By Aaron Nasseh
Finical Inc.
If you're active in the merchant services industry, chances are you've heard of cash discount programs. They're gaining tremendous popularity with both merchants and sales agents; however, confusion abounds about what exactly a cash discount program is and is not. In this article, I'll provide an overview of the cash discount program, and share the unbelievable opportunity offering one can afford you and your merchants.
My company has been offering a cash discount program for over two years, so I've had a good deal of practical experience with it. However, I'm not an attorney, and nothing in this article should be construed as legal advice. If you have legal questions, contact an industry attorney.
A cash discount program enables merchants to eliminate up to 100 percent of their processing fees by adding a customer service fee on all sales, and offering a cash discount for those who pay by cash. Merchants must display a customer pricing notice letting their customers know there is a customer service fee charged on all transactions – keyword being "all."
To illustrate, I'll use a 4 percent customer service fee. This means the true cost of every item in the store is 4 percent higher than listed, and the pricing notice will indicate a discount is given equal to the customer service fee when customers pay by cash. In short, if an item is priced at $100 and the customer elects to pay by any method other than cash, the true price is $104. If the customer pays by cash, the total is $100 since the 4 percent customer service fee has been discounted.
A cash discount program is not a surcharge fee, nor is it a convenience fee. Surcharging and convenience fees are generally charges added to the true price; they do not offer a cash discount. The reason this was previously frowned upon, and still is in certain states, is because some states view surcharging as punishing customers for paying by credit card ‒ not to mention that Visa and Mastercard have their own rules about surcharging.
Surcharging and convenience fees have become more widely accepted due to certain court rulings over the past few years, but they're still not available in all states. What differentiates a cash discount program is the customer is not being charged more when paying with a credit card, because the true cost of the item being purchased is, in fact, 4 percent higher, as disclosed by the pricing notice. Instead, customers are receiving a discount if paying by cash. So, don't mistake a cash discount program for a surcharge or convenience fee.
In a recent GS Online MLS Forum discussion, member Clearent asked, "For a merchant, wouldn't it just be easier to increase your prices 4 percent and call it a day?" That's a great question, and it may or may not accomplish the same goal. For instance, cash discount programs are automated; Clearent's proposal could require manual calculations. Cash discount programs are also more transparent because they give customers the option to pay by cash and save. Simply increasing pricing across the board without offering a cash discount would result in cash buyers also paying the full, higher price.
Additionally, for many businesses, cash discount programs, when marketed correctly, also function as a tool to attract new customers. Many customers simply love the idea of a discount, which is why so many stores have a SALE sign displayed year-round. An across the board 4 percent price increase might accomplish the merchant's goal with respect to covering processing expenses, but I don't believe it would be as powerful as a correctly implemented cash discount program.
While merchants love cash discount programs because they enable them to eliminate up to 100 percent of their processing fees, merchant level salespeople (MLSs) enjoy them just as much, as they offer higher average margins than we've seen in this industry in well over a decade.
Nevertheless, every time a great opportunity presents itself in our industry, some ISOs and MLSs seek to exploit it and resort to less than ethical practices. Be cautious about whom you partner with when marketing a cash discount program. It could help you build a solid portfolio with a low attrition rate, while saving your merchants a tremendous amount of money, but it's essential that you and the ISO you partner with understand what a cash discount program is so you may properly educate your merchants. 
Aaron Nasseh is the founder and Chief Executive Officer at Finical Inc. His extensive sales and management experience includes having previously served as the General Manager of CardPayment Solutions and Vice President of Sales at iPayment Inc. He may be reached at anasseh@finicalinc.com or at 818-330-4055.
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