U.S. merchants fed up with credit card “swipe fees” have the option in most states to offset those fees by surcharging customers, but determining the right amount can be tricky.
Certain rewards credit cards carry swipe fees that are considerably higher than other cards, making it difficult for merchants to calculate an appropriate surcharge that adheres to complex local, federal and card-brand rules.
A startup called SurchX hopes to capitalize on the confusion with technology that overlays on merchants’ existing processing platforms, generating a surcharge amount customized for each transaction in markets where the practice is allowed.
A typical $30 online transaction using a rewards credit card may result in a legitimate $1.30 surcharge using SurchX’s technology, which may provide relief for merchants claiming that cumulative swipe fees cut deeply into their profits.
Based in Phoenix, SurchX was founded by veteran tech industry executive Robert Maynard, who previously founded several companies including the ID theft protection provider LifeLock, which is now part of Symantec.
“Our vision is to help merchants recoup the greatest amount of credit card processing fees at checkout as they legally can,” said Maynard.
Maynard's history with LifeLock was intertwined with his personal challenges. He claimed to have founded the company after facing an arrest for an unpaid $16,000 casino loan obtained by an identity thief, but a
At the time, Maynard was dealing with a diagnosis of bipolar disorder, which led him to make excessive investments and to disappear from work for periods of time — including spending days or weeks in Las Vegas, Maynard said in an interview with
Returning to his role as an entrepreneur, Maynard decided to focus on merchants' pain point of dealing with swipe fees.
SurchX’s software dataset contains 20 million results for what the allowable surcharge will be on any given purchase, and it’s added onto the purchase and labeled as a “transaction fee.”
Targeting merchants selling goods online and via telephone, SurchX is starting out by distributing its technology through payment platform providers. The company plans to expand SurchX to POS merchants by the middle of 2019.
A dozen companies have signed on with SurchX so far, including Angel Shave Club, a website that sells women’s shaving products.
SurchX isn’t alone in the emerging surcharging technology field. Chicago-based
Currently 42 states allow credit card surcharges, and with ongoing court cases for surcharging in California and New York,
For merchants charging customers a fee to offset the extra costs for accepting credit cards, the industry norm is a 3.5 percent surcharge, with detailed rules and disclosures required by the card networks.
Surcharging may catch on with certain merchants, analysts say.
“I don’t think we’ll find a ton of mainstream retailers doing this, but it’s a good fit for certain segments of the market where audiences are captive and competition is less pernicious,” said Rick Oglesby, president of AZ Payments Group.
Operators of taxi fleets and stadiums—which have captive audiences—already implement surcharging in some cases, Oglesby noted.
Competition among merchants may be a deterrent for surcharging, though.
“I don’t expect surcharging to be something that happens at every location, but it will continue to gain strength in certain markets,” Oglesby said.
Maynard was most optimistic about the markets where rewards cards are widely used.
“About 80 percent of all credit card purchases are made with rewards cards, and it’s the merchants who bear the extra costs from them,” Maynard said.
