In many transactions between consumers and businesses these days, a fee-incurring credit card is involved. Many consumers aren’t aware of it, but when they use their reward-based credit cards at a business, that business is often paying the associated fees.
For a long time, businesses had no way around this. But in 2013, new federal regulations began allowing businesses to pass the credit card fees onto their customers.
Now, CardX, a Chicago-based business-to-business FinTech startup, wants to help businesses, government organizations and educational institutions do just that. The startup, founded in 2013 by Jonathan Razi, sells credit card terminals, virtual terminals and consumer-facing online payment portals, all three of which automatically require customers to pay any associated credit card fees at their time of purchase.
The company, which employs about 11 people in their Streeterville offices, has more than 1,000 clients and just raised $2.1 million in their first funding round, which was led by NXGEN International in Whitefish, Montana. Razi wouldn’t disclose specific clients, but said that they include businesses in the insurance industry, Big 10 universities and small government organizations. He also said that many of their clients didn’t accept credit cards at all before partnering with CardX, which is available in 44 states.
“The credit card companies don’t want businesses to pass on the credit card fee,” Razi said. “They just want the business to eat the cost, and they don’t want consumers to know about it.”
Credit card fees are, on average, about 3 percent of the purchase, and since 2005, the cost of many rewards cards has gone up 24 percent, Razi said. As a result, businesses tend to increase their prices.
“Now that’s bad because that hurts everybody, even the people paying with cash, check or debit,” Razi said.
To avoid paying the fee at a business or organization that uses CardX services, customers can just use a debit card or cash. But for consumers who would rather pay with a credit card to reap the benefits that come with it, paying an extra fee at a business could push them to shop somewhere else entirely.
So are CardX’s services good for consumers?
“It’s good in a couple of ways,” Razi said. “It actually expands consumer choice because now many businesses that did not previously offer credit card acceptance can, and it increases consumer fairness.”