Merchants are sick and tired of paying the high cost of credit card processing.
There’s this new, exciting (not really new by the way) program for saving money on credit card processing that Merchant Service Providers and their salesman are pushing more and more these days. Industry mags are calling it the wave of the future and boasting of its benefits to for representatives in the industry. This supposedly new and exciting program is called the Cash Discount Program.
The “cash discount” craze has definitely been making it’s way around all the Merchant Service Provider and agent publications recently much more than ever before. We have actually written about on our blog at least three times. This practice however is nothing new, we have been exposed to it from gas stations for over 15 years! I’m sure now that you think of it you can recall a stop at a gas station where two prices were prominently displayed for gas- the credit card price and the cash price.
Why all the excitement and hype? First of all, merchants are tired of paying the high cost of credit card processing. Especially since all the rewards and miles cards cost so much more on interchange than regular cards that have no rewards associated with them. Credit card processors are always looking for new ways to promise merchants lower processing fees but since a majority of the costs are actually set by the card brands themselves getting them to lower the interchange costs is like trying to move a mountain. Card brands are so dedicated to protecting their income they even pass laws to disallow merchants from trying to deter their customers from using their credit card to pay for items. This drives MSPs to find a means around it.
We can’t really talk about the popularity of cash discount programs without making at least some reference to credit card surcharging and the laws and regulations surrounding surcharges. Cash discount was literally born from the rules surrounding surcharging.
Merchants won the right in court to be able to add a surcharge to the transaction when their customer used a credit card for payment. But to protect their bottom line and in an effort to curb the merchant from putting extra effort into discouraging their consumers from using a credit card as their preferred form of payment they set very strict rules around the practice. Specific timelines that must be adhered to, requirements for notifying the card brands and acquiring bank, caps on the amount of surcharge that can be applied and more make it more difficult to implement. Credit card surcharges can only be applied to actual credit cards, meaning merchants are not allowed to apply to the charge debit card transactions (even when it is processed as “credit” instead of debit) or to gift cards.
Some payment processors, such as Square and PayPal, actually decided to strictly prohibit the use of surcharges in their terms of agreements.
A few states took matters into their own hands. Due to many legislators feeling that charging a surcharge for the use of credit cards by your customers is generally an unfair practice several states have chosen to completely ban the practice.
There are currently 10 states that have implemented laws against credit card surcharges. These states include: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas).
Cash discount, on the other hand, is legal in all of the lower 48 states. There are still some regulations that need to be adhered to but they are easily implemented. One big mistake merchants make is thinking that they can just go about offering a cash discount themselves, that there are no regulations that go along with it. There are absolutely regulations.
First of all, merchants must display signage prominently near the entrance and at the register informing their customers of the details of the cash discount. The credit card processing terminal must be programmed to create a line item notating the cash discount(or lack there of) when the customer pays with a card. But all of this should be done for and provided for you by your merchant service provider making it quick and easy to set up. The Cash Discount program is so flexible that merchants do not need to worry about making a long term commitment. If at any time you feel like it is not working for your business model simply go back to regular processing without a question. There are no contracts and no cancellation fees.
Cash Discount programs only work when they are done right and for the right reasons…by both parties involved.
It is important to take a moment to consider whether this type of strategy is right for your business. There are certain types of businesses that it may not be right for. For instance, grocery stores, coffee shops, discount stores and even gas stations are the types of businesses where debit card use outweighs credit card use so a credit card surcharge would not really help these merchants, but a cash discount program would be able to make a difference. Merchants also need to consider both their ticket price and their clientele. Purchasing furniture is a time when many consumers use a charge card, would an extra 4% charge on a $2000 piece of furniture be off putting? Maybe a bit more than that same percentage on a $4 cup of coffee.
Read your clientele and determine whether you think they will be receptive to the situation. These are all things that a good MSP would help walk you through to make sure you make the right decision as well as implement the program properly.
There are a lot of salesman out there who think this is the perfect opportunity to make money. If you are a merchant considering implementing a cash discount program you want a merchant who has your (and your customers) best interests in mind, not their own pocketbook.
The goal here is to help the merchant offset the costs associated with processing these high cost rewards and miles cards and let customers who use them take on some of the burden. Just because you will no longer be bearing the burden doesn’t mean you want your customers taken advantage of. A Merchant Service Provider should be offering you fair and transparent rates all the time, regardless of whether you will pay them or pass them on to your customers. One important point to keep in mind is that if at any minute you decide the discount program is not working for you or your customers, you very much will be paying those fees so of course, you want them to be fair.
At Bankcard Brokers we are well versed in the regulations surrounding these types of programs. All of our representatives are ETA Certified Payment Professionals. Which means they have taken the time and education it takes to pass the only certification available for the payments industry, one that is not even required for the industry. It also means they have committed to hold themselves to the ETA-CPP Code of Conduct for Ethics. We pride ourselves on providing our clients with only the best service, and in that also promise to provide you with the most fair and transparent processing fees.