Save on rates and fees by implementing a Cash Discount or Surcharging Program with your merchant account

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When merchants are looking for reliable payment processing for their eCommerce or retail businesses, there are some programs available through payment processing providers to help you save big with lower processing fees. Two of these programs are the so-called Merchant Account Cash Discount Program and Credit Card Surcharge Fee programs.  While negotiating a good rate is essential, the ability to defray and offset credit card cost with consumer participation is attractive to many merchants-to save BIG.

What is a Cash Discount? 

A cash discount is when you post only credit card prices and provide a discount on that price for customers who pay with cash.

What is a Surcharge Fee?

A surcharge is when you post traditional “cash money” prices and charge an additional fee for customers who pay with a credit card account.

Cash Payment Discount vs. Credit Card Surcharge

In the situation of a cash discount, a client pays less than the listed price. In the case of applying surcharge fees, they pay more than the listed price.

If you charge more at the register than the listed price, it is a credit card surcharge fee, despite what processors may call it. Even if a merchant tells you that you are just adding a “service fee” or even a “non-cash adjustment” it is still a credit card surcharge fee.

While it may seem like a slight difference, it’s really very critical in terms of legality and compliance with Visa and MasterCard card brand rules. Getting it wrong means risking penalties or having your merchant account closed down.


Visa Rules for Cash Discounts and Credit Card Surcharge Fees

When asked about cash discounts, Visa advised people close to the payments community that a cash discount differs from a surcharge fee. The rule states the posted price must be for cards, nevertheless, merchants can provide a lower price for cash acceptance. Cash discounts are permitted by Visa. However, merchants are not permitted to post a price for cash, then charge a higher price for cards.

Visa clearly explains that a company that offers the cash discount is allowed, but that the posted cost must be for card acceptance. Businesses can provide a lower price from that posted (card) price as a cash discount.


Why do Visa’s Cash Discount / Surcharge Fee Rules Matter?

There are two reasons that the execution of a cash discount program matters: state law where surcharges are prohibited, and surcharge prohibition on debit cards.

States Where Credit Card Surcharging is Banned

To start with, while cash discounts in their true kind are permitted in all 50 states, a handful of states have legislation against credit card surcharge fee programs. Should you include surcharge fees in a state with a law against it, you are breaking the laws of that state. As of 2018, credit card surcharging is prohibited by law in Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, and Oklahoma.

Surcharge fee legislation has come under scrutiny in the last few decades, and many states have gone to court over the practice. State legislation where credit card surcharge fees are prohibited may change in the future, so be sure to consider this when looking into implementing cash discount programs. If you are adding a credit card surcharge fee into a debit transaction, even when you’re calling it a “non-cash adjustment” you’re risking your merchant account.

Repercussions of Credit Card Surcharging

The consequences of credit card surcharging fees or for implementing a cash discount program that’s disguised as a surcharge program, without complying with the surcharge fee rules could mean serious repercussions. Processors can get their merchant accounts shut down with the major card brands for non-compliance. Additionally, both Visa and Mastercard have forms on their sites that enable cardholders to readily report being charged a fee for card use.

For the sake of your merchant accounts and your wallet, be sure that you’re on the ideal side of legislation and the card brand regulations prior to credit card surcharging or signing up for a cash discount program.


Should You Implement a Cash Discount?

Implementing a genuine cash discount program seems like a no-brainer, but remember that to do so, you’ll need to list credit costs on the shelves. If you’ve already priced your goods and services to account for the cost of credit cards, implementing a cash discount program is simple. You won’t have to modify your shelf or menu pricing and may simply offer a discount on those costs to cash customers.

For many companies, there is no harm in offering a cash discount in case you have set prices to account for cards. It simply means that you are passing the credit card processing fee savings onto your customer. But be aware that some customers think that cash discounts or companies that favor cash may not correctly pay taxes, which may negatively impact the perception of your company.

By comparison, credit card surcharge fee programs add a commission at the time of checkout. Some surveys indicate the consumers react negatively to added fees, which means you may find more hesitation to implement a surcharge fees program than to a cash discount program. Additionally, surcharges cannot be added to debit cards, so be aware that you will still pay the costs related to processing debit cards.

That being said, credit card surcharge fees and cash discounts are not automatically bad ideas.

However, credit card surcharge programs disguised as cash discount programs may open you up to unwanted consequences. If you want to take advantage of a cash discount program to decrease your processing fees, be sure to partner with a processor that will help you properly execute it. Avoid processors peddling surcharge fees under the “cash discount” name.

Spotting a Credit Card Surcharge Program

The tricky issue is that many processors offering a “cash discount” programs are actually offering surcharge fee programs but labeling them as cash discount programs.

How can you tell if a processor is offering a genuine cash discount program, or whether it’s a credit card surcharge fee program in disguise?

If a processor states that customers paying with credit cards will be given a non-cash adjustment or service fee once they check out, it’s a credit card surcharge fee program.

Processors offering credit card surcharge fees can describe that your business will list “cash prices” on shelves and also will add a fee for clients that don’t pay with cash. If you’re not posting charge card costs and offering a cash discount, it is a surcharge program.

Taking a look at the very first sentence with the phrase “customer service” removed shows more clearly that it’s a surcharge program. The sentence would read, “This program enables merchants to charge a fee to their clients who pay with any form of payment aside from cash…”

Charging a fee for paying with a card is, by definition, a credit card surcharge fee. Claiming that it is a “customer service” fee doesn’t change that.

A Quick Guide to Surcharging And Cash Discount Rules

  • Surcharges can be applied only to credit card transactions, but discounts for cash can be offered on would-be credit and debit card sales.
  • Cash discounts are legal in all 50 states.
  • Credit card surcharging is now legal in 43 states and may soon become legal in New York, depending on the outcome of an appeal.
  • Surcharges are limited to the lower of 4% of the sale or the merchant’s processing costs.
  • Merchants wishing to surcharge must give 30 days’ notice to their acquirer and the card brands.
  • A surcharge notice must be placed by the merchant’s front door, at checkout counters, and on receipts.
  • Programs that add a fee to normal prices, then give an immediate discount for cash or debit card payment, do not comply with Visa’s rules.

What’s Ahead in 2019 for Cash Discount Programs and Surcharging?

Trouble could be brewing for processing companies offering these programs because a growing number of critics say cash discount programs are actually surcharges – just in disguise.

Cash discount programs offered by various retailers and eCommerce businesses to ISOs vary in how they present their operational details, but info on the websites of many of them just outright ignore the applications analyzed by Digital Transactions. It seems though that they all bear something in common: The retailer or restaurant raises all their prices upon beginning the program, typically by adding a fee, then gives reduced pricing to cash-paying clients, which (in the end) appears to resemble the actual amount.

Some might regard a cash-discount program itself as surcharging in disguise because it follows a similar charging format. It’s important to be aware of these things as to not fall into the trap of making these mistakes and being penalized or having your access to processing credit cards frozen all together. The scammers are essentially using cash discounts as a way to not to call what they’re doing a “surcharge.”

Widespread Confusion with Surcharge and Cash Discount Programs

All merchants must abide by payment card network rules governing their usage, although proponents say they aren’t breaking any rules or misusing surcharges in their business practices. State laws also come into play in some instances; with seven states still prohibit surcharging.

Meanwhile, confusion about the principles governing cash discounts is so widespread that Visa Inc. in October felt compelled to issue deadline guidance to the obtaining community. Acquirers are charged with enforcing Visa and Mastercard Inc. network rules.

Visa has obtained an increasing number of questions in regard to discount offers, or what are commonly known as cash discounts. Visa’s notice says, “While there are many distinct applications being offered to merchants by their payment processing providers, the Visa rules for cash discounts must be consulted when considering if a program of this sort would benefit the retailer.”

Merchants Need to Look out for Cash Discount or Surcharging Scams

For merchants, the rationale for cash discounts is obvious: they serve as a buffer against expenses that are associated with card-present fees. However, for ISOs’ profitability, cash discount programs appear counterintuitive at first glance.

There is much more to it than that, say payment processing providers. Cash discounts could also be positioned as another service in the industry, known as surcharging, despite an influx of recent applications to combat price-driven fees to the ISO.

Still, ISOs take the chance to pad their margins by raising discount prices to up to 4 percent of the sale when they roll out a cash discount or surcharging program.

Network rules limit credit card surcharges at 4 percent or the merchant’s processing costs, whichever is lower. But because cash discounts can be applied to both debit and credit card sales, ISOs often raise the retailer’s processing fees for debit transactions. Prices on credit card transactions often go unnoticed by small businesses, which are satisfied by off-loading some of their overall credit card costs.


Cash Discounts and Surcharging Programs can Sometimes seem like the Wild West

Payment processing providers, merchants, and even individuals in the industry can get confused about cash discount and surcharging rules.

A number of that confusion originates out of a legal environment that is changing. Interest in cash discount programs and surcharging has grown, partially as a result of various legal activities – such as the 2012 settlement of a significant credit card interchange situation and wording from the 2010 Dodd-Frank Act’s Durbin Amendment – that have loosened older network restrictions on retailers’ freedoms regarding what to take, and at what cost.

State laws are also in flux. As recently as two years back, charge card surcharging was banned by 10 states, however, bans have fallen off recently in California, Texas, and Florida. New York’s ban is under appeal.

In its note, Visa pointed at gas stations, which were the most prominent example of the merchants that offered cash discounts from prices paid by credit card using customers. “It is important to note that the discount is taken from the normal price of this fuel, and does not constitute any extra fee or surcharge that’s removed while the customer pays with cash or a debit card,” the notice states.

Visa subsequently goes on to state, “versions that encourage retailers to tack on a fee in addition to the standard price of the items being bought, then give a direct discount of that fee at the register if the consumer pays with cash or debit card, then are NOT (Visa’s emphasis) compliant with the Visa rules and may subject the acquirer to non-compliance action.”

The wording would seem to question the permissibility of cash discount programs that are presently in tact, though there is only one way to do it correctly – where everything in the store has two prices. The Visa bulletin simplifies it best – any time you include a fee, it is noncompliant.


So Which is Best? Cash Discounts or Surcharging?

Surcharges are still more popular than cash discounts, though there is interest in the two pricing strategies.

Some payment processing providers, whose clients include ISOs, payment gateways, and software suppliers, would even go so far as to point out that none of their clients have asked about cash discounts and that a good 40 percent of customers are doing surcharge programs.

The rules about surcharging and cash discounts differ little from Card Brand network to network. While common elements govern both surcharging and cash discounts, the guidelines have a few critical differences.


ISOs whose merchants violate the rules run the risk of getting their merchant account closed down. Despite all of the current questions and confusion about the rules, all in all, compliance is in fact not all that hard. Since ISOs frequently hire tech companies to execute cash discount or surcharge programs, it is important to have a payment processing partner who has done the legwork and is familiar with execution.


A Bit More Clarity on Cash Discount and Surcharge Programs

In light of the current questions of how much enforcement of these principles can ISOs and retailers expect from their acquirers and the card networks – in short, the solution depends upon whom you ask.
For more questions, concerns, or to sign up today for one of these programs, talk to the experts at PayKings. We’re integrated with most of the major carts and platforms and can provide all the information needed to keep you advised on compliance and proper implementation with these (sometimes tricky) cash discount and surcharge programs – all while saving with lower fees and keeping your merchant account secure.

Why PayKings?

Save big with lower fees by implementing a Cash Discount or Surcharge Program with your merchant account.

Save on rates and fees by implementing a Cash Discount or Surcharging Program with your merchant account

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