By Steven Feldshuh
Merchants' Choice Payment Solutions East
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.
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.
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.
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:
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 email@example.com or by phone at 212-392-9202.
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