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The Green Sheet Online Edition

June 27, 2022 • Issue 22:06:02

Saving merchant fees - Part 2: Cash discount versus surcharge

By Nikki Estes and Shubham Garg

In a surcharge program, the business owners charge the customers who choose to pay their bills through credit transactions an additional cost. Unfortunately, this fee is levied upon any product or service utilized paid with a credit card at a given business due to the regulatory burdens merchants face in compliance. Hence you can liken a surcharge program to a penalty program.

Business owners often set up a surcharge program to save money on credit card processing fees. Many people frown upon these programs, often considering them misleading.

In the past, Visa prohibited surcharging, but this was litigated, and as of Feb. 6, 2022, surcharging remains banned only in Colorado, Connecticut, Kansas and Massachusetts. Visa, however, maintains strict regulations to discourage merchants from passing the fees onto their consumers. Some of these include:

  • Merchants are required to notify Visa and their acquirer 30 days prior to implementing surcharging.
  • Disclosures for consumers must be provided at the point of entry and point of sale.
  • Itemization of the final surcharge amount must be identified separately on the transaction receipt.
  • The surcharge must not exceed the merchant’s cost of acceptance for the credit card.

You can learn more about Visa’s surcharging regulations at www.visa.com/merchantsurcharging and a Q&A on surcharging from Visa is at https://vi.sa/3QaaOKh.

When surcharging is in place, customers paying with credit cards clearly have to spend more money than those who decide to pay through cash, debit cards, ACH or checks.

Stay legal with a CDP instead

Alternatively, ISOs can offer CDPs to merchants. To do so, however, you must stay on the good side of the card brands and adhere to their requirements. Per its Oct. 28, 2018, bulletin on cash discount program implementation, Visa stated, "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 Visa Rules and may subject the acquirer to non-compliance action."

Thus, all merchants who add a fee at the POS must comply with the requirements for surcharging, regardless of what they call the fee.

In October 2018, The Green Sheet reported that First Data Corp. decided in September of that year 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.

A CDP could help them save on merchant fees and increase their customer base. Partnering with a knowledgeable payment gateway provider would help with the implementation process to ensure rules set by Visa, Mastercard and other card companies are followed and merchants do what is right by their consumers (remember the Golden Rule). You'll find Visa Core Rules and Visa Product and Service Rules at https://vi.sa/3NKpEpma.

The guidance calls for posting transparent signage at the POS. The signage helps the consumer see the extra cost they incur when making a payment with a card. Fortunately, when transactions happen in person, business owners can keep their costs lower through a CDP; consumers can easily see the signage and enjoy the discount if they choose to pay with cash.

While purchasing items online, customers do not have an option to pay with cash. However, businesses can still offer a good discount on products/services to consumers who opt to use ACH, also known as an e-check or WEB debit. Indeed, it is just as easy for business owners to offer payments via ACH as to offer credit card payments. ACH can work on any internet-connected device, as well as in person.

Credit cards are convenient, easy and secure. They also offer a fast processing time. However, they cost merchants up to 3.5 percent per transaction for processing. A cash discount can be a win-win for merchants and consumers. But how can you be confident your CDP is compliant with card brand rules?

Believing the concept of providing a discount to pay with cash is clearly protected nationally by the Durbin Amendment to the 2010 Financial Reform and Consumer Protection Act , James Shepherd, CEO at CCSalesPro and co-host of the Merchant Services Podcast, 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," Shepherd 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."

With a well-implemented program, all prices reflect the full price (to which a fee has already been added) and receipts show a discount given to customers who pay using cash, paper check or ACH.

Bottom line: presenting a cash discount program along with alternative payment methods utilizing prime payment technology helps your merchants and their consumers save money. Following the Golden Rule, businesses can offer discounts to their customers and enjoy savings for themselves. end of article

Nikki Estes guides "Singers of Solutions" on the iCheckGateway.com team, educating the ISO, ISV, and merchant audience with creativity on customized payment technology. She and Shubham Garg, a humorous, prolific wordsmith, support the iCG mission to edify businesses and empower consumers through payments automation, bringing sophistication to the heartbeat of every business with simplicity. Contact them via email at pr@icheckgateway.com or by phone at 239-349-2880.

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.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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