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CoverStory

or challenging the laws in court. "We always look for the best option in each "We've yet to implement surcharg-
state," Razi said. But he hinted that a legislative fix may be the ticket. ing with any of our merchants," said
Adam Niec, co-founder of Certain
Surcharging's storied history Pay. The Ohio-based ISO has access
Credit card surcharging has a storied history in the United States. In the 1980s, to a surcharging solution through its
Congress passed a law banning surcharging, but that law was allowed to lapse acquiring partner, Elavon, but "We
in 1984. Undeterred by congressional inaction, the card brands persisted with don't really push it," Niec said.
their own surcharge bans for nearly 20 years.
Only about 10 percent of merchants
The final blow came in 2012 when an out-of-court settlement of a lawsuit filed signing with VizyPay, an Iowa-based
by merchants against Visa and Mastercard included a provision ditching the ISO, currently choose surcharging,
surcharge ban for credit cards. Debit and prepaid debit cards remain subject to said Austin Mac Nab, VizyPay's man-
a surcharging ban. At the time of the settlement several states had laws ban- aging partner. The majority—about
ning surcharges, but that list has since been whittled down to two. 70 percent—go with cash discount-
ing.
Razi believes the future of surcharging is in the hands of the states. "I think
we're going to see a shift toward prescriptive laws that establish guardrails," Carrington Fisk, executive vice presi-
he said. The Colorado law, for example, caps credit surcharges at 2 percent or dent at KastenBerry, an ISO head-
the actual discount fee a merchant pays to process a credit card payment. Mer- quartered in Kansas City, Mo., sug-
chants also must disclose surcharges using specific language prescribed in the gested the card brands may at some
law, and surcharges must be included as line items on consumer receipts. point feel pressured to drop the sur-
charge ban on debit card payments.
Surcharging isn't for everyone. Most experts agree merchants selling big ticket "As soon as this happens, cash dis-
items, those that employ recurring billing, those that don't take a large number counting will go away and surcharg-
of debit card payments, and B2B transactions are the best candidates for sur- ing will prevail," he said.
charging.
Razi isn't convinced. "From what I
hear, the card brands are pretty com-
mitted to keeping it," he said. Here's
the suggested rationale: many con-
sumers, unwilling to pay surcharges,
will pay with a debit card, which still
generates network volume and in-
terchange. If debit cards carried sur-
charges, the transactions might move
to non-card methods, like checks and
cash.

Cash discounting, an all-around
win

Like surcharging, cash discounting
has a long history. Gas stations were
among the first to offer discounts to
cash-paying customers as a cushion
against rising oil prices and inter-
change fees.
The floodgates opened to cash dis-
counting, however, with passage of
the Durbin Amendment to the 2010
Dodd-Frank Act. The Durbin Amend-
ment, which ushered in the capping
of debit card interchange, also includ-
ed a provision expressly protecting
the rights of businesses that wish to
offer discounts for cash or other spe-
cific payment types.

As is the case with surcharging, there
are rules governing cash discounting.
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