Every payments bro out there wants their merchants to surcharge. Why? Cuz free money for the payments bro (this should actually read even MORE free money for the payments bro who does nothing to earn what he currently receives).
It seems to us that it’s getter harder to pull off surcharging as inflation rips through the economy and consumers start scrutinizing their bills. Anecdotally, we were told about a 800-branch regional bank that forbid surcharging for any of their merchants.
Outside of the networks having real gripes (since surcharging can reflect really poorly on them) it would appear that state governments should pull up a chair and sharpen their pencils, because they’re getting swindled. Note: as libertarians we don’t believe our current tax structure incentivizes the best outcomes, but pursuant to the taxation laws that exist today – however unideal – governments should dig into surcharging.
For example, let’s say a customer buys something for $100 and the payments ecosystem traditionally took $3 ($1 or the card issuer, $1 for the card network, $1 for the payments bro).
The merchant’s POS would apply the appropriate sales tax so that it could be remitted to the state government, and the payments ecosystem would then issue the merchant their 1099K showing how much of the $100 was paid out to the payments ecosystem.
The merchant would then report $97 in net, taxable business revenues.
In cash discounting (really just credit card surcharging), the merchant’s processor (i.e. payments bro) charges the customer a premium for paying with card – let’s say its $4 for easy math.
Now that $100 item costs the consumer $104.
Of the $104, the card issuer gets 1% ($1.04) and the card network gets 1% ($1.04). There’s now $101.92 to play with. Well, the payments bro probably told the merchant that they’d get $100, and the payments bro now get $1.92 instead of $1 – a whopping 92% increase for zero more work.
#Genius
BUT here’s the problem.
How much sales tax is being charged to the customer with cash discounting?
Who’s now remitting that to the state?
Because it’s rare that the numbers sync as they’re supposed to.
If the customer is paying with card, the sales tax needs to be 4% higher than if they were paying by cash.
Uh oh.
A little too much work for the payments bro.
Maybe state governments wake up and end the pilfering of their denizens.