Q+A: What You Need to Know About Surcharging
The rules and requirements around cash discounting and surcharging can be confusing to navigate, and new pronouncements and clarifications from the entities involved – card brands, state legislatures – can raise new questions.
On September 5th at 1:00 pm ET, ETA will host a webinar which will explain how cash discounting and surcharging work (and how they differ from one another), what payments providers need to do in order to implement them, and how these products are affecting the payments industry. The webinar is free for ETA members.
The webinar presenters are:
- Holli Targan, Jaffe, Raitt, Heuer & Weiss (Moderator)
- John Barrett, NXGEN
- David Leppek, StatementIQ
- Jonathan Razi, CardX
In advance of the webinar, Transaction Trends interviewed the webinar presenters to get their insights into the webinar’s content and value.
Transaction Trends (TT): Why is surcharging a hot issue for payments professionals?
Holli Targan (HT): Surcharging and cash discounting are hot issues for ISOs, processors, ISVs, payment facilitators and banks because of the demand by merchants to accommodate some form of shifting the cost of card processing to consumers. There are multiple ways recognized by the card brands for doing this, all of which are generically known as “surcharging” but which are in fact different approaches with different compliance obligations. Technically, the four different “cost shifting” methods are surcharges, cash discounts, convenience fees, and service fees.
Industry players now appreciate that the different methods have various compliance requirements, and they are getting their arms around offering the programs while remaining compliant with state law and card brand rules.
David Leppek (DL): Surcharging as a pricing model is very attractive to select industries and specific merchants sensitive to the high cost of accepting credit cards. In an omni-commerce world, the payments professional needs to be able to support all product features, and intelligently explain the compliance requirements around this alternative.
John Barrett (JB): It is trending as all but 6 states have now allowed for surcharging and it is more and more becoming acceptable in key industries. Payment professionals see that it is a way to differentiate themselves, improve their margin, and provide a true value add to their merchants. It is a solution that is unique in how it can make more money for an ISO/Agent while drastically saving money for a merchant. It is also becoming easier for merchants with companies enabling surcharging in a turnkey, compliant manner.
Johnathan Razi (JR): The surcharging trend is being driven by great, and durable, tailwinds: merchant costs continue to escalate—interchange for rewards cards went up 24% over a recent four-year period—while acquirer margins on traditional processing are getting compressed by price competition. So merchants have increasing demand to use surcharging solutions, the payments industry has a rapidly growing interest in selling them, and all the while they are becoming available in a bigger market. The recent additions of California, Florida, Texas, and New York have made this model available across 93% of the United States by population, and we’re actively working to bring this to 100%.
TT: What are the key challenges and opportunities in the surcharging space?
HT: A key challenge is understanding what the possibilities for cost-shifting are, how they are different from one another, and how to implement them while remaining compliant with state laws and card brand requirements.
DL: It can be difficult to assure the merchant does everything required to have a compliant surcharge solution. If the salesperson is successful in explaining the requirements and helping the merchant facilitate those tasks, then the surcharge pricing model saves the merchant money, and results in more margin for the account, and more commission for the salesperson. A merchant that is sensitive to the high cost of payments, would once seek a cost plus small per items fees, and the result was an undervalued account that made practically nothing in margin. But with surcharging, that same account can be even less expensive to the merchant, but make the sales rep a healthy residual stream. It is a win-win.
JB: Understanding the right markets to sell surcharging and training of sales people in how to present and overcome objections is key to success. The main objections we see are questioning the legality of surcharging and the fear of losing customers. Training reps on how to overcome those objections with documentation and focusing on the right markets is needed. It is not a mainstream solution today for retail/restaurants. But in the right markets, it is wide open and provides a solution that is still relatively new in the industry.
JR: Now that surcharging solutions are being successfully used at scale, the question of whether surcharging is here to stay has been settled and the conversation has shifted—what will differentiate providers in terms of competitive excellence? The #1 barrier to entry is compliance: the contract rules with the card brands are onerous, there are still state laws on the books, and—for those who get it wrong—compliance enforcement will inevitably become more active as more merchants choose to surcharge. We predict the best surcharging providers will differentiate themselves by offering fully-compliant solutions for all environments, including the more complex areas of MOTO and eCommerce; enabling straightforward financial reconciliation for merchants; and delivering a frictionless experience overall.
TT: What will payments professionals take away from this upcoming webinar?
HT: The webinar will clarify the four different cost-shifting programs, and highlight the legal issues and compliance requirements of each.
DL: Complaint surcharging is complex, but can be accomplished, and successfully leveraged to complement their portfolio. Because it is difficult, less competitors offer the solution, or understand it sufficiently to win the business. This product /model is another tool in the sales persons’ box of tricks, and will prove effective for the right customer.
JB: A better understanding of surcharging, i.e. where to sell, how to sell, why to sell. They will learn about the key differences between cash discounting and surcharging as well as get an overview of the trends in the marketplace. They will get an overview of the landscape and legality of surcharging. They will understand some of the key objections and how to overcome them and learn the keys to success in selling it.
JR: We hope the webinar will offer valuable insight into what’s next for surcharging. We’ll share recent takeaways from our meetings with the attorneys general of the five states that don’t yet permit surcharging, our views on how surcharging makes card payments better for merchants and consumers, and the counterintuitive reason we’re seeing surcharging lead to more card payment volume.
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Click here to register for the webinar.