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Growth by acquiring: opportunities and challenges

Dale S. Laszig

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Keeping up with the card brands - EMV and beyond

Brandes Elitch
CrossCheck Inc.

Find your perfect SPIN

Dale S. Laszig
DSL Direct LLC

Education

Street SmartsSM:
Cash discount programs revisited

Steven Feldshuh
Merchants' Choice Payment Solutions East

Powering fraud prevention with machine learning

Don Bush
Kount Inc.

Overcoming international business complexities for SMBs

Ryan Frere
Flywire

Company Profile

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Brandable merchant hub automates invoicing, subscription billing

OmniMerchant
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Carbon Mobile 5
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A Bigger Thing

The Green Sheet Online Edition

April 23, 2018  •  Issue 18:04:02

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Street SmartsSM

Cash discount programs revisited

By Steven Feldshuh

Daily discussions continue in the GS Online's MLS Forum regarding cash discount programs. I wrote about this topic in "Cash discounts: Are they right for your merchants?" in my Dec. 11, 2017, Street SmartsSM column, and I will try to shed light on what my ISO has been witnessing since then.

We have had a few merchant level salespeople (MLSs) embrace this pricing program, and I'm going to share insights we've gleaned that I hope will help you with this type of sale. I'll cover the top merchant verticals we are boarding, including how to deal with the objections we have been experiencing. Comments we hear range from questions about the legality of cash discount programs to the possibility of losing customers if a business converts to cash discount pricing.

Savings versus customer loss

I don't believe statistics exist yet on loss of business merchants may have experienced due to implementing a cash discount program. Charging the purchaser a non-cash adjustment is a concept that merchants first have to come to grips with themselves. They may lose a few customers, and they have to do an analysis of their daily sales to see if the savings are worth it.

I do know, however, that most of us are creatures of habit. If we shop at a certain strip mall, it would take a lot for us to change that habit, especially if it is a matter of convenience. If you believe in the value of the savings for merchants, and desire to make a larger residual, then you need to explain to your merchants the positive aspect of their monthly savings through a cash discount program.

If a merchant pays $500 in monthly fees, and it can be reduced to $50 a month in processing fees, that merchant would be saving $5,400 over the course of the year. That is a big savings, and may be worth it to lose a few sales a week.

95 percent satisfaction

I didn't think I would be inclined to push a cash discount program, but we now have merchants who are very happy they made the change. It is a positive feeling to help merchants succeed, and by reducing their costs, we are adding to their success. Since we started this new initiative five months ago, we have had a 5 percent conversion rate back to traditional processing from merchants who tried it, but couldn't deal with customer complaints.

I am sure the ones that converted back, didn't explain the program correctly to their customers. The best thing I heard a merchant say was, "Look we are trying every way possible not to increase our pricing. If you pay us in cash or write me a check, you get the best possible deal, because all of the items on our menu are at the cash price."

We have had a few merchants tell us that surcharging in New York is illegal. What we have found is confusion remains regarding distinctions between surcharge programs, which are limited to Visa and Mastercard credit cards and are not permitted in certain states, and non-cash adjustment programs. We realized some education is necessary.

The top six so far

Some business types are more likely than others to be able to embrace cash discount programs. You won't see this program at designer stores or department stores, but then again, they typically are not the businesses my MLS team tries to acquire. It will take some time for the program to be accepted across a wide range of merchants. At my ISO, the following businesses seem to be the top contenders in our book of business:

  1. Hair salons and barber shops: If you have a stylist you have been using, you are not going to care if the shop has a 4 percent cash adjustment fee. You want that stylist or colorist.
  2. Delis, bodegas, smaller grocers: These business types typically work on smaller margins, have smaller tickets and welcome the relief of having to pay only a minimum amount on credit card processing. We have not had anyone convert back in this category.
  3. Auto repair/auto body, transmission shops: These business owners seem to care little about potential repercussions from passing on a non-cash adjustment. They are typically very busy places with repeat business, and if you have found an honest shop for repairs, you are not, as a rule, going anywhere else.
  4. Cafes, coffee shops, fast food spots, small restaurants: Here, again, we have had no conversion back to traditional processing. These merchants all seem to be on the same page. They generally get mostly repeat business, and the program has given them relief especially on the $5 or less sales. Generally, customers stop at a donut shop or coffee shop on the way to work. They are not inclined to change their routine because they are now charged $4.16 versus $4 for their coffee each morning, especially if switching involves crossing a highway or traveling further.
  5. Bars: Town bars that have been local institutions also are glad for the pricing relief. Again, when they run their happy hour and charge $3 for a beer and $6 for a mixed drink, they know they can't afford the processing fees. And after two drinks anyway, who looks at the bill?
  6. Tailors/dry cleaners: I would never leave my tailor/dry cleaner. The owners have increased prices every year, but I trust them, and they do good work. Here, too, most of their business is repeat customers, and they don't have a fear of losing their customer base.

We have also had some success with locksmiths, multiservice businesses and newsstands. The program seems to work best in underserved communities and with smaller merchants. Yes, we have a couple of large burger/pizza locations, but in those cases, the owner of the chain just didn't care if a customer was disturbed by the new pricing. His locations are generally always busy, and he said he wouldn't be able to tell if it affected his customer count. He knows saving $2,500 to $3,000 a month per location puts a Mercedes in his driveway.

We have been seeing some interest from larger, more unique merchant types such as funeral homes, and kitchen remodelers. Additionally, if merchants currently do not take credit cards now, they should be low hanging fruit for a cash discount program.

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 stevenf@mcpseast.com or by phone at 212-392-9202.

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

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