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The Green Sheet Online Edition

March 28, 2022 • Issue 22:03:02

Will 2022 be the year restaurants stop paying credit card fees?

By Saleem Khatri

According to the Nilson Report, merchants' cost of credit card acceptance more than doubled from 2009 to 2019, to $68 billion. Until now, restaurants didn’t like them but couldn’t avoid them. Not anymore. Restaurants can now avoid paying expensive, ever-increasing credit card fees—and this might be the year they do it by embracing cash discount programs.

What is a cash discount program?

A cash discount program rewards customers for paying in cash instead of with a credit card. It incentivizes clientele to pay with cash by presenting a “non-cash adjustment” line item on receipts and giving customers an opportunity to remove the fee by paying with cash. The process allows restaurants to share credit card fees with patrons.

While businesses have tried to avoid credit card fees in the past by using credit card surcharges, a cash discount program operates differently. Surcharges add a fee only when a customer chooses to pay with a credit card; cash discounts provide a discount when a customer chooses to pay with cash.

Surcharges are complex. They have many rules, do not allow for debit card transactions and are illegal in 10 states. Cash discounts are simple, legal, and can help restaurants offset up to 99 percent of their credit card processing fees—which is why cash discounting will be the next big trend in restaurant merchant services.

Why cash discount programs will take off in 2022

Here are five reasons why cash discount programs are likely to take off this year:

  1. Restaurants need to cut costs. Credit card fees are typically a restaurant’s second-highest expense, right behind rent/mortgage. Each time a customer uses a credit or debit card, a restaurant pays roughly 3 to 4 percent on the transaction. Fees can be as high as 8 percent if the credit card has a loyalty program.

    Cash discounts almost entirely eliminate this cost, putting money back into restaurants that have been struggling in the wake of the COVID-19 pandemic, rising labor costs and inflation. Restaurants need to save every dollar they can; cash discount programs help them cut costs.

  2. Cash discount programs sync easily with restaurant POS systems. Cash discount programs can easily integrate with restaurant POS systems so the experience is seamless for both staff and customers. Staff don’t need to do extra work, and customers can easily select how they would like to pay.

    Plus, cash discount programs reduce headaches for all parties. When customers are encouraged to pay with cash, it significantly reduces the risk of chargebacks, pricing disputes, data breaches, fraud and other complications.

  3. Cash discount programs are legal and ethical. Unlike credit card surcharge programs that have complex compliance rules and are illegal in 10 states, cash discount programs are 100 percent compliant and legal in all 50 states. The Durbin Amendment to the Dodd-Frank Act protects cash discount programs and makes the rules for implementing them simple.

    Cash discounts must be disclosed to customers through the use of signage and customer receipts. This compliance is easy to follow and helps keep customers from feeling confused or tricked. Customers are fully informed of the program and purpose, and they can choose whether they want to participate. Most participate when they understand the savings for themselves and the restaurant.

  4. Customers already understand and accept cash discount programs. While cash discounts may seem new, they have been around for years. Think about how customers can save on gas when they pay with cash. Many customers are familiar with the concept and also know credit card processing fees are high. They aren’t surprised or turned off by non-cash adjustment fees.

    According to CCSalesPro, https://bit.ly/3tlydim, 99.2 percent of customers surveyed don't mind paying a non-cash adjustment. Customers like supporting local businesses, and cash discount programs give them an opportunity to help restaurants in their community. Plus, with a cash discount, customers have a chance to save—instead of paying the cost passed through as higher menu prices.

  5. Cash discount programs are gaining popularity. More than 30,000 restaurants and businesses, including Starbucks and Hilton, have or are using a cash discount program. And many are seeing impactful results. Selvie Qulafi, owner of Galena Steak House in Dixon, Ill., spoke for many when he said, "The cash discount program has been received very well and is helping us during a critical time."

    The tipping point is near. Passing on credit card processing fees will become the norm, and many national chains and independent restaurants are already embracing this trend, which will accelerate the adoption rate even more.

Restaurants are always seeking new ways to adapt, create better experiences for their customers and improve their bottom line. Now, power is shifting to them right when they need it most, and it will be in the form of cash discount programs. end of article

Saleem Khatri is the CEO of Lavu, a restaurant solutions company built by restaurant people. Lavu helps growing restaurants streamline their operations and provide better customer experiences through payment processor agnostic POS systems, on-site and online ordering solutions, cash discount programs, and more. Visit lavu.com for more information

The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.

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