By Michael Tomko
CardX
As the COVID-19 pandemic reshapes commerce globally, merchant acquirers are working to adapt as quickly as the businesses they serve. In the face of remarkable upheaval, numerous merchants are shifting from accepting card-present payments to offering online or over-the-phone payment options. Some businesses that previously saw few card payments are now seeing increased customer demand for alternatives to checks or cash, as stores and bank branches are closed.
The most daunting aspect, however, is that merchants' customers are relying on credit cards more heavily than ever before to finance purchases. This drives up processing costs when merchants can least afford to pay more.
As executives and finance professionals are increasingly determined to reduce expenditures, card processing costs are coming under increased scrutiny. Many businesses are considering passing their credit card fees on to customers. Surcharging has grown in popularity, with increased regulatory clarity making the option widely available. In the wake of the unprecedented economic downturn, a growing number of merchants are using surcharging as a tool to manage their bottom lines.
Surcharging has often been most successfully used by merchants with large average ticket sizes, particularly in B2B verticals with a majority of card-not-present transactions, according to American Banker (https://bit.ly/2T7NDnR). These characteristics came into sharper relief as the economy slowed to a standstill.
CardX analysis found that for a representative group of merchants using surcharging, transaction count decreased almost 40 percent from March 1 to mid-April, but credit and debit cards were affected differently. Whereas the average debit card transaction size is stable and debit volumes are down approximately 20 percent, the average size of a credit card transaction has increased by almost 50 percent. As a result of this spike in transaction size, credit volumes for merchants who surcharge are almost entirely unaffected, having decreased only 1 percent since the pandemic's onset.
These merchants are seeing cardholders leverage credit cards to finance purchases and preserve liquidity: cardholders who may have previously preferred to write checks or pay by debit are now choosing credit.
Even before the crisis, many merchants were struggling to manage the cost of payment acceptance. In the emerging recession, the market dynamics (including rate increases from Visa and Mastercard scheduled for April 2021) are shifting more clearly toward surcharging.
Processors, ISOs, and ISVs have been no less impacted by the economic shocks associated with the pandemic. Many are adapting sales strategies, favoring card-not-present solutions over POS devices, and doubling down on verticals that have been relatively unaffected by nationwide lockdowns.
The economic downturn has also led to increasing industry consensus that surcharging is a critical tool for acquirers. The opportunity to sell on features like 0 percent cost and compliance, rather than price, has long been discussed as a remedy to the industry-wide trend toward margin compression, and merchants have never been more willing to consider new cost-management options.
For acquirers, the challenge is identifying the key verticals where surcharging is most needed even as many businesses are shut down nationwide. B2B continues to thrive, not only in supply chain-related businesses, but also among the many lawyers, accountants and consultants working overtime to help their clients adapt. Similarly, explosive growth has occurred in home-related services as many workers now working remotely have increased investments in home contractor services, IT and even home-office furniture.
While predictions for the rest of 2020 and thereafter vary, most economists, finance professionals, and banks agree we're now facing a deep recession. Acquirers can help merchants by continuing to offer best-in-class technologies that fit their needs and help them accept payments at the lowest cost.
As surcharging has continued to grow quickly for both SMB and enterprise, many acquirers are taking a second look at their options. With each dollar mattering more than ever, acquirers must pivot and adapt by partnering with a trusted, seasoned and compliant solution provider who gives them all the resources they need to successfully offer a surcharging program. 
Michael Tomko (michael@cardx.com) is COO of CardX, a compliance technology company that partners with ISOs, ISVs, and processors to provide turnkey solutions for credit card surcharging. At CardX, Michael manages business operations, product and strategic initiatives including finance.
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