Special Series: The Trust Advantage - Surcharging Done Right with Jim Oberman, CEO, Payroc | Episode 487

A “credit card fee” can protect your margins or quietly create compliance risk, and the difference usually comes down to one word: clarity. We sit down with Jim Oberman, CEO of Payroc, to unpack credit card surcharging in a way that merchants, software platforms, and payments teams can actually use, without hand-waving and without confusing it with every other fee customers see at checkout.

We start with the fundamentals: what surcharging is, why it exists, and why it applies only to credit cards, not debit or prepaid. Then we cut through the biggest source of mistakes by separating four commonly mixed concepts: surcharging, dual pricing, convenience fees, and service fees. From there, we get practical about the rules that matter in the real world, including Visa’s 3% surcharge cap becoming the de facto standard, Mastercard’s different limit, and how brand enforcement programs and secret shopping can expose sloppy implementations.

The bigger story is why surcharging has taken off so fast. Technology now makes it possible to present buyer choice at the exact moment of payment, across online and in-person experiences, with options like debit, ACH (electronic check), and emerging rails like real-time payments. Jim explains why embedded payments and ISVs increasingly treat surcharging as more than cost recovery: it can be a strategic feature, a trust-builder, and a way to keep reconciliation and settlement clean for merchants at scale.

Transcript

Trust And The Series Setup

SPEAKER_00 0:00

The strongest partnerships in payments are built on trust. When trust is there, it creates differentiation, fuels growth, and leads to better outcomes for partners and merchants. Welcome to the Trust Advantage Podcast series brought to you by PayRock.

SPEAKER_02 0:18

Hello, everyone, and welcome to the Leaders in Payments Podcast. I'm your host, Greg Myers. This is the third episode in our three-part series called The Trust Advantage and is being brought to you by Payrock. Today I'm honored to have as my special guest Jim Oberman, the CEO at Payrock. And in today's conversation, we're going to unpack one of the most talked-about topics in payments right now credit card surcharging. We'll cover what it is, why it matters, where merchants often get it wrong, and how PayRock is helping software companies and merchants approach surcharging in a compliant and strategic way. So, Jim, welcome back to the show. Thank you so much for being here. I really appreciate it. Look forward to the conversation.

SPEAKER_01 0:56

Thank you, Greg. It's an honor to be here, and I'm looking forward to it as well.

Jim Oberman And Payroc’s Mission

SPEAKER_02 0:59

All right. So before we dive into the topic, let's talk a little bit about you and Payrock. If you don't mind, tell our audience a little bit about yourself, your professional journey, and a little bit about what all you do at Payrock.

SPEAKER_01 1:11

Well, I lead the band here, PayRock. We're a platform that has really been built for partners. But what we're really trying to do here is make sure we meet businesses where they're at to be able to accept payments for what they're selling. And in today's world, you really got to be creative to meet those businesses' customers where they're at to be able to make it quick and easy to pay. So really oversimplified. I've been in payments for 40 years in various capacities, building companies from scratch, being part of big companies. But in the end of it, the foundation really comes down to building a platform that makes it quick and easy for a merchant to accept payments. Make sure the experience is wonderful for them and their customer. And then here's where we're getting into surcharging. Make sure the way you do it is safe, secure, compliant. All those things that are important because ultimately, Greg, what we're doing is folks are trusting us with moving their money. We're moving money from one place to another. And it's so it's not just about the experience, it's about the safety of that experience, too.

What Credit Card Surcharging Means

SPEAKER_02 2:18

Okay. All right. Well, let's go ahead and let's dive into the topic of surcharging and let's just start at the basics. So, what exactly is credit card surcharging and why does it exist?

Surcharging Vs Dual Pricing And Fees

SPEAKER_01 2:30

Well, first of all, what it is, is when a credit card is presented, whether it's in person or online or digitally somehow, and it's known it is a credit card, the rules and regulations allow the merchant business to charge a fee, a credit card fee. And it's called a surcharge. But it's only on a credit card transaction. It's not on a debit card or a prepaid card. And, you know, and again, we could compare and contrast, but that's what it is. Now, why it is, is there was a class action suit many, many years ago. This was hotly debated and you know, studied. And there was a um kind of a settlement that was made amongst the card brands and major merchants to say, hey, we can, if we want and do it the right way, can add a fee to credit cards. And then what's been done lately is Visa has come out and said, look, at the cap on that is 3% on a credit card. But I'll pause there. That's what it is. Why does it exist? It exists because businesses wanted a choice to be able to lower their cost of acceptance, especially for credit cards, which are more expensive to accept than other types of cards.

SPEAKER_02 3:42

Aaron Powell Okay. So how is surcharging different from other pricing programs like dual pricing, convenience fees, which I think a lot of consumers understand and see convenience fees like when they pay certain utility bills and stuff like that. But how is surcharging different from those other pricing programs?

SPEAKER_01 3:58

Aaron Powell Well, first of all, you've nailed the bullseye. There's a tremendous amount of confusion amongst even sophisticated business people about what's surcharging, what's dual pay, what is convenience fees, what's a service fee. And the best way to do it is keep it simple, stupid, the KISS formula, right? You got to think of surcharging is it's on a card and it's on a certain type of card, a credit card. Dual pay is where the business presents two prices and gives the customer a choice. And if they want to pay with a card, whether it's a credit card, a debit card, or a prepaid card, here's your one price. And if you want to pay with cash, here's your other price. And then another feature that goes into this dual pay, if somebody's paying a bill online or buying something online, uh, a lot of companies like PayRock also offer a choice, being able to pay with electronic check. In the United States, we call that ACH. In Canada, it's called PAD, so forth and so on. And then you pivot over to this, okay, now what's a convenience fee? A convenience fee. You know, the best example I could give on a convenience fee is when a utility says, for the convenience of paying online, I'm going to charge you a convenience fee. Or a municipality. You could come into the municipality and pay your license fee, right? Or get your new tag. But if you want the convenience of paying online, you could do it that way. And then there's people get service fees and convenience fees confused. A service fee has to be for a service that's being provided. Best example I give to dispel the confusion, if you're going to do expedited shipping, for example, you could charge a service fee. You can't say, I'm only going to charge you that service fee when you use a card, because then you get in the murky water, right? It's you want expedited shipping. Even if you say, let's go say you go into an appliance store and you're buying an appliance and you're present, you're going to pay for it present. And then you say, Hey, can you have that ship to my house up north where I live instead of here? Oh, yeah, I can have it shipped there. And then you say, hey, I need it tomorrow. My refrigerator's broke. Well, I got to charge you an expedited service fee for that. You can't say, well, if you use a card, I'm going to charge you the service fee. And if you pay with cash or a check, I'm not. That's where businesses get confused. So, Greg, keep it simple. Surcharge has got to be credit card. Dual pay has got to present the two choices and the two prices. Convenience fee has got to be for the convenience of paying with a certain, they call it a channel, a medium. The service fee has got to be for a specific service, and you can't differentiate. Greg, I hope that you could separate those into four buckets. Again, folks will listen to what we're talking about here and they'll be like, oh my gosh, I just got confused again. But again, take a deep breath. You got to walk them through it. It's amazing, Greg, the customers we interact with, both our partners and our merchants, how this is still a confusing landscape. And it's why you want to do this podcast. You want to try and break down some of these things and break this down into common sense.

Why Surcharging Took Off Recently

SPEAKER_02 7:10

Well, I appreciate you doing that because I know that a lot of people are confused, and that was very simple definition. So I appreciate that. But why do you think surcharging has become such a big topic for merchants and software companies and payment providers over just the last few years? I mean, 10 years ago, never heard of it. So something has made it very, very important over the last few years. What do you think that is?

SPEAKER_01 7:32

I think what's made it important is technology's opened up the capacity and capability to give the buyer choices about how they want to pay. And PayRocks totally foundationally rooted in giving the buyer choices. And I think why the phenomenon has exacerbated is good old simple PL. The cost of accepting a payment with a credit card is more than accepting a payment with a debit card or a prepaid card. Why? Because the rates that the card issuers and card brands charge, the pass-through fees and interchange, are great, significantly greater for a credit card than a debit or a prepaid card. And then it's even further widened because of the proliferation of the Durban amendment. If somebody uses a debit card on a large financial institution, the cost to accept the debit cards really less. And why? Why is that gap? Because a credit card, a bank's issuing credit, and with a debit card or a prepaid card, what's happening, Greg? The customer is simply accessing money they already have. Somebody's not lending it to them. Credit card means that. It's credit. In addition to that, technology has made it possible for companies like Payrock and folks that we compete against to also say to buyers, hey, you know what? You can pay with a credit card, you could pay with a debit card, you could pay with a prepay card, you could pay with a gift card, you could pay with an electronic check if you want. And by the way, if you're in the store, you could pay with cash. Now what's starting to evolve is you could pay with stablecoin, right? The old crypto thing that's blossoming, right? Another one coming on that's going to be interesting, especially with big businesses. You could pay by RTP, real-time payments, FedNow. That's a, in my mind, an alternative method as compared to ACH. And we don't need to get into the difference between those two. But Greg, I think the why is technology and experience has made it possible for companies like PayRock to present those choices. In other words, you always want to meet a business where they're at, you want to meet the buyer where they're at, and then you want to give them choices. You know, 10 years ago, it was hard to give somebody a choice. All those choices I just mentioned. And again, we don't have enough time on this podcast to kind of unpack each of those. But that's really the why this has proliferated. The other thing that's happened, which has been fascinating to me, this is not just a SMB small business phenomenon where small businesses are trying to have a better PL, right? Defray some of those costs of running their businesses. I see very large, sophisticated businesses, medium-sized, large business, even global enterprise businesses, because we serve, Payrock serves from Main Street to global now. Um, I'm fascinated by how quickly this conversation has accelerated with larger businesses and in larger verticals. Again, the key has been giving the technology to make the experience for a choice available. So that's why it's proliferated. I think we're dealing with 10 years old technology or 15-year-old. It's hard to give a customer those choices on how to pay. It's tough to do today. I'm not saying it's easy. Right. It's still tough to give all those choices because at the end of the day, we're dealing in different regulatory environments. If you move money by electronic check versus real-time payments versus card, you're transporting that money over different networks. Right. Don't mean to get too technical, but it's a think of it as a different phone line you're calling into to move that money, you know.

Compliance Pitfalls And State Rules

SPEAKER_02 11:16

Right. Totally makes sense. Well, with all of this happening, and we mentioned that it can be confusing, and obviously, you know, merchants need to be compliant with the rules and regulations. But what are some of the biggest compliance mistakes that they're making when it comes to surcharging?

SPEAKER_01 11:31

The biggest mistake being made is when the word surcharge comes out, they think it could be done on any card, debit or credit. So it's very important if a merchant's going to do that, they're really adopting a dual pay presentation. And to be compliant, they've got to present the two prices. That's tough to do. A little easier to do online, but it's tough to do. So the biggest mistake merchants are making is the vernacular. They're assuming surcharging means I could add a fee and I could call it whatever I want. I've walked into businesses that are 20-year-old businesses and they have their receipt or their documents say, Well, this is a service fee. I say, Well, what is that? Well, that I'm surcharging. You know, they you know what I mean? It's like, well, because I thought that's the way I could do it. And again, most of these violations are very innocent because they just don't know. So that's the biggest thing that happens. And then the other thing, when a merchant and the sales partner and they're working with a company like us, really are well educated and they get it, then the big mistake they make, there's like five states, five, six states where you got to be very careful in. You can't do surcharging in California, New York, Massachusetts, Illinois the same way you might do in Montana. There are specific rules and regulations that are state-driven. So another common mistake with surcharging, if a merchant is doing business in one of those states that has some more, I will call tougher, stricter rules about how it's to be presented, merchants tend to just ignore it and then they could run into problems there. So it's important that if a merchant's going to adopt surcharging, that they understand not only what state they're in, but how they're supposed to do it. Those are the big things. And then the labeling. It's amazing the words that somebody will put on this bump of the price because somebody uses a card or an alternative payment method.

SPEAKER_02 13:28

Okay. Well, let's dive into a little bit more tactical. And I think we just kind of covered, you know, the need for it to be on credit card only. So I think we'll move past that. But Visa, you know, they say that merchants can limit surcharges to the merchant discount rate or 3%, or whichever is lower of those. And MasterCard has their own maximum cap of 4%. So I mean, that adds some more confusion. So how should merchants be thinking about those limits sort of in the real world?

SPEAKER_01 13:56

Well, in the real world, you could technically differentiate between Visa and MasterCard because of that. But Greg, let's face it, pragmatically, Visa has set the bar at 3%. The percentage of Visa transactions to MasterCard transactions on credit is much higher in the United States. Therefore, the 3% has become the go-to cap for surcharging on credit. And then you mix in American Express there as well, right? Because even those American Express cards tend to be mostly credit, right? And they're high point, high reward point timeline cards. Those are expensive. But what we see is everybody is pragmatically adopting a 3% across the board. Now, if somebody wants to get very, very sophisticated, they could differentiate by card type. But there's also guidance we've received that you can't do it unless you do it a certain way. And again, we don't have the time to get into that technicality, but the rule of thumb is 3%'s become the bar. That's become the waterline.

SPEAKER_02 15:02

Gotcha. Okay. So talking about the brands, Visa MasterCard MX, you know, they have enforcement programs, right? Including secret shopping programs, and they have fines if you're not doing it correctly. So how real is the risk for merchants and software platforms that aren't doing things in a compliant way?

SPEAKER_01 15:20

It's a real risk, and I can't recall the fines. They could get pretty steep. I think they start out at$1,000. Don't quote me on that. I think they can go much higher than that. But the risks are real. There doesn't seem to be an omnibus plan to bring compliance across the industry for this. It looks like there are, I think the seeker shopper thing is real. It's happening. Payrock is big enough and we're at a scale enough where we're experiencing it every month. It's not that frequent, and we're able to manage that with the merchant. The good news is this if a merchant either naively and unknowingly is noncompliant and operating in a noncompliant way, or if they sort of like know they're being a little naughty, they can get fixed. You know, they could be fixed, right? It can be a remediated, and there tends to be dispensation on hey, you violated the rules. We're going to warn you or we're going to give you a little fine. Fix it, demonstrate to us you fixed it, and let's move on with life. So, really, what everybody wants is compliance and a level playing field. So it's not like the brands are running around out there with a big stick in their hand, but they definitely want to ensure compliance with the rules, the laws, not only the cart brand rules, but also any state or other jurisdictional rules. Like I said, different states have different rules that got to be followed.

Why ISVs Treat Surcharging Strategically

SPEAKER_02 16:46

Okay. Well, let's talk about the value of surcharging. So let's talk about the benefits of it. So for software companies, ISVs, why is surcharging more than just like a merchant cost recovery tool? How can it be part of the payments value proposition and potentially even a revenue driver?

SPEAKER_01 17:04

Yeah, let's talk about, you know, there's two types of merch. There's merchants who businesses that are okay with a non-integrated solution or semi-integrated. Let's set to those to the side. Let's focus on those software companies and ISVs that are embedding the payment experience into the software. So remember, now you've got a business who's loving all the software. And a piece of it is a functionality to accept the payment. The reason why software companies, and we call them ISVs, are getting so interested in surcharging, it's not that they always want to let their customer surcharge. Remember, their customer first made a software decision, they made a business solution decision. And what facilitated that decision was the software providers making it quick and easy to accept payments. Software companies are embracing surcharging because they want to give their customer a choice on whether they want to adopt it. Or there's two things happening. Or the software company is going to use the surcharge feature to help defray their cost because a lot of software companies bundle into their software fees the cost of the acceptance. In other words, hey, you use my software, I'm going to charge you a 5% subscription fee. And by the way, I'm not going to charge you for payment processing. So you got to be careful. It could be two things. A software company is trying to manage its PL, or a software company wants to make that feature available to their customers. So it's either, it's usually one of those two things. And we see both of them today in the market. Again, another phenomenon. Software companies, surprisingly, are much more interested in surcharge today than I thought they would be at this point. I thought surcharge was going to be primarily a small and medium-sized business, non-integrated or semi-integrated phenomenon. It's not, Greg. And it and that's why it's good you're doing this podcast because it's fascinating the way this surcharge I call it phenomena. It's no longer a phenomenon. It's here to stay.

SPEAKER_02 19:16

Yeah.

SPEAKER_01 19:16

The surcharge choice is proliferating.

SPEAKER_02 19:19

It's crazy how in our industry some things just they get a life of their own, and surcharging has definitely done that.

SPEAKER_01 19:25

Well, remember what happened with the ATM card. I mean, and when I said I've been in payments four years, I remember when there wasn't ATM cards being used at the point of sale. They're being used to get money out of a machine next to your bank branch, right? And all of a sudden, boom, you could pay for something with your ATM card. And then they started calling it a debit card. And I might be really dating myself, Greg, because the youngsters listening to this might say, What are you talking about? You know, but look at what happened there. And people were like, is this gonna stick? And then decades later, boom, the Durban Amendment, which even made it more affordable for a merchant to accept a debit card. So yeah, I mean, it's interesting how these waves end up sticking.

How Payroc Designs Compliant Choice

SPEAKER_02 20:10

Yeah, yeah, crazy. Well, let's talk a little bit about Hayrock's specific compliance surcharging program. What makes it different and unique?

SPEAKER_01 20:18

Well, all the things I've talked about, but I'm gonna oversimplify. Number one, we meet the merchant and the merchant's customer where they're at, and we do the simple gross and net settlement. We keep it easy for them to do their books. We are extremely educated and compliant that if a merchant resides in one of those six or seven states that you gotta be careful in, we're an advisor at that point. That's what makes us different. What also makes us different, and this is the big thing, this is the probably the biggest thing that makes us different, we give the merchant and the buyer more choices in a ubiquitous, quick, and easy way. And I'll give you an example. If you're a merchant of Payrock and you're having somebody come online to pay their bill and you've implemented surcharging, with Payrock's technology, we present for the business, hey, Mr. Buyer, you owe me blank for blank. You could pay this invoice. And if you pay with a credit card, we're gonna add this credit card fee. But you know what? You could pay with a debit card or a prepaid card. Oh, and by the way, if you want to give us your checking account credentials in a secure manner, we'll also let you pay by an automatic debit or they call it ACH, electronic check, to your checking account. The point is the power of PayRock is right there at the experience, when the buyer has to make a choice of how they're going to pay, we make it quick and easy for the buyer to make a choice, and then we make it quick and easy for the merchant to reconcile their books. And when they get their money the next morning, they're getting funded at par, regardless of whether it was a credit card, debit card. Prepaid card or electronic check. And what I just described, that's millions of dollars investment to deliver to the marketplace. And it comes down to meet the merchant where they're at, meet the customer where they're at, make it quick and easy. Because if you don't make it quick and easy and make that experience like that, somebody's going to. You know, because again, what I just described is what makes PayRock different. We've actually been able to take what's common sense and make it real, make it secure, make it transparent, make it reliable. Do it at scale. You know, there's a lot of really good companies out there able to do these things. But the minute you try to do it at scale, from whether it's Main Street to some big enterprise merchant that needs to be global, it's really hard to pull it off at scale. That's what makes us different. And look, it's not like we're the best thing since sliced bread. We like to brag that we are, but look, this is common sense stuff that everything I just described to you will become more mainstream as the world delivers and uses technology to make it quick and easy to pay. But that's what we focus on no matter. And Greg, I don't know what the next is going to be. You and I might be doing a podcast a year from now about something else we haven't even thought of. But it will usually come back to it's because it's making it quicker and easier for somebody to pay. It might be the phenomenon of RTP. It might be the phenomenon of stablecoin. You know, I think those things are going to take longer. They're going to be more targeted verticals, but there'll be something. There'll be something we'll be talking about that will change the way somebody pays.

The Future Depends On Buyer Choice

SPEAKER_02 23:38

Yeah, yeah, without a doubt. Well, one final question, Jim, before we wrap up. As you look ahead and think about surcharging, and do you think it's going to be a standard feature inside embedded payment platforms, or do you think regulation and and maybe even consumer pushback might limit that adoption?

Final Takeaways And Where To Learn More

SPEAKER_01 23:56

I think in free markets, I think it will continue to be embraced, and the companies that are going to win are those that give the merchant and the buyer a choice. And if you give them a choice, I don't think the regulatory oversight or fervor will narrow it. I don't think consumers will be as kind of alienated. I mean, think about it, Greg. If you walk into somebody and it's absolute, you're going to get charged. You don't have a choice to defray that charge. You might not buy there the next time, which might begin to narrow the adoption of this. So I think the answer is the market you're in. I think free capital markets work well, and buyer demand, demand and supply will do it. But I think it comes down to what, you know, I've been preaching here on this podcast, the word choice, choice, choice. I think if that's embraced, I think the regulatory fervor, the consumer alienation will might still be there, but it won't be at as much of a fervor.

SPEAKER_02 24:57

Okay. Well, Jim, I think that's a great way to wrap up the show. So I know your time is super valuable. So I really appreciate you being here. It's always great to see you and talk to you. So thank you for sharing all this wisdom on surcharging. And again, thank you so much for being on the show today.

SPEAKER_01 25:11

Well, thank you, Greg. And I hope this has helped. I hope this helps people listening and get this in perspective.

SPEAKER_02 25:16

So I know it will. And finally, to all you listeners out there, I thank you for your time as well. And until the next story.

SPEAKER_00 25:23

Thanks for joining us for this episode of the Trust Advantage podcast series. To learn more about Payrock, please visit www.payrock.com.