By Steven Feldshuh
Merchants' Choice Payment Solutions East
Lately, I've been receiving daily solicitations to have my group sell the new cash discount programs. I believe this is one indication that we're at the beginning of a merchant pricing revolution. Why? It's a matter of economics.
Small businesses, many of which are on shaky ground, want relief. Take a small business processing a payments volume of $300,000 a year. If it transfers an average of 2 percent of that sum to consumers to help cover processing fees, that's a $6,000 savings. If the business is doing $1 million annually, at 2 percent, that translates to $20,000. Why wouldn't a business consider a cash discount program?
These programs, in essence, are simply a transfer of costs/expenses from merchants to customers. Through these programs, most or all of the expenses associated with credit and debit card processing are transferred to customers. For a large number of businesses, this makes economic sense. However, if a merchant implements such a program and loses business because it ends up charging more for goods and services than its competitors do, the program is not feasible for that business.
Cash discount programs are relatively new; there is little information on how they are faring. However, history exists in a few verticals. Many private schools have been using this type of program for years. Government offices that are not permitted to pay processing fees also have been charging fees for card processing. Some petroleum retailers also charge a flat fee for card use at the gas pump.
Now cash discount programs are available for every business. I reached out to merchant level salespeople (MLSs) in the field and received initial feedback on what they are hearing from merchants about these programs, as follows:
It appears that some individuals and industries will push forward immediately with cash discount implementation; others will want to do trials or let competitors be the guinea pigs. But once a few places start switching, the concept of saving money will spread.
It may take big banks a while to develop cash discount programs ‒ if they do at all. So if you encounter big-bank merchants, their merchant services provider probably can't do cash discounts. This is an opening for you. In our industry, change generally leads to opportunity; opportunity leads to new sales. You can potentially get a smile out of a merchant who makes the change to cash discount. A smile today is huge. Not getting beat up to lower your cost by a penny or discount to 8 basis points is huge.
Will cash discounts be short lived? Will the decline in cash use by younger generations reverse? Will cardholders stray from debit and credit cards and revert to paper currency? The ease of use of mobile payments, and the continued marketing of credit card rewards, would likely be a roadblock for the return of cash. The fact that some businesses are now only accepting cards to reduce theft and robberies is also a deterrent.
Baby boomers will likely use cash when needed or will find a competitor that doesn't charge customers the percentage. But young people I've spoken with said paying for processing is just part of purchasing something they need now.
It would take a significant decline in card usage for the card brands to intervene to stop this type of program. So, for now, merchants have an opportunity to cut costs, and MLSs can help. What are you going to do?
Steven Feldshuh, President of Merchants' Choice Payment Solutions East, has 18 years' experience in sales and ISO development. Directly prior to joining MCPSE in 2012, he was President of Payment Partners. In his current position, Steven devotes the bulk of his time to assisting agents in building their portfolios. Contact him by email at email@example.com or by phone at 212-392-9202.
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