Visa's bulletin on cash discounting: clarification, war or both?

Yesterday, Visa Inc. issued "Cash Discounting and Discount Offers Explained," a new bulletin devised to clarify what is and is not permitted under Visa Rules for cash discount programs. Visa stated that because of the increasing popularity of cash discount or discount offer programs, Visa is "reminding U.S. acquirers, merchants, processors and agents that discount offer programs should be evaluated to ensure compliance with the Visa Rules."

That sounds straightforward enough, and Jonathan Razi, CEO of CardX, said his company welcomes Visa's guidance. "Visa's bulletin gives our industry much-needed clarity: 'cash discount' is not a loophole within the rules, and merchants that add a fee at the point of sale must comply with the requirements for surcharging, regardless of what they call the fee," he told The Green Sheet.

Razi believes Visa's clarification will "not only help customers avoid unfair fees charged to debit cards, but also help merchants and sales professionals know what to look for in a compliant solution."

James Shepherd CEO at CCSalesPro and co-host of the Merchant Services Podcast, warned that Visa's move is a "declaration of war" on cash discounting service fees. He stated the bulletin "made it clear that Cash Discounting as it exists in the merchant services industry is not compliant with Visa Rules."

Shepherd cited text within the bulletin that supports his conclusion. "Models that encourage merchants to add a fee on top of the normal price of the items being purchased, then give an immediate discount of that fee at the register if the customer pays with cash or debit card, are NOT compliant with the Visa Rules and may subject the acquirer to non-compliance action," Visa wrote.

Three approaches to Visa's move

According to Shepherd, ISOs offering cash discounting programs that fit Visa's description above have three options:

1. Ignore this bulletin out of a belief that Visa rules are unconstitutional and thus unenforceable. "This is an interesting approach and my guess is that much of the industry will go this route," he stated. "This will force Visa to take the 'non-compliance action' that they threaten in the bulletin and take one of the major acquirers to court. This will most likely be a long and drawn out court battle and would carry a huge risk for Visa. If the courts were to side with the acquirer, it would nationalize the concept of service fees on credit card transactions."

2. Pivot to a new model that would take these programs outside the scope of Visa rules. "Imagine a scenario where there was an energy shortage in a particular geographic area," Shepherd said. "This caused a temporary spike in energy prices that effected local merchants. Now imagine that those same merchants decided to implement a surcharge or service fee on all transactions (Cash and Credit) during this time of 4 percent and put up a sign at the counter stating, 'Due to increases in energy prices, we have temporarily implemented a service fee of 4 percent on all purchases.' Would this action be covered under the Visa Rules? I cannot imagine how it could be."
   
   Believing the concept of providing a discount to pay with cash is clearly protected nationally by the Durbin Amendment, Shepherd suggested the industry could pivot to cash discounting by instructing merchants to run all transactions through the terminal and create a program that added the service fee to all transactions. "When the merchant paid in cash, the receipt would print out with the service fee and directly below that, the cash discount," he stated, "The service fee line item would exist on every transaction receipt, provided to the merchant. The merchant would then post a sign that said, 'Due to increased costs to process credit card payments, we have implemented a 4 percent service fee on all transactions.' Then, on a separate sign, it could offer the cash discount."

3. Switch to a surcharging model. Following release of Visa's bulletin, Shepherd and Razi spoke about its implications. Through legal action, CardX "has helped to establish surcharging as a legal option in California, Florida, Texas, and they hope to soon win their case in New York," Shepherd noted. "If they do, Jonathan believes it is possible that surcharging will be legal in all 50 states by the end of next year."
   
   Shepherd added that cash discounting programs were primarily created to pass on the cost of processing to consumers in states where surcharging was illegal and to do so on card types, such as check and credit cards, where surcharging was not permitted under Visa rules. "Now that so many of the big states are back in play with surcharging, it might be worth a second look," he said. "It is 100 percent compliant with Visa rules and you could sign up merchants without any fear that they would be forced to change tactics down the road."

Shepherd's views on both the bulletin and these three options are more fully explained in his blog post at www.ccsalespro.com/visa-declares-war-cash-discounting-service-fees/ .

Time to be proactive

Evan Weese, marketing lead for CardX, noted that First Data Corp. decided in September 2018 to remove all "cash discount" programs from the Clover marketplace. "A 'true cash discount' does not add any fees or surcharges at the register," the company wrote in an email to users at the time.

"We expect this [Visa's] bulletin to send a shockwave through the payments industry, because many merchants who are using 'cash discount' programs will now have to find a complaint solution for passing on their credit card fees to customers," Weese said. "This will be extremely frustrating for ISOs and agents as well, since today's Visa bulletin suggests their portfolios will be at risk of fines or shutdowns unless they take action to bring these accounts into compliance with the rules for credit card surcharging."

Razi concurred, adding, "This is why we've invested in developing products that put compliance first and meet these requirements automatically."

"In the coming weeks and months, I am sure that we will see announcements coming from the major acquirers about their position on cash discount programs, so make sure you are aware of changes as they happen," Shepherd advised. "Don't keep selling your current program, hoping nothing bad will happen to you or your merchants. Be proactive, gather information and decide how you will respond to this change in the payments landscape."

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