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Should a Business Try Cash Discounting or Surcharging?

To finish this mini-series on reading credit card processing statements, I want to talk about cash discounting and surcharging, which is a very hot topic in this industry. I estimate that at least five to ten thousand merchants on average every month are signing up for some type of cash discount or surcharge program. Today I […]


To finish this mini-series on reading credit card processing statements,  I want to talk about cash discounting and surcharging, which is a very hot topic in this industry.  I estimate that at least five to ten thousand merchants on average every month are signing up for some type of cash discount or surcharge program.   Today I want to answer these questions:
  • What are these programs?
  • Do they work?
  • Should you try them?

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What are these programs?  If a fee is added to the cost of an item at the register for a card payment, that is either cash discounting or surcharging.  That means customers who don’t pay with cash pay more.  In this episode I’m not going into a detailed explanation of the difference between the two.  The concept of both is to pass the cost of credit card processing on to the consumer.  

To illustrate the effect of this on a statement, I actually created a different URL.  Go to examplemerchantquote.com/cash, all lower case, and you can put in an example cash discount program.  That gives the opportunity to see what it looks like.  You could also go to examplemerchantquote.com/surcharge, and see the comparison of  surcharging versus cash discounting.  

The savings are enormous with these programs!  Savings will be in the range of 50% all the way up to 95%.  If you see $500 monthly fees on the statement, the amount with surcharging would be about $250.  On a cash discounting program, those fees might be $50 or $60!  That’s why so many business owners are taking advantage of these programs.  However, most business owners are smart enough to wonder, “What’s the catch?”  The question, then, is whether these programs are a good idea for a business to try?

To answer that question, you first need to know how to identify a statement with surcharging or cash discounting.  The statement is going to be set up in one of two ways.  The first option is very, very simple.  It won’t even have much information about all the different costs associated with processing.  Rather, it will just have a few monthly fees such as terminal rental cost, but it’s going to be very, very low.  There won’t be the usual information of other credit card processing statements on interchange plus or tier pricing.  This is called escrow billing.  Escrow billing means that the credit card processing company is actually paying the fees on behalf of the merchant account.  So, the processor collects fees daily from the consumer out of the terminal to pay on behalf of the merchant.  Thus, not as much is reported on the statement.

The second statement set-up option is the much more common type. This statement looks “normal,” showing all the volume and number of transactions.  It may even have an interchange table.  These statements will also show the daily discount collected.  Every day the processor is pulling a certain amount of money out, usually a flat rate of 3% to 4%.  At the end of the month, the statement shows the total amount collected from the consumer and the remaining balance which will be debited from the merchant’s account.  If the amounts of the total fees due and the total amount collected are pretty close, most likely and obviously something is being charged.  Since customers paying with cash are paying less, then the business is probably on some type of cash discount or surcharge program.

What’s the difference between cash discounting and surcharging?  Without going into great detail here, I’ll just give the highlight.  There is an argument in our industry concerning rules and regulations.  Some rules prohibit adding a service fee or a surcharge onto debit cards, signature debit cards, pin debit cards, or even prepaid cards.  The service fee or surcharge can only be added when using credit cards.  Some in our industry have decided to go with these simple, cut and dry types of programs which are known to be compliant with Visa rules.

Cash discounting, on the other hand, applies to any kind of card.  Cash discounting is protected by the Durbin Amendment.  No matter what type of card is used, customers paying with cash pay less.  The difference is that the consumer pays processing costs on signature debit, pin debit, prepaid cards, credit cards, reward cards – everything.  Therefore, the only costs left on the statement are a few monthly fees such as equipment costs.  Statement fees are usually less than $100 total per month, and those should be about the same every month.

Both cash discounting and surcharging are totally valid – in my opinion – and as of the time of this recording.  However, I’m not an attorney; this is not legal advice.  I just believe both programs are valid and have their place.  In certain states, there are laws banning and restricting issues involving one or the other.

Do they work?  The first priority is to make sure you understand the programs before using them.  Make sure you’re in compliance with Visa rules and the laws in your state.  Don’t do anything that is illegal!  I’ve published many, many episodes about both cash discounting and surcharging.  Go to my YouTube channel where you’ll find all the different videos I’ve done.  The answer to questions such as, “Are they compliant?” and  “In which states do they work?” can be found.  There are also workshops and training courses available.  If you have questions, just email me james@ccsalespro.com.   Either someone from my team or I will reach out.  We may answer your question or point you in the right direction to get the answer.

There are several merchants I’ve known who are doing these programs themselves.  Their thought is, “I’m just going to throw up a sign and start collecting money.  This seems like a great idea.”  I’ve never seen one of those that was compliant!  If you’re one of those businesses and don’t think you’ll be shut down as a result of that, you are mistaken.  Visa and MasterCard are very much about this.  All it takes is one consumer to complain to their bank or to the card brands by saying, “Hey, this merchant has this surcharge sign up.  I don’t know if it’s compliant or not.  I didn’t like that.”  The brands will research.  If you’re not compliant, you’ll be slapped with a fine.  There will be some consequences.  If you’d like to make sure you’re compliant, shoot me an email, james@ccsalespro.com.  We’ll be glad to answer questions for you about that.

Another important priority is to notice whether the fees you’re collecting from the consumer make some sense.  You don’t always need to have the maximum flat 4% fee.  The cost of processing is usually a bit higher for these programs, but it doesn’t always have to be at the absolute highest.  If the volume is high, $50,000 or $60,000 a month, a lower rate of 3.5% or 3.25% might make more sense.  So, make sure you look at that service fee.

Should you give these programs a try?  The answer very simply is, “yes.”  Notice I’m not saying you should stick with these programs forever.  But as a business owner, these programs totally make sense.  The data so far has showed that 90% to 95% of business owners who try these programs still have them 60 to 90 days later.  That indicates their customers didn’t complain.  The merchants now pay little to no credit card processing fees and don’t lose any revenue.  So, the programs are definitely a win, win.

The market is definitely shifting that direction.  To give you an example, in Australia 62% of all transactions are surcharge.  So, this is already a big thing over there.  It’s going to be a big thing here in the states, too.  The only question is how long a business owner will pay the fees before jumping on board and trying the programs?

Go to examplemerchantquote.com/cash and examplemerchantquote.com/surcharge to study the difference in these programs.  See what the savings would be for each particular statement.

Then shoot me an email, james@ccsalespro.com.  I’m sorry I can’t personally respond to every email I get, but my team will definitely help you.  Whether you are a sales agent, an ISO, or even a business owner, please reach out.  We’ll be glad to try our best to help you.

I hope you have an awesome day!

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