Could the idea of lowering, or even eliminating, your credit card fees be more than just a pipe dream? Is there a world where the costs associated with merchants accepting credit cards, and customers enjoying the convenience of using their credit cards, are bore more equally? There was a time when consumers paid with both cash and credit, a time when merchant fees were just a small cost of doing business, a time when those costs only applied to a portion of the sales you made. But that is just no longer the case. With the age of mobile wallets, NFC payments such as Android Pay and Apple Pay, along with all of the points and airline miles consumers are hoping to earn many merchants now days are finding that almost 100% of their sales are paid for with credit cards. With almost no cash sales merchants are finding that a larger chunk of their profits are being dipped into. Many merchants are simply paying more credit card fees than ever before.  But what can you do to encourage your customers to pay in cash more often? This is where the merchant cash discount program comes into play.

What is a Cash Discount Program?

A cash discount is just what it sounds like. A method of incentivising customers to pay with cash by offering a discount for cash transactions. This type of program, when set up the right way, enables a merchant to offset, and sometimes eliminate the processing fees associated with accepting credit cards. When you implement the Cash Discount Program a service fee will be added to all transactions allowing the merchant to offer a discount to those customers paying with cash equal to the service fee.

This method is really nothing new. One place you’ve probably seen a cash discount program in action is at the gas station. Gas stations have been offering a discounted price for paying for your gas with cash for over 15 years, so you’ve been exposed to this technique you probably just didn’t realize what it was.

How does the Cash Discount Program work?

The program will allow the merchant to create a fee strategy that allows them to offset their processing fees and effectively lower their bottom line. Your merchant service provider will help you create the fee strategy that best fits your business, anywhere from 1% to a max of 4%, and take care of all the necessary implementation to get you up and running.

Once you’ve decided on the correct cash discount you must display a “customer pricing notice” informing customers that there will be a service fee added to all transactions. This means that the price listed reflects the price with the cash discount already included. The important point here is that the fee is on “all” transactions, but that you are offering a discount to those who choose to pay with cash. The customer pricing notice informs customers that your true price is whatever price that is listed on the item plus the % service fee that you are charging for each and every transaction. This service fee is seen as a flat percentage of the cost of the item. Rather than just raising all prices across the board and inherently effecting all of your customers who purchase from you, whether they use their card or pay cash, this would only affect those customers that want the convenience of using their credit cards to purchase items.

For example: let’s use 4% for ease of calculations. In this scenario your posted price already includes a 4% cash discount, so the true price of your item is the posted price plus 4%. If a customer wants to buy an item listed at $100 and chooses to pay with any form other than cash the true price of that item would be $104. If that customer chooses to pay with cash they would pay the $100 because the cash discount has already been taken off the “true” price. This may seem like semantics, but it is very important semantics inherent to remaining compliant with the regulations surrounding this type of program.

This strategy helps you to lower your processing fees by turning more of your sales into cash purchases while also offsetting the fees you do incur when customers do choose to pay with their credit or debit card.

How is this different than a Surcharge?

First of all, Visa, MasterCard and all other card issuing banks have set strict guidelines for adding a surcharge to credit card purchases. Its also important to note that adding a Surcharge is not allowed in all states. In fact, there are eleven states that completely ban merchants from being able to add a surcharge. Those states include: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas, and Puerto Rico. Also, Square and PayPal both state the use of surcharges as strictly prohibited in their terms of agreements. However, under the Durbin Amendment it was determined that merchants were allowed to offer a cash discount to their customers.

Surcharging refers to adding a convenience fee to the true price of an item for those customers paying with a credit card. They key word here is true price, in a cash discount program the true price of the item is the price with the surcharge. In a surcharge program the true price is the price of the item  that is then increased by the convenience fee. Your stated price is effectively the price with the % service fee included and those customers who pay with cash will receive a discount off your “stated” price in the form of a discount equal to the service fee, and customers are not paying an increase when they pay with other forms of payment since they are paying the “stated” price.

Surcharges also only apply to actual credit cards. A merchant is not allowed to add a surcharge to a debit card or a gift card, even if that debit card is being “run as credit”. Under a cash discount program you can add the service fee, up to 4% to all products, without violating the Visa/MasterCard guidelines. This means that even if a customer uses a debit card(instead of taking advantage of the cash discount) they would be subject to the service fee. Under Surcharge programs you must give your customers notice by posting signage at least 30 days in advance before implementing the surcharge.

Benefits of implementing the Cash Discount Program

Encourages your customers to make more purchases with CASH payments.

Customers love a discount and over time your customers will plan ahead and bring cash.
Helps you to keep prices down by enabling you to avoid raising prices across the board on all of your goods and services to help cover your fees.

Can effectively eliminate up to 100% your processing fees.

The Cash Discount Program may not be right for every single business, it’s important to weigh the pros and cons, but there are a lot of businesses that are already reaping the benefits. Some of the types of business with the highest adoption rates include:

– Quick serve restaurants and coffee shops.

-Convenience stores and mini marts

– Service based businesses like salons, dry cleaners,

– Automotive service and repair

Any business who happens to have many smaller transactions that end up adding up to excessive per transaction charges.

Merchants will enjoy a cash discount program that’s totally flexible.

You decide how much of your processing fees you want to offset. The program can be set up to pass on only a portion of the costs, such as 2% as opposed to 4%. The service fee can be waived at time of sale whenever needed. Cancel anytime- we can switch back to traditional processing if at any time you decide this strategy is not a good fit for your business. The whole goal is to benefit the merchant while also helping to keep costs down for your customers, the flexibility of this program allows you to maintain control over both your prices and your bottom line.

Quick to qualify and fast to set up.

We take care of everything for you. Your terminal will come pre-programmed with the information needed to calculate and process the service fee correctly. We will provide you with the necessary terminal capabilities to print receipts that will include the extra line item required notating the charge and make sure the convenience fee is transmitted in the correct authorization field required by the card type. We will provide you with all signage needed to remain compliant with the law stating that “Prices listed and advertised reflect cash discount.”

We also take care of all the red tape for you. Making sure that we are abiding by any regulations and guidelines and notifying the card types that you will be implementing the Cash Discount Program. Everything is automated, so you don’t have to worry about figuring out the calculations, everything is programmed for a hassle free transaction process. Terminals are all EMV compatible, accept all credit cards, are equipped with on-screen signature capture, and are PCI-DSS compliant.

Our Cash Discount Program offers diamond level customer care and support that includes, free paper supplies, simplified billing and statements, and back office access including reporting tools. We offer only the most competitive rates. Why would you care about that? Just because you are not paying your processing anymore doesn’t mean you shouldn’t still care about having the most competitive pricing. If you are operating your business with competitive rates than it is much easier to offset those costs using the cash discount program. We always operate with transparency- all fees and pricing are clear to both the merchant and the customer.

Can’t I just set this up myself?

That is a resounding NO. Remember, Visa/MasterCard have strict guidelines and taking the chance of violating those could cost you your merchant account. Merchants must display the approved and provided signage that states that prices reflect a cash discount. You must be careful to make sure that the prices set within the cash discount do not exceed the cost of accepting each particular card.

Our program abides by all guidelines set by the card issuing companies. Your terminal will be programmed to make sure you are following those guidelines and you will be supplied with the required signage that meets all regulations for you to display to inform your customers properly.

At Bankcard Brokers we are committed to providing you with options that help ensure your success because we know that while you are expected to accept credit cards in this day and age you shouldn’t have to break the bank to do it. To find out how our Cash Discount Program can benefit you call one of our ETA-CPP certified payment processors today!