Chicago-based CardX LLC launched the same year a ban was lifted that prohibited U.S. merchants from imposing a surcharge fee at checkout to cover card acceptance costs. As the result of settlement of a merchant-led antitrust lawsuit against the major card brands, surcharging became legal in 40 states and has since risen to 44 with some restrictions.
"When I saw that regulatory change, I knew it was an opportunity for someone to come in and be the first to market with a turnkey solution," said Jonathan Razi, CEO at CardX. He founded the company in 2013 while in graduate school at Harvard Law School.
The first-time entrepreneur saw an opportunity to help businesses enjoy the same economic advantages granted to government agencies and educational institutions in the ability to charge a service or convenience fee for credit card transactions. CardX serves these vertical market segments nationwide.
"We have merchants whose gross margin might be something like 6 percent," Razi said. "When they accept a corporate credit card or rewards credit card, they might be losing half of their profit margin right then and there for the credit card fee, so they view these fees as prohibitive. They now have a way to pass on the cost."
CardX's patent-pending technology automates surcharge processes in compliance with state laws for handling in-person payments through its turnkey terminal, which comes equipped with EMV Quick Chip technology and the CardX app preinstalled, as well as MO/TO or online payment acceptance via a virtual terminal.
"I positioned the company at the intersection of technology and compliance," Razi said. "There are certain technology requirements, and those are all things that CardX does on behalf of our merchants. They choose us; they automatically comply."
For example, businesses must register with the card brands, apply surcharges either at the brand or product level, meet certain disclosure and surcharge fee cap requirements, and be able to distinguish between credit and non-surcharge debit card transactions at checkout.
"If I come to your website to make a payment and I'm typing in a card number, how are you going to know accurately, responsibly, very quickly if it's a credit card and you can pass on the cost, or if it's a debit card and you must not pass on the cost," he said. "That's one of the things our technology does."
While merchants, government and education entities represent prime markets for the service, business is currently the fastest growing segment for CardX, Razi noted. The company offers a revenue share program, processes through existing acquirer relationships or CardX as a referral relationship, and charges a licensing fee and flat rate for debit transactions.
"We license it; they procure the merchant," Razi said. "We do deployment from our office, whether it's login credentials for our portal, for our MO/TO account, or a terminal. It comes from us. We have a full-time partner team; that's our distribution."
Beyond targeting new verticals, ISO partners can also migrate existing merchants to the service. "After paying CardX's revenue share, they're going to net much more on current accounts and retain them forever, because the merchant cost is going to be zero percent on credit," Razi said.
As a national surcharge advocate, CardX was the only payment company in 2016 to file an amicus brief in the U.S. Supreme Court in the Expressions Hair Design vs. Schneiderman case challenging New York's no-surcharge law. Today New York is among the states that allow surcharging, as shown on the CardX website.
Once all 50 states are aboard, Razi anticipates a tidal shift among merchants sidelined by the inability to establish uniform pricing models nationwide, especially larger merchants such as airlines. He pointed out that in Australia, where surcharging has been in effect since 2003, 60 percent of large merchants and 42 percent of all merchants now surcharge.
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