COMMENTARY: The Great Hope Rising From the Quiet Revolution Against Card Payments

In the heart of America’s bustling commerce, a subtle yet powerful revolution is unfolding, driven by small merchants.

The strategies of offering discounts for cash payments and imposing surcharges for card transactions are at the forefront of this change. These practices, rapidly gaining traction across communities, directly challenge the entrenched dominance of card networks and banks.

Discounting for cash has been the law of the land for many years, but most merchants outside of the petroleum industry have failed to adopt it. Surcharging for credit cards has until recently been illegal in many states, but now only two, Connecticut and Massachusetts, forbid surcharging, and they are yet to be effectively challenged in court.

Understandably, banks and their networks haven’t talked much about this undeniable trend toward discounting and surcharging and its potential to do the card industry irreparable damage. The silent response from the banking and card sectors underscores the potential disruption these merchant-driven strategies pose.

The traditional countermeasures mounted by these sectors, such as surcharge restrictions and penalty threats, now face a savvy merchant community adept at navigating these obstacles through innovative pricing strategies. Technology’s role in this cannot be overstated. Merchants now have new tools to adopt these practices with ease. This technological empowerment is democratizing the payments landscape, making it imperative for the industry to adapt and support this evolution.

For many years, merchants’ war on card-acceptance costs has captured the attention of Congress and the payments industry. Big banks and big merchants, along with their lobbyists and supporters, regularly descend on Capitol Hill with a goal to persuade elected officials to take action to either defend the card industry (big banks) or to regulate it (big merchants).

The banks have won most of these annual battles, and the U.S. has remained the most expensive market in the world for merchants to accept card payments. Merchants have seldom prevailed, but when they have—as was the case 14 years ago with the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act—the banks’ pet regulator, the Federal Reserve, has stepped in to gut the law and dramatically mitigate damage to the banks.

While the card war wages on, most small merchants haven’t the time or the resources to participate directly. They remain largely unaware of events on the Hill. However, their lack of awareness should not imply indifference. Whether or not the battle turns in merchants’ favor, small merchants remain painfully aware of, and dissatisfied with, card payments.

This fact was uncovered in a recent J.D. Power study. The study’s findings should come as no surprise to anyone in the payments industry. Merchants of all sizes continue to be shocked by the cost of card payments. In recent years, the card industry has escalated the cost of card acceptance by converting many standard cards to premium cards, by forcing nearly all the ever-increasing costs of fraud on merchants, by requiring merchants to invest in new, more expensive technology, and by indirectly eliminating competition by buying up competitors.

Negotiating with the card networks and the banks is a non-starter for all but the biggest merchants. Waiting on emerging payments may prove to be a waste of time, since nearly every promising new payment disruptor barely matures beyond infancy before it is acquired by members of the incumbent card- payment industry.

Surcharging and discounting on card transactions could provide a means to fight back. As more and more small merchants embrace differential pricing, technological developments are making surcharging and discounting easier than ever to implement. Acquirers are sensing blood in the water and are aggressively marketing differential pricing to their clients. It’s likely only a matter of time before mid-size merchants, as well as the online merchant community. follow suit.

Looking ahead, this trend signifies more than a transient phase. It embodies a fundamental shift towards a more equitable, flexible payment ecosystem. It challenges stakeholders to embrace change, leveraging it as an opportunity for growth and innovation. The quiet revolution in merchant payments is a clarion call for adaptation, heralding a future where choice and fairness define the commerce experience.

This revolution merits the attention and support of all industry participants. Its progression toward a more inclusive and adaptable payment system is not just beneficial, but essential for the vibrant future of commerce.

—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.