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ChapterTitleEducation
A fresh look at surcharging

amid the COVID-19 recession

By Michael Tomko Even before the crisis, many merchants were struggling to
CardX manage the cost of payment acceptance. In the emerging
recession, the market dynamics (including rate increases
s the COVID-19 pandemic reshapes commerce from Visa and Mastercard scheduled for April 2021) are
globally, merchant acquirers are working to shifting more clearly toward surcharging.
adapt as quickly as the businesses they serve. How acquirers should respond
A In the face of remarkable upheaval, numer-
ous merchants are shifting from accepting card-present Processors, ISOs, and ISVs have been no less impacted
payments to offering online or over-the-phone payment by the economic shocks associated with the pandemic.
options. Some businesses that previously saw few card Many are adapting sales strategies, favoring card-not-
payments are now seeing increased customer demand for present solutions over POS devices, and doubling down
alternatives to checks or cash, as stores and bank branches on verticals that have been relatively unaffected by
are closed. nationwide lockdowns.

The most daunting aspect, however, is that merchants' The economic downturn has also led to increasing industry
customers are relying on credit cards more heavily than consensus that surcharging is a critical tool for acquirers.
ever before to finance purchases. This drives up processing The opportunity to sell on features like 0 percent cost and
costs when merchants can least afford to pay more. compliance, rather than price, has long been discussed
as a remedy to the industry-wide trend toward margin
As executives and finance professionals are increasingly compression, and merchants have never been more willing
determined to reduce expenditures, card processing costs to consider new cost-management options.
are coming under increased scrutiny. Many businesses are
considering passing their credit card fees on to customers. For acquirers, the challenge is identifying the key
Surcharging has grown in popularity, with increased verticals where surcharging is most needed even as many
regulatory clarity making the option widely available. businesses are shut down nationwide. B2B continues
In the wake of the unprecedented economic downturn, a to thrive, not only in supply chain-related businesses,
growing number of merchants are using surcharging as a but also among the many lawyers, accountants and
tool to manage their bottom lines. consultants working overtime to help their clients adapt.
Similarly, explosive growth has occurred in home-related
Surcharging by the numbers
services as many workers now working remotely have
Surcharging has often been most successfully used by increased investments in home contractor services, IT and
merchants with large average ticket sizes, particularly even home-office furniture.
in B2B verticals with a majority of card-not-present Surcharging in 2020 and beyond
transactions, according to American Banker (https://bit.
ly/2T7NDnR). These characteristics came into sharper While predictions for the rest of 2020 and thereafter vary,
relief as the economy slowed to a standstill. most economists, finance professionals, and banks agree
we're now facing a deep recession. Acquirers can help
CardX analysis found that for a representative group of merchants by continuing to offer best-in-class technologies
merchants using surcharging, transaction count decreased that fit their needs and help them accept payments at the
almost 40 percent from March 1 to mid-April, but credit lowest cost.
and debit cards were affected differently. Whereas the
average debit card transaction size is stable and debit As surcharging has continued to grow quickly for both
volumes are down approximately 20 percent, the average SMB and enterprise, many acquirers are taking a second
size of a credit card transaction has increased by almost look at their options. With each dollar mattering more
50 percent. As a result of this spike in transaction size, than ever, acquirers must pivot and adapt by partnering
credit volumes for merchants who surcharge are almost with a trusted, seasoned and compliant solution provider
entirely unaffected, having decreased only 1 percent since who gives them all the resources they need to successfully
the pandemic's onset. offer a surcharging program.
These merchants are seeing cardholders leverage credit
cards to finance purchases and preserve liquidity: Michael Tomko (michael@cardx.com) is COO of CardX, a compliance
cardholders who may have previously preferred to write technology company that partners with ISOs, ISVs, and processors to
checks or pay by debit are now choosing credit. provide turnkey solutions for credit card surcharging. At CardX, Michael
manages business operations, product and strategic initiatives includ-
ing finance.
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