Cash Discount Program vs. Merchant Account Surcharge vs. Convenience Fee – What is the difference!

by Oct 1, 2020General Merchant Account

There are distinct differences between cash discount, surcharge, and convenience fee merchant account programs.

They’re often misunderstood and talking about as though they are interchangable so in effort to clear up the differences we’re going to discuss the 3 of them today.

The following blog post (below the video) is a modification of the script for the video. You can skim the blog, or watch the video.


When it comes to credit card purchases, passing the merchant account fee along to the cardholder at the point of purchase is becoming commonplace,

There’s surcharging, cash discounting and service fee merchant account programs.

If you’re looking into setting up one of these programs, click here to schedule a call with our team.


When someone generally refers to “surcharging a credit card purchase”  it causes some confusion as to which of these 3 programs they’re actually referring to. 

All 3 have subtle, fine-line differences that separate them. 

We’re gonna talk about those today, and I’ll give you references to more information on each of them including how to set up a program like these in your business.

To start, 3 of these programs share the same simple fundamental as I’ve mentioned: 

That the cardholder pays the credit card processing fees, either in full or in part, when they make a purchase – therefore absorbing the cost of paying the credit card fee for the benefit of paying with their debit or credit card. 

The result?  The business owner, get to keep more of the money from that sale!

The nuances of which program is right and best for you and your business to use depend on the variables of todays video.

In short, it depends on the technology that is used, credit card association regulations, and in some cases, the state that you live in.

So let’s start comparing:

The easiest way to remember the difference between these programs is to know that they actually operate just like their name implies. 

So think of a listed or stated price of a product or service. 


1- A surcharge program is the process of ADDING a fee on top of the original sale amount. (so it’s an addition on TOP of a price point)


2- A cash discount program is the process giving a discount if someone pays with cash

If the customer elects to pay with cash vs. using a credit card, they would pay a cheaper price or lesser dollar amount for the product or service in question. Hence, the cash discount.

It’s pretty straight forward.


3- A convenience fee is typically a flat fee that applies to making a purchase

There’s max percentage limits as well as guidelines for each of these programs.

The Cash Discount Merchant Account Program

You’ve probably even seen this before because it’s been around for quite a while.

Gas stations, are a great example for cash discount programs.

They would post normal pricing on their signs as well as a cash price that was less expensive. Right there on the sign for everyone to see!

While gas stations have used cash discount merchant account programs for years, the trend is now increasing and other industries are jumping on board as this trend starts to grow in popularity. 

More companies are starting to use it.

One quick side-note, is that Visa made a rule that restricted cash discounting because (arguably) it discouraged the use of credit cards in some cases and the banks and credit card associations didn’t like that.

The Durbin amendment overturned that as made it legal to give a cash discount (or an incentive discount) and that made it okay to give a cash discount. 

So historically with cash discounting dating back years ago, there was nothing special you needed to do with your merchant account in order to offer a cash discount.

You just signed up for the normal retail merchant account and posted a cash discount on your signs and then honored it.  

Let’s look at an example with numbers:

In a traditional purchase with a credit card, If a customer was buying something for a listed and stated price of $100, they paid with a credit card, you as the business owner, ran the charge on the credit card terminal for $100.

You would be billed for the merchant account fee of let’s just say 3% to use round numbers for the sake of illustrating this.  

You’d net $97 for that purchase for that purchase. 

If that same customer offered to pay you with cash, they would just give you $97! 

Cash Discount program example

That 3 dollar price reduction, is the cash discount!

So the customer does actually end up paying the extra fee by paying MORE for their product if they want to use their credit card. 

Again, this is the way it’s been historically with cash discount programs

Nowadays, you can still do it that way, and there’s actually a new type of cash discount program that is very popular that looks, feels and operates a whole lot like a surcharge program, but is legally a cash discount program. 

Let’s jump into the Merchant Account Surcharge Program

Surcharging passes the merchant account processing fee on to the customer by adding the fee to the listed-and-stated purchase as noted earlier. 

At the point of sale the customer voluntarily accepts an additional processing fee, for the purchase, because they are paying with a credit card.

The amount charged to the customer is usually about 2-3 percent and cannot be more than what the merchant account provider is charging to you.

The reason for that is very simply: a business cannot make a profit, by surcharging customers.  

The surcharge exists only to offset the fee that would otherwise be paid by the business and owner of the merchant account, by once again, passing all or the majority of the fee along to the customer when they are making the purchase.  

So with that same hypothetical customer that was buying something for $100 and the customer paid with a credit card, this time, you would run the charge, and the software would ADD a 3% charge to the purchase making the total charge to the customer, $103. 

You would then net $100.


So between these 2 programs you can see that there’s a pretty big difference in what the customer pays and what you’re charged. 

Merchant surcharge rules have sort of a difficult past. 

Historically, there were federal and state bans, that restricted surcharging and there was a lengthy lawsuit that went on for a number of years.

That lawsuit challenged the ability to pass a surcharge along on a credit card purchase which was eventually upheld at a federal level and then trickling down to the state level. 

There are still about 6 states at the time of this video that prohibit surcharging a credit card purchase. 

Other Merchant account Surcharge rules and regulations include

  • Having the proper signage and public notifications on invoices and in retail storefronts,  if there is going to be a surcharge assessed. 
  • Restriction on surcharging a debit cards and prepaid cards. It’s NOT allowed.
  • Proper registration with the VISA/MC and card associations is REQUIRED, 30 days prior to the implementation of a surcharging program, so you need to plan ahead. 

Then you’ll also need software or a point of sale device that will properly assess a surcharge and add it to the receipt so that it shows the surcharge as a separate line item.. 

I’ve personally talked with numerous businesses who have been unknowingly breaking these surcharging compliance rules by just doing it, without notifying anyone. 

They didn’t tell Visa/Mastercard, they didn’t tell their merchant account company, they just started doing it by adding a percentage to their invoices… 

If you only remember one thing today, remember that this is not the way you  want to go about it. 

You should always notify customers UP front that there is a surcharge with a purchase and don’t try to just add it on at the end. 

It’s both against compliance and your customers won’t appreciate an extra fee tacked on to their purchase.  

If you are doing this right now, you’re flying under the radar and would advise you get compliant so check the links in the description for our implementation services. 

Finally, let’s touch the Service/convenience Fee program

Convenience fees are most often used, as you probably know, in association with municipalities like drivers license renewal, utilities, government websites, and other state, association or non-profit run purchases. 


Convenience fees also help offset the cost of the merchant account charge and for most buyers, once again, it does just want it says. 

It gives the ability to pay with a credit card electronically, so that the alternative of driving somewhere to pay cash, or writing and mailing a check is not needed. 

The price of the convenience fee is less than actually taking time out of their day to do those other things. 

Generally, a convenience fee is a flat rate, rather than a percentage of the purchase and most of the time a convenience fee is not permitted to be above 4 percent.

Convenience fees are not permitted in standard transactions when a customer pays for an item at a register which is why they are really only used in the previously mentioned scenarios. 

Just like cash discount and surcharging programs, the convenience fee must be disclosed as a separate line item. 

That brings us back to the emergence of the new cash discounting program that I mentioned earlier. 

With the increase in demand for surcharging programs in general, payment processing companies have developed proprietary software that is legally compliant with cash discount programs, but act like a surcharge program. 

The point of sale software automatically calculate the fee for all purchases run through the credit card terminal.

It will even show the extra fee on the receipt, separated properly, the way it’s supposed to be, so you can run everything through the merchant account and be 100% within compliance. 

Just like surcharging, the cash discount fee that is applied cannot exceed 4%.

This program has fewer restrictions because it’s acceptable in all 50 states and it’s exempt from the debit card rule so you can accept debit cards with this program. 

Your credit card terminal or point of sale device will automatically adjusts to include a percentage discount fee in addition to the original charge, and the fee is labeled as a cash discount fee rather than a surcharge.  

What to do next

If you’re looking for the specifics of the exact costs, rates, fees pricing and equipment associated with these various merchant account programs, click this link to schedule a call with a team member to discuss your current situation.

No matter what name you call it to your customers, make sure that you’re following the proper regulations as set forth by Visa/Mastercard and the card associations.

A couple of side notes: 

Surcharging programs are very different than simply taking a fee off the top of a purchase like you would if you are a broker of a service or if you’re running a marketplace or membership environment. 

For example:  If you accept a payment from customer A, you retain a small portion of the purchase for yourself, and then pay out the remainder of the charge to customer B, you are NOT in a typical surcharging environment. 

You’re in a payment facilitator environment and that’s a different program entirely. So if you want to learn more about that, click the links in the description to learn more about those programs and information about how to enter into them.

Brian Manning

Bancardsales founder and 17+ year payment processing veteran, Brian Manning has helped thousands of businesses streamline their electronic payment systems. With a healthy disdain for things like terminal leases and "lowest rate" guarantees he regularly advises on best practices to anyone setting up merchant account related solutions. Brian's mission and passion is to help business owners use their merchant account simply as one tool in the big picture of growing their own business and creating an experience that is positive and meaningful for their customers.

Brian Manning

Bancardsales founder and 17+ year payment processing veteran, Brian Manning has helped thousands of businesses streamline their electronic payment systems. With a healthy disdain for things like terminal leases and "lowest rate" guarantees he regularly advises on best practices to anyone setting up merchant account related solutions. Brian's mission and passion is to help business owners use their merchant account simply as one tool in the big picture of growing their own business and creating an experience that is positive and meaningful for their customers.


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