Margin expansion technology

In March 2013, CardCharge launched a patent-pending technology to help acquirers protect margins and tap previously inaccessible vertical markets. The CardCharge Calculator "preprocesses" transactions to identify processing costs to the merchant – acquirer's fees, interchange fees, processing costs – and upon approval charges customers directly before transactions enter the network. The company continues to pursue acquirer, processor and gateway partners to bring the technology to online and brick-and-mortar merchants nationwide.

Its technology evolved in response to the U.S. merchant class settlement with Visa Inc. and MasterCard Worldwide, which stipulated that merchants could surcharge credit card processing fees (debit cards are exempt) as long as they are compliant with certain provisions. Surcharging is now a viable option in 41 states.

CardCharge President Ed Levene said in states where surcharging is permitted more businesses are choosing to pass along transaction costs to customers. "Certain states have other additional rules, so you need to identify a whole litany of other criteria before the transaction occurs to get it right," Levene said. "You need to do a pre-process of that transaction, to go through the different activities."

The surcharge model has found a niche in regulated industries previously restricted from card acceptance, such as insurance and healthcare, where check payments are commonplace. Hypercompetitive industries where lower-priced products garner more sales have proven effective for this model as well.

"Let's say I sell $1,000 TV sets online, and supplier number two prices their TV at $970, 33 percent less," Levene said. "But if you pay with a card that costs them money, you pay the additional cost. So now, all of a sudden, we change the bidding structure for e-commerce." The same model can also be applied to booking hotel rooms and selling sandwiches at the local deli.

How it works

When a customer presents a payment card to a registered merchant, whether online or in-person, the CardCharge Calculator instantly takes the transaction subtotal, the card being presented and the merchant's preset characteristics and then proceeds through a series of steps to complete the transaction.

Surcharge transaction process:

1. Client checkout/POS software receives card number from customer.
2. Client software requests calculation from gateway with BIN and initial transaction total.
3. Gateway receives calculation from CardCharge calculation engine.
4. Client checkout/POS software presents revised transaction total to customer.
5. Customer approves transaction.
6. Client checkout/POS software sends authorization request to gateway.

Proof is in revenue pudding

According to Levene, the company's system is agnostic, and to help navigate state and federal regulations concerning surcharge, CardCharge provides real-time processing that is both accurate and compliant.

Another advantage is the transparency it affords ISOs. "A merchant acquirer goes to a merchant, signs up the merchant, and agrees to a fee for that service, and then that would be embedded in the surcharge that goes to the consumer," Levene said, noting that acquirers typically expand revenues using this model.

"We see transaction values increase when we provide the no-cost program to merchants," he added. "We like to see approximately 100 basis points in the transaction to be shared among the groups from an average activity."

He also cited research indicating 68 percent of merchants surveyed across industry sectors said they would adopt a surcharge program if it meant they would no longer have to pay card acceptance fees and could instead transfer those costs to customers.

In Australia, one decade after the Reserve Bank removed the card schemes' no-surcharge rules under reforms set forth in 2003, the surcharge model has become well ingrained. From June 2013 to June 2014, the percentage of Australian merchants who surcharge rose from 39 percent to 43 percent, according to Sydney-based research firm East & Partners.

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