COMMENTARY: The Time Has Come for All Merchants to Adopt Surcharging And Discounting

There are few subjects that raise the ire of merchants more than the runaway costs of card acceptance. For years, many have grumbled about the costs but felt powerless to do anything about them. Now, as the result of a chain of court victories at the state and federal level, merchants are taking steps to either discount for cash or add a surcharge for paying with bank cards.

Today, I’ve mostly encountered surcharges at small merchants with above-average ticket sizes. These include auto and boat shops, restaurants, medical providers, and veterinarians. But I suspect this practice will soon be noticed and copied by many other merchants. 

There can be little doubt that discounting and surcharging are gaining momentum in most parts of the country, just as I have experienced in my backyard. I’d also bet most consumers react the way I do. They simply pay with cash or write a check. I suspect very few decide to shop somewhere else, especially after hearing the merchant explain (with very little prompting) that their 4% fee still doesn’t come close to covering all of the costs associated with accepting cards for payment. 

The good news is the benefits of surcharging or discounting are not limited to small merchants. There is a very good business case for this practice at all merchants, especially online sellers, since they face fewer operational challenges than face-to-face merchants. They face even higher fees for accepting cards and bear most, if not all, of the costs of card fraud. 

And even the largest face-to-face merchants, which have historically been loath to consider surcharges because of the threat of customer backlash, should take notice. Small merchants are doing the job of educating consumers by explaining they just can’t afford the fees banks charge them any more—especially during the disruptions wrought by the pandemic. Merchants report most customers understand and are sympathetic.

In the past, merchants focused on the political process to rein in the abuses of the bank card industry. Unfortunately, history has shown most politicians have little appetite for taking on the bank lobby. Even when merchants were successful (as was the case with the Durbin Amendment), the Fed essentially thwarted the intent of Congress by rewriting the law, reducing its benefits to merchants to a small fraction of what was intended.

So merchants must embrace discounting or surcharging now as the only reliable way to control the runaway costs of bank card acceptance. The courts, presumably guided by the Constitution rather than by campaign contributions, have spoken by overturning one after another misguided state law forbidding surcharging. Merchant advocates should revisit the courts and try to get rid of bank networks’ limits on how much merchants can surcharge or other restrictions to make surcharging impractical. 

Nobody has more to gain than the small merchants most victimized by the banks, the banks’ networks, the ISOs, the merchant processors, and the payment-industry hangers-on that collectively suck the blood out of the merchant community at every opportunity.

—Mark Horwedel is an independent payments analyst. Until he stepped down in 2018, he was chief executive of the Merchant Advisory Group, which represents merchant interests on payments issues.