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While surcharging offers basically the same benefit to
Insider’sreport merchants as cash discounting, consumers tend to prefer
discounts to paying surcharges. Plus, cash discount
on payments programs are easier to implement. I expect to see a lot
more agents and ISOs offering cash discounting to their
merchants and prospects this year.
A look ahead: cash Next up: real-time payments?

In early 2019, the Federal Reserve heralded a new service,
discounts, faster FedNow, that would support real-time payments clearing
24/7. But not immediately, and not for all payments. The
system won't be operational until 2024, and even then, it
payments, mobile will only be available to handle transactions for $25,000
or less.
By Patti Murphy The value cap could be a deal breaker for businesses, and
ProScribes Inc. without business customer buy-in, financial institutions
would be hard-pressed to fund such an endeavor,
t's the beginning of a new year. Time to assess the stated David Walker, president of the consultancy Tiller
possibilities for the payments space in 2020. First Endeavors. FedNow also will be a credit push system,
up: cash discounting. Cash discounting, and its cor- similar to ACH credits, which has failed to supplant
I ollary, credit card surcharging, is perhaps the hot- business check usage despite being created more than
test ticket in merchant services. I found no firm figures on 40 years ago as an electronic alternative to checks, which
just how extensive the practice is, but if my conversations are debit-pull transactions, Walker noted. "I don't see
with ISOs and merchant level salespeople (MLSs) are any anything here that encourages businesses to do this [from
indication, cash discounting is taking off. James Shepherd, the perspective of] making payments," he told me.
my co-host on the Merchant Sales Podcast, recently con-
jectured as many as 20 percent of merchants now offer Walker believes banks and businesses would be better
discounts to customers who pay with cash rather than served by promoting electronically created items, which
credit or debit cards. are checks that start out as electronic files and clear
through existing check image exchange networks. Since
Visa tried to quash the trend in 2018 by asserting that these transactions are electronic, end-to-end, they can be
many cash discounting programs violate its rules. But settled with the same speed and efficiency as electronic
the assertion rests on shaky ground, as the Durbin check alternatives, like FedNow payments. And there
Amendment to the Dodd-Frank Act expressly authorizes would be no need to build a new network from scratch.
merchants to offer discounts for cash or other preferred
payment methods. And the assertion hasn't kept ISOs and Getting consumers to embrace a new real-time payment
MLSs from continuing to sell cash discounting. mechanism isn't going to be easy either. Credit and debit
card payment posting and clearing occurs quickly enough
The appeal of cash discounting to merchants is obvious: in the eyes of most consumers. And if they want to transact
it offsets processing costs for credit and debit cards. And even faster, there are options available, like PayPal's Venmo
it does this without cutting into an ISO/MLS's residual and the bank-owned Zelle payment system.
stream.
Building a case for mobile
Surcharging differs in that it applies only to credit card This brings me to mobile payments. While the mobile
payments and is begrudgingly authorized by card brand payment apps Venmo and Zelle have gained steam,
rules under terms of a class-action settlement with retailers these are used primarily for person-to-person payments.
several years ago. From a merchant/processor perspective, According to research by Q2 and Cornerstone Advisors,
surcharging is more complex than cash discounting. Zelle handled $122 billion in transactions in 2018,
while Venmo was used for $64.2 billion in payments.
For example, card brand rules dictate that a surcharge not This represents a fraction of all digital P2P payments –
exceed the cost of acceptance, which can vary by card type. banks saw $172.3 billion in P2P payments through their
Surcharging also is prohibited under the laws of six states: proprietary apps in 2018, while PayPal was used for $141.8
Colorado, Connecticut, Kansas, Maine, Massachusetts and billion.
Oklahoma. Several technology providers have developed
software that simplifies the process by integrating with Mobile payments by consumers to businesses are a
POS systems and processors to calculate allowable different matter. Despite the ubiquity of smartphones
surcharges in real time, based on interchange rates and – just under three in four Americans are expected to be
the laws of governing jurisdictions.
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