Introduction to Surcharging

I believe most of you are aware of my passion to educate the industry – sales agents and ISOs.  Although I’ve talked often about surcharging in previous content, I would be remiss not to publish a series of discussions about surcharging.  There is a lot of uncertainty in our industry right now about the direction of these programs which pass the cost of processing on to the consumer.  However, one thing we know for sure is that surcharging is compliant with Visa rules.  In most states surcharging is now perfectly acceptable, compliant, and legal.  When a legal precedent is in writing, understanding compliance is much easier.

I believe all the current cash discount programs are eventually going to surcharging.  The timeline is a little bit up in the air.  There are big changes happening even this week.  Some of the biggest companies are putting pressure on their largest ISOs to eliminate “cash discount” programs that add a service fee at the register.  These companies want the processing companies and ISOs to move towards compliant surcharge programs.

I am going to break down all this information for you in the next few episodes.  I challenge you to go through these.  I’m not going to lie, some of them will be rather boring since I’m just covering a lot of basic information you need to know.  But you should be an expert on this subject.  Surcharging is much more complicated than traditional cash discount programs you would see in our market place today.

The cash discount programs have a flat fee of perhaps 3.99% that’s applied to everything.  It is very simple to implement a program like that.  Also, because Visa is against it and considers cash discount programs to be not compliant with their rules, registering or notifying card brands is unnecessary.  You don’t have to do anything for cash discount programs.  Thus, they seem very easy to implement, whereas surcharging has some complication to it.  Why?  Because there are many different state laws.  Some state laws are still in flux; you must “figure out” what you can do.  Visa rules require very specific things in order to be in compliance if you are doing a surcharge program.  There is signage that you must have.  Therefore, you want to thoroughly understand all of it.  Have the knowledge necessary for an educated conversation with merchants and make sure your own program or the one for whom you sell is compliant.  Compliance is really the key word here when talking about surcharging.

Another key issue I’ll discuss is pricing.  There are many different pricing schemes going on right now with surcharging.  Our industry has never lacked ambition to find profitable things to do, right?  We are always looking at pricing.  Here again, pricing for cash discounting is very simple – add 3.99% to everything or add a per-item fee to everything and then charge the merchant the same thing.  Those generally offset each other with maybe a few monthly fees, and you are making a lot of money.

Surcharging is massively more complex.  Don’t lose sight of that!  We recently implemented surcharging on our instant quote tool at instantquotetool.com for both our ISO clients and our individual agents.  I can tell you after seven or eight attempts to create the documentation and the guide for how to create a surcharge program, I’m still not done.  The set-up is extremely complicated.

I will walk through all of that in these episodes and explain how the pricing works, how you need to set it up.  But it’s complicated; there’s much you need to understand.  I plan to prepare the whole series, so you can walk through it and really understand it.

The next episode will be about the history of surcharging, which actually started back in 1974.  Don’t worry; it’s not going to be too dry!  I’ll answer the questions of where it came from, what court cases are relevant, and what Visa rules are relevant.  So, make sure you jump on that to learn the history of surcharging.  Believe me, by the time we get to the end of this little mini-series, you are going to love the course.  After you acquire this knowledge, you’ll also learn how to actually go sell it and how to make money with surcharging.  At the end of the day, that’s what we all want to do.

Let me challenge you to take time as a payments professional to understand what you are doing.  That does make a big difference.  Merchants are going to have a lot of questions about this program.  You need to understand the ins and outs.  Then you can have an educated conversation with merchants, along with the self-confidence you need to really attack this exciting new program.