I recently noticed a cash discount sign in a sandwich shop.  As I have done at least fifty times, I asked about their experience with the program.  And, as is usually the case, they assured me after two years on the program they have had “very few complaints” and no significant impact on revenue or customer behavior.  Keep reading for my thoughts and some Q & A on these programs.

Yesterday, I purchased a sandwich from this shop and noticed their #cashdiscount sign / program. As I have done 50+ times, I asked about their experience. They are 2 years in and they have had “very few complaints” and no significant impact on revenue or customer behavior. This is what I always hear.

Here are some commonly asked questions about Cash Discounting and Surcharging I would like to answer for you.  (Please keep in mind I am not an attorney; this is not legal advice.  These are my personal opinions.)

  • Why do I believe these programs are right for the consumer?
BECAUSE – every business is passing the cost of processing on to the consumer in the form of higher prices. The only question is whether those higher prices will affect all consumers (unfair) or just the ones who don’t pay cash?

  • Why do I believe Cash Discounting has a slight advantage over Surcharging?
BECAUSE – would businesses save 60% when they could save 100%?  Would you leave yourself open to a competitive threat?  Visa has not taken any meaningful action (see below).  Merchants love the program.  Worst case scenario – you flip the merchant to surcharging if necessary.

  • Why doesn’t the merchant do a normal price increase procedure rather than posting a sign?
BECAUSE – posting a sign at the register is slightly less convenient and requires merchants to implement a discount on their register, not to mention re-printing signs or menus. Why do all of that when the consumer doesn’t care either way, and it can potentially cut us out?  Also, keep in mind that merchants aren’t exactly sure how much to increase prices to cover the cost of processing.  I know some companies are helping merchants implement these types of programs now.  I think it will be interesting to see how this develops.

  • Why don’t I think Visa will “Shut Down Cash Discounting”? 

BECAUSE – Visa doesn’t have a police force, and they don’t make laws (at least not directly.)  These types of moves are all about timing and leverage.  If Visa wanted to squash these programs, they should have done it at the acquirer level two years ago.  They started down that path but never followed through, and we haven’t seen any action lately.  Meanwhile, thousands of merchants each month have signed up for these programs and love them!

Business owners are going to continue these programs.  With each passing day, Visa has less and less leverage to shut them down.  Large merchants are already screaming about interchange fees with COVID-19.  Does Visa really want to antagonize hundreds of thousands of small business owners right now with a program born out of the high cost of processing in the U.S.?  I don’t think so.

The Durbin Amendment states…

“A payment card network shall not, directly or through any agent, processor, or licensed member of the network, by contract, requirement, condition, penalty, or otherwise, inhibit the ability of any person to provide a discount or in-kind incentive for payment by the use of cash, checks, debit cards, or credit cards.”

I’m not sure how you could read this section of the Durbin Amendment and still be concerned about Visa rules on cash discounting.  If merchants feel they are offering a cash discount or in-kind incentive and are informing consumers about their price in one way or another, I don’t think the card brand rules have anything to do with compliance.  According to this law, the card brand contracts don’t apply.

Not to mention…
In the Expressions Hair Design Case, the Supreme Court unanimously ruled that banning surcharging was a free speech issue.  These bans regulated the way the price was communicated.  That is the whole argument over various forms of cash discounting.  I think eventually Visa will put pressure on Congress and State Legislatures to clarify and update these laws.  That will be their long-term play.  However, with the Durbin Amendment hanging over their heads, I personally think Visa would be crazy to jump into the fray on this issue.  There are other battles they are fighting (and mostly losing) around the world right now.

My thoughts about all the industry fights over compliance and cash discount versus surcharging:
#1 – We should try to be as compliant with the law as possible. 

  • However, at the end of the day, if there is no enforcement and the legislative branch in most states does not clarify the language in the Durbin Amendment, compliance becomes less and less concern. 
  • I believe getting the math right and figuring out issues like accounting reconciliation on sales tax (which drives large merchants crazy!) is much more important at this time than squabbling over the wording of signs or how the receipt looks on the terminal.
#2 – The jury is out…

If you train the merchant and they train their employees, these programs don’t hurt their business.  When they try the program, they’ll quickly realize this truth.  About 1 in 20 businesses will be the exception to the rule.  But the vast majority of the time, it is not an issue.

#3 – Merchants don’t care one bit how you implement this program. 

Why not implement it in a way that is easiest for them and most profitable for you?

#4 – If compliance becomes less important or urgent, then surcharging becomes less appealing. 

Don’t get me wrong – I still love surcharging.  But the appeal of surcharging over cash discounting is compliance, plain and simple.  If you don’t believe compliance with Visa rules on this issue is still relevant, then surcharging becomes the program of choice in a few states.  However, the vast majority of the cities in the U.S. don’t seem likely to intercede in our industry fight over Cash Discounting versus Surcharging.