Cash Discounts And Surcharging Remain the Hot Topic for ISOs

They’ve been the subject of intense debate for several years now, but evidence from the Southeast Acquirers Association annual conference Tuesday shows interest among independent sales organizations in discounts for cash and credit card surcharges is as high as ever.

About 800 people attended the Atlanta confab that concluded Wednesday, and most of them crowded into a panel session Tuesday to learn more about services that offer merchants a way to reduce payment card acceptance costs while increasing ISO profitability. While both pricing plans have their share of critics, discounts for cash have been especially controversial since Visa Inc. issued a bulletin last October that in essence told the merchant-acquiring community that many such programs are really improperly disclosed surcharges imposed on card-using customers.

That doesn’t mean a cash-discount program can’t be done right, according to panelist Phil Ricci, vice president of sales operations at Clayton, Mo.-based payment processor Clearent LLC. He called cash discounts “one of the most misunderstood programs” for merchants. Part of the issue stems from a lack of network rules for cash discounts compared with surcharges, Ricci and other panelists noted. One key requirement is that only credit card sales can be surcharged.

To keep its cash-discounting merchants out of trouble, Clearent registers them with the card networks, provides signage about the pricing plan for their customers, and otherwise applies the detailed rules for surcharging. “We manage it to the guidelines of the surcharging program,” Ricci said.

Ricci added that Clearent provides extensive training for cash-discount merchants, including videos. “Training is so huge with this,” he said.

Still, some ISO executives predict the networks are going to become stricter about cash discounts soon. They prefer safer surcharging ground. Panelist John Barrett, North America president for Nxgen Payment Services, a Whitefish, Mont.-based ISO, said more merchants are signing on for Nxgen’s surcharging program after it “kind of bombed” upon its introduction three years ago.

“We’re seeing a lot of momentum in this,” Barrett said, noting that about 15% of Nxgen’s sales volume is now surcharged.

Surcharging could be in for even more growth. Surcharge bans in California, Texas, and Florida have fallen recently, and New York’s ban, while still on the books, has been greatly circumscribed as a result of a Supreme Court ruling. Those four big states account for 40% of the U.S. population, and only six states still have bans, said panelist Jonathan Razi, chief executive of CardX LLC, a Chicago-based technology provider that offers a surcharge program to ISOs.

Panelist Michelle Geraci, an executive at Transaction Services (TRX), an Atlanta-based ISO that began offering a surcharge program in 2015, says surcharging reduces merchants’ costs while increasing residual income for sales agents. But local merchants can be a tough sell because they often don’t want to be the first to surcharge lest customers take their business to competitors, she said.

“They don’t want to be the first one on their block,” Geraci said. “People think cardholders are going to object more than they really do.”

The panelists all agreed that surcharging and cash discounts can raise ISO profitability, but margins depend on merchant mix, average tickets, the ability of such programs to reduce costly attrition, and other factors.

“We’ve seen an impact on our overall portfolio margin,” said Barrett. A minute later, Ricci chimed in: “There’s just a ton of money in this.”