brand guidelines.
FlexPoint’s automated solutions simplify every aspect of surcharging, from accurate fee calculations to clear client communication and compliance assurance.
The FlexPoint platform simplifies surcharging by automating surcharge calculations to align with regulations. Its tools ensure surcharges are always within allowable limits and properly disclosed on invoices.
These customizable payment plans make FlexPoint an adaptable choice for Hawaii MSPs, whether they choose to absorb, share, or thoroughly pass on processing fees to their clients.
Empower your MSP with the tools you need to implement compliant and efficient credit card surcharging.
FlexPoint offers automated solutions that streamline MSP payment processing and ensure you stay within Hawaii’s regulations.
Ready to take the next step? Schedule a demo today and see how FlexPoint can transform your financial operations.
Additional FAQs: Credit Card Surcharging in Hawaii for MSPs
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