By Jonathan Razi

A century ago engineers in Chicago, Illinois reversed the flow of the city’s main river to redirect billions of gallons of water away from nearby Lake Michigan. Today in Chicago, my company is working to reverse a similarly powerful trend: the rising cost of credit card acceptance for businesses.

Since a 2013 rules change in the U.S., when Visa and Mastercard dropped their contract prohibitions on surcharging, thousands of American businesses have opted to pass on the fee to customers when they choose credit cards for convenience or rewards. American businesses are increasingly following the example set in Australia, where 42 per cent of merchants, and a full 60 per cent of large merchants, pass on credit card fees1.

Now Canadian businesses are poised to capitalize on the same opportunity, with settlements to allow credit card surcharging receiving approval in the courts. These settlements would resolve class-action litigation filed by merchants against Visa and Mastercard in 2011.

This movement builds on the cost savings from Canada’s Code of Conduct. Surcharging will especially help the low-margin businesses hit hardest by the escalating use of credit cards, which has on average increased seven per cent every year since 20092.

While the economic benefits are obvious, the new opportunity comes with significant compliance requirements that businesses—or their processing partners—must meet.

New Canadian rules

The new surcharge rules will likely come into effect in 2019, following final approval in the courts. What will they require? A few notable points from the Visa and Mastercard settlement agreements are below3:

  • The merchant must be registered with the card brands;
  • The merchant must inform their customers of the credit card fee with an appropriate disclosure;
  • The amount of the credit card fee must not exceed 2.5 per cent and the merchant must not profit from the credit card fee;
  • The receipt must show the amount of the credit card fee as a separate line item; and
  • The merchant must not apply a fee to debit cards.

Based on our experience in the U.S. it’s beyond the scope of most merchants to create a payment solution that fully complies with all of these requirements. We predict most Canadian businesses will instead want to partner with a solution provider that offers automatic compliance with these rules.

Who wins with surcharging?

With surcharging, businesses will dramatically reduce their costs. But consumers and independent sales organizations (ISOs) are also winners in this changing market.

Customers will be able to use cards to pay at many businesses that didn’t previously accept cards because of the cost, especially in categories like professional services and business-to-business. And, because surcharges apply only to credit card transactions, cardholders can always choose debit as a no-fee option.

For ISOs the new rules are an opportunity to sell to merchants based on value4, rather than brute price competition, meaning higher margin and greater retention. Unlike traditional processing, surcharging is not a commoditized market.

The new rules have been a long time coming. Expect market adoption to be swift. As Ernest Hemingway, a Chicago native, once said: changes happen gradually, then suddenly.

Jonathan Razi is CEO and founder of CardX ( A noted expert on credit card surcharging, Jonathan authored the CardX brief in the U.S. Supreme Court. Jonathan earned a J.D. from Harvard Law School and a B.A. from the University of Chicago.

1 Reserve Bank of Australia, Payments System Board Annual Report 33 (2014).

2 Payments Canada, “2017 Canadian Payment Methods and Trends”, report, December 2017.

3 “Canadian credit card fees class action national settlement agreement”, published on Credit Card Class Actions, June 9, 2017.

4 CardX, “CardX in the Green Sheet: New Solutions Create Value for Both Merchants and Industry Providers”, August 27, 2018.

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