Cash discount merchant account programs now operate like a surcharge program. 

Well, some of them do, but there’s a catch.

You will need a merchant account provider who uses a special software in order to be a compliant cash discount program.

This article/video post will cover the details of this program with a quick comparison to surcharge programs.

I’ll discuss rates, and prices, compliance signage, how it works and how to set it up on your business.

FEATURED VIDEO

You’re probably already familiar with the concept of cash discount programs and understand that the program effectively passes the credit card processing fee along to your customer. 

These new cash discount programs have become a popular trend in merchant services over the last few years or so. 

If you haven’t seen the first video in this series where I compare cash discounting, surcharging and convenience fee programs, you can watch it here, and I’ll give you a brief overview right below.

3 Sample Transaction Scenarios

Understanding the numbers and how each transaction is processed,  is important for the comparison, so let’s simulate 3 transactions. 

Payment Scenario #1 – Traditional Merchant Account Transaction

Let’s say a business has a product for sale at a listed and stated price of a nice round number of $100.

You run the credit card on point of sale device for $100, and collect that $100 dollar with your next settlement or batch.

Your funds hit the bank the next day or maybe within 24 hours. 

 At the end of the month, you would be billed for the merchant account fee of approximately 3%, for this example.

So you would net $97 for that purchase.

Payment Scenario #2 – Traditional Cash Discount Sale

In that same scenario, If you offered the customer a cash discount at the time of sale, you would just reduce the listed and stated price by $3 and sell it to them for $97 cash. 

At the time of checkout, you would simply verbally ask your customer if they want to save some money by paying with cash.

You just reduce the price you’re done. 

You collect your cash, and you’re off to the bank. 

That $3.00, is the discount that is given because the customer paid with cash!

So obviously, this discount is a reduction from listed and stated price.

Literally just how it sounds. 

It’s important to realize that the customer does actually end up paying the extra fee by paying more for their product if they want to use their credit card because you have the credit card processing fee “baked” into the total cost of goods sold.

With normal pricing, you’re counting on that merchant account fee as a normal expense of accepting electronic payments.

Payment Scenario #3 – Traditional Surcharge Program

Using the same numbers, instead of discounting like we did for the cash discount, we’re going to add a fee to the original listed and stated price if the customer pays with a credit card. 

So that listed and stated price of $100 becomes $103 because the customer paid with a credit card. 

The History of Cash Discount Merchant Account Programs

Understanding the troubled past of cash discounting is important to the comparison.

Historical cash discount programs, surcharging programs and convenience fee programs have sort of infringed on each other and the lines that separate the 3 sort of get blurred. 

The controversy with the cash discount started when some merchant account providers started selling cash discount programs that were actually a surcharge or a service fee program, in disguise.  

That caused a lot of people to say:

Wait a minute, this doesn’t seem like a cash discount, it seems like a service fee or additional fee and I don’t really see how there is a discount involved

So things needed to change, and they did, but first a quick recap on the 3 transaction scenarios.

In payment scenario number 3, a surcharge program adds a fee on top of price

In payment scenarios 2 and 1, cash discount reduces the prices as a discount and reduction from listed and stated price.

The payments industry and the governing bodies of the card associations and all parties involved agreed that something should be done, and something was done via a long drawn out legal procedure.

This is when something called side-by-side pricing was enacted and even involved Federal laws being enacted to protect free speech citing the 1st amendment, believe it or not. 

That’s where you see the posted cash price, and the posted credit card price.  

You had to display to the public that there is a reduction of price from the listed and stated price, in order to be called a cash discount program. 

Surcharging programs have laws that restrict the practice, in certain states and even where it is legal, there are still more hoops to jump through in order to implement a surcharge program.   

During this time when side-by-side pricing was enacted, we saw some wanna-be programs that were labeled as non-cash adjustments, or service fee, and they followed the rules of cash discount, but operated a whole lot like a surcharging program. 

The New Cash Discount Program

The new cash discount programs are 100% compliant and pass the fee along to the customer when paying with a credit card.

While that seems like it is a surcharge program because the fee is added to the listed and stated price, these programs follow the disclosures, signage and general guidelines of a cash discount program. 

You have to post signage that notifies a customer that there will be a 3-4% service charge added to their purchase. So the posted price becomes the cash price in this case. 

• These new cash discounting programs comply with federal laws and Visa/Mastercard credit card association rules and regulations. 
• It’s permissible in all 50 states and the programs are able to be used for retail as well as online transactions. 
• Debit cards are allow to be accepted with this program

So there’s one final note about the application of this program and how you would use it in your business. 

There’s 2 ways. 

#1. In a Retail Setting

In order to accomplish this compliance in a retail setting, a special software from Debit Technologies, Incorporated has to be used, and is only available with special equipment.

In a retail setting, the receipts have a line item that separates the cash discount so it’s obvious to the customer. 

#2. In an Online Setting

In an online setting cash discounting is offered by using a special payment gateway that can restrict certain geographical areas, specifically states that don’t allow surcharging.

So when a transaction is presented online through the payment page or the virtual terminal, the gateway instantly knows whether this card can be accepted under the cash discount program and either processes or denies the transaction accordingly. 

In both settings, retail and online it’s a plug-and-play operation.

The terminal or software does everything for you and you just need to swipe or type card numbers and keep selling your products and services!

Cash Discount Program Pricing

Since the merchant account fee is passed along to the customer, the only fee that you’ll pay, is for the account access and the terminal or Point of sale system in some cases. 

On average, these new cash discount programs cost anywhere from $10 or $20 a month, up to $100/month, again for the platform fees, equipment fees and the account access. 

All other processing fees and transaction fees are essentially non-existent 

Typically a merchant account statement might show fees of $500 to $600 in fees per month for accepting $20,000 in credit card processing volume… just for example.  

With this cash discount program, you save that $500-$600 because it is paid by the cardholders!

The bottom line is that you’ll pay essentially 0.00% (while only paying the monthly access fee) to process credit cards as a result of using this program. 

When you compare it to paying 2-3% associated with a normal merchant account,  its a big reduction in cost for you as the business. 

Make sure you’re using a compliant cash discount program.

If you’re thinking of using one these programs in your business click here to schedule a free consultation, and if you’d like to apply for the account, just click here to apply for the new cash discount merchant account program.