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More states allow surcharging, playing right into CardX’s hands


Article excerpt — If a merchant seeking to avoid credit card fees turned to cash discounting, it was at least partly because the other option — putting a surcharge on credit card use — was complicated and illegal in many states.

But more states are allowing surcharging, with a Fifth Circuit Court in Texas last week ruling in favor of merchants and taking the state’s no-surcharging law off the books. The court ruled the law violated free speech, a legal maneuver that lawyers representing merchants presented at Supreme Court hearings last year.

This is good news for Chicago-based CardX, a payments technology company specializing in providing merchants with payment terminals loaded with the software and specifications to apply the industry norm of a 3.5 percent surcharge on credit card transactions and also be compliant with any federal, card network or state rules governing its use.


Jonathan Razi, CEO of CardX – “We advocated in the Supreme Court case as the only payments company to have a brief, describing how surcharging affects a market when done at scale by expanding consumer choice, resulting in more transparency and lowering merchant costs,” said Jonathan Razi, CEO of CardX.
The argument presented by plaintiffs was, what is the difference between charging more for credit and charging less for cash, because they are economically equal.
It’s purely a matter of how you frame and communicate your prices, therefore it is not the conduct being regulated, it was speech. It was an ingenious argument and it carried the day.”

As the number of states outlawing surcharging has continued to fall, the free speech concept has won out — that if merchants were going to surcharge, they had the right to educate their customers as to why with signs and other materials within the physical store.

The ruling in Texas on Rowell v. Paxton follows similar merchant wins in Florida and California, leaving only a pending hearing in New York where the law is being challenged. Currently, there are no merchant challenges regarding laws against surcharging in Maine, Colorado, Oklahoma, Kansas, Connecticut or Massachusetts. All other states allow surcharging.

The slow but steady conversion of state laws to allow merchant surcharging means more merchants will find the policy an attractive option to offset credit card fees. Until now, the concept has not taken widespread hold, even after the major card brands eased their rules against surcharging as part of an initial interchange litigation settlement six years ago.

CardX believes it has good momentum in that regard, having signed up more than 3,000 merchant locations across the country in what Razi is calling the company’s best year.

“ISOs have a huge demand to sell a product like” surcharge-ready terminals, Razi said. “Traditional merchant pricing has become so competitive, they are racing to the bottom as far as profitability because the only way to sign up a merchant is to undercut someone else’s price.”

By comparison, Razi feels that a solution that makes a transition to surcharging easy for the merchant will result in high sales margins and increased retention. “No one can undercut your price when merchants are processing credit cards at zero percent cost,” he said.

“Even after Visa and Mastercard allowed surcharging, there were state laws prohibiting it,” Holli Targan, attorney at partner at Jaffe, Raitt, Heuer & Weiss PC, said at a recent acquirers conference. “So there was always a question from larger merchants as to how they would be able to implement surcharging across the country.”


Your Business Doesn’t Have To Pay Credit Card Fees Any More and It Shouldn’t


Article excerpt: — Thanks to new rules, merchants are able to post a single price and then apply a fee when buyers choose credit cards. So when your business sells $100 in product, you receive $100. The practice is not only beneficial to businesses but also to consumers.


In 2013, new rules enabled businesses in the United States to do what universities and government had long been permitted to do: pass on the fee when customers choose credit cards for convenience or rewards. And this month, further signaling a nationwide shift toward credit card surcharging, the U.S. Ninth Circuit Court of Appeals ruled California’s state-level ban on the practice is unconstitutional.

Businesses previously had few tools to manage these credit card fees, which increase twice yearly and are among the fastest-growing costs of doing business. In fact, the cost of many rewards cards increased by 24 percent between 2005 and 2009, according to the federal Government Accountability Office. While these costs were increasing in the U.S., they were decreasing in countries where passing on the credit card fee had been permitted.

The excessive cost stems from a lack of transparency. For far too long, credit card issuers have been insulated from price competition due to unfair bans on surcharging, for which the card companies lobbied aggressively. When consumers bear the cost of their own credit card rewards, they are more likely to switch to another form of payment when the cost becomes too high, applying price pressure to the card companies for the first time.

This relief benefits all merchants but especially those with tight profit margins. If your margins are in the single digits, a 3 percent credit card charge eats up a sizeable portion of profits. Higher prices charged across the board by businesses to make up for the fees on credit card payments indirectly cost families that pay in cash or with debit cards more than $1,100 per year, according to a study by the Federal Reserve Bank of Boston.

By passing on the cost of credit card transaction fees, small- and medium-sized businesses that had previously found card purchases too costly to process can now accept credit cards for the first time.


This fintech startup went to the Supreme Court to shake up the credit card industry

It’s a hot summer day and you’re feeling thirsty, so you duck into a small shop and grab a lemonade. The total comes to $3.29 and you instinctively reach for a credit card because who really carries cash anymore? Unfortunately, the store doesn’t accept credit cards, which means no lemonade for you.

“Payments affect so many business models, especially how you manage the cost of accepting credit cards,” said CardX CEO Jonathan Razi. “That’s why Apple bundles the individual purchases you make on iTunes and charges you a week or two later.”

Razi founded CardX to provide a turnkey solution to businesses for passing on the credit card fee to consumers. The company’s physical and online payment solutions are designed to distinguish credit cards from debit cards.

When a credit card is used, the system automatically alerts consumers they’ll be charged the processing fee. Merchants keep 100 percent of the sale, with CardX taking its cut from a built-in fee.

It’s fair to ask how increasing the cost of a purchase is a business strategy. To CardX’s CEO, it comes down to increased consumer choice.

“We sign a lot of merchants who would never accept credit cards unless they have an option to pass on that fee.”

“We sign a lot of merchants who would never accept credit cards unless they have an option to pass on that fee,” Razi stated. “Previously the costs were too high and the margins too low to even consider it.”



A California law that prohibited businesses from passing along credit card fees to customers has just been overturned.

The Ninth U.S. Circuit Court of Appeals in San Francisco just released its ruling, overturning the original law passed back in 1985. Credit card companies impose fees on businesses when they process credit card payments. But because of that original law, businesses in the state had to either raise prices across the board or get creative with discounts for customers who pay using other methods.

The new ruling has been generally seen as a win for small businesses since they now have more options for covering those charges. And those who prefer not to add a surcharge for credit card purchases don’t need to make any changes.

CardX CEO Jonathan Razi said in an email to Small Business Trends, “With this legal victory, businesses now have the option to pass on the fee to customers that choose credit cards for convenience or rewards. Under the new rules, businesses can accept credit cards at 0 percent cost. Based on what we’re seeing in other states, many businesses already processing cards will use this option to reduce costs, and businesses that previously did not accept cards at all (because the fees were prohibitive) will now be able to offer their customers the ability to pay by credit card for the first time.”

Razi says, “This is a landmark result for the country as a whole because it is the first state-level decision under last year’s U.S. Supreme Court case, which decided these laws are regulations of protected commercial speech. For that reason, we believe the California decision speaks directly to what we’ll see in the few remaining states: the bans are being ruled unconstitutional, and the courts are pushing towards acceptance in all 50 states.”


Merchants are finally warming up to surcharging

For years, merchants have had the freedom to charge their customers a premium for paying with a credit card. Yet the practice has never really caught on.

That could be changing, as reports from payments attorneys and other industry players suggest an uptick in merchants inquiring about how they can go about imposing these fees, a process otherwise known as surcharging.

Merchants in most states have been allowed to surcharge since 2013 as a result of a multibillion-dollar lawsuit settlement, in which Visa and Mastercard agreed to lift surcharging restrictions on credit cards but not debit cards. And just in the past year, more merchants seem to be bringing up the topic with their business advisers.