Cash Discount Merchant Services vs. Surcharging


Cash discounting is a hot topic these days and is often confused with surcharging. While numerous merchants are starting to realize the value of cash discounting and surcharging, the payment processing industry is undergoing a major shift towards adopting more cost-efficient methods.

If you are processing credit card payments for some time now, you know how processing fees create a strain on your profit margins. However, now there’s a way to actually pass on the extra processing fees to customers who use credit cards to complete the payment. This is an excellent way to increase profitability significantly without making a major difference to your customers.

Cash Discounting vs. Surcharging: What’s the Difference?

Cash discounting is when merchants offer a discount on top of the sticker price set for their goods and services to customers paying using cash or a debit card. Cash discounting encourages the use of cash for making payments by providing a discount. This means the total price to be paid goes down.

On the other hand, surcharging occurs when you charge an extra fee on the printed price for your products and services for customers making payments using credit cards. In this case, the price increases above the total list price.

At the surface level, both can be understood easily. In simple words, if you charge money for card payments, it is a surcharge. And if you offer a discount for cash payments, it is called cash discounting. However, surcharging is rather more specific due to the lawsuit received by Visa and MasterCard a few years ago, followed by a strict federal law passed (more about it in the next session).

Similarly, despite its simplicity and popularity, cash discounting may seem confusing at times, which is majorly a result of the way merchants understand it or cash discounting merchant service providers present it. Therefore, businesses must train their employees well regarding this using the right wording.

Besides, merchants must use clear signage to notify customers of cash discounting benefits. Also, at the time of checkout, the right wording employees must say is, “Would you like to pay in cash and save $__?” Never say it in a negative way, like “If you pay using a card, you will need to pay $__ more!” Because Visa and MasterCard totally detest the cash discounting feature.

The Legal History & Market Scenario

Looking at the legal history of surcharging, several laws were passed against Visa and MasterCard, stating that their rules were not constitutional. Following that, a federal law was passed, which permitted merchants to surcharge only the customers using credit cards for payments.

But sadly, all the states were allowed to override this law, despite this federal law. The problem lies in the imbalance created across the United States because ten states (which included the largest ones) didn’t permit surcharging.

Research says that a law was also passed for cash discounting in the Durbin Amendment. The law stated that no payment card network shall inhibit a merchant’s ability to provide discounts or incentives of any kind for payments made using cash, debit cards, checks, or credit cards. In short, the good news for cash discounting is it is lawful! Further, cash discounting is not only permitted by the deferral law, but business owners may also encourage other payment modes, such as credit and debit cards. Therefore, businesses have legal freedom in cash discounting.

While cash discounting is simpler than surcharging and is definitely a positive aspect for the merchant, the latter comes with a host of rules and regulations, and hence, is often confusing both for merchants and customers. In fact, there are specific stipulations regarding surcharging, such as merchants cannot surcharge debit or check card transactions, and also when customers use American Express cards.

This is why many experts in the payments processing industry advise against surcharging practices, mainly because it’s too complicated and hard to explain and sell. And at present, cash discounting is functioning effectively, and so many providers are selling it. So, even if you sell surcharging, there will always be someone offering a better deal on cash discounting solutions.

Who are the Ideal Businesses for Cash Discounting and Surcharging Programs?

While selling cash discounting and surcharging merchant services, you need to determine the right merchants for each. And to do so, you must understand the way your merchants price their products and services and how they charge their consumers.

The right time to use cash discounting is when a merchant offers a written or verbal quote to the buyers, which is common among auto mechanics, landscapers, interior designers, and others. The cash discounting program may also apply when the merchant’s environment permits them to post both cash and credit card prices of a product, such as in specialty stores, petroleum stations, and art dealers. Such merchants will typically be the ideal clients for cash discounting services.

On the other hand, while determining the right client for surcharging programs, you need to evaluate whether it’s unrealistic for a merchant to list both credit card and cash prices for every item. Examples of good surcharging candidates include clothing shops, retail and convenience stores, restaurants, bars, etc.

Factors to Consider While Offering Cash Discount Programs

Keep these things in mind to make your cash discount programs sell.

  • Legality: An ideal merchant service provider must be in the good books of BBB and must follow all state and federal compliance laws in their operations. Moreover, you must also be able to show the discount amount or the service fee to your customers clearly.
  • Abstain from hidden costs: Charging unnecessary setup costs or other hidden fees will turn your merchants off. Be transparent and keep cash discount programs as simple as feasible.
  • Equipment: Your equipment and technology must be able to accept all card types, along with EMV chip cards and mobile eWallets.
  • Customer Support: Make sure merchants are putting up adequate in-store signage and providing reference handouts, training videos and guides, and hotlines for addressing customer issues. Being an ideal cash discount provider, ensure your merchants get access to these resources and additional training materials free of charge.
  • Fee Options: Ideal cash discount providers offer two basic service fee structures. One is by a percentage of the total sale amount, and the other is by an average ticket size, also known as a flat fee. Identify the right merchants for the right fee option. For instance, those having a consistent average ticket size may find the flat fee model more suitable. On the other hand, businesses dealing with big ticket discrepancies may want to go for the percentage model.

Final Words

If we weigh cash discount merchant services with that of surcharging, we find the former a clear winner here, in terms of simplicity, fewer complications, less specific laws, and of course, ease of use. What’s more, cash discounting is backed by the Durbin Amendment, which makes it lawful. However, surcharging is expected to make a comeback in a few years with more transparent and easier regulations.