Cash Discounting and Credit Card Surcharging in 2020

You pull into the gas station, enticed by the price on the sign. That’s a pretty good deal! You pull out your credit and look at the pump: 4 cents higher for credit and debit cards! You’ve been hit with credit card surcharging.

This is not a new issue though. Cash discounting and credit card surcharging are a big issue in the merchant services industry, especially since cash discounting is taking off among merchants.

On the Merchant Sales Podcast, co-host James Shepherd said that as many as 20 percent of merchants offer cash discounts to customers, which on the face of it, seems to violate the rules set out by Visa and Mastercard. However, Visa did say that merchants in the automotive fuel market are doing it properly, which implies they’re okay with it in certain instances.

Credit cards are often hit with surcharging. Closeups of Visa and Mastercard cards. According to an October 2018 Pymnts.com article, Visa said their discount offer rule “prohibits programs that encourage merchants to add a fee on top of the normal price of the items being purchased, and then give an immediate discount of that fee at the register if the customer pays with cash or debit card.”

Visa said that merchants who engaged in this kind of cash discount program were subject to non-compliance action.

Patti Murphy, the other host of the Merchant Sales Podcast, says that the Durbin Amendment to the Dodd-Frank Act “expressly authorizes merchants to offer discounts for cash or other preferred payment methods.” Murphy says the independent sales organizations and merchant level salespeople still continue to sell cash discounting.

As annoying as the cash discounts may be for credit card-using customers, it does provide a little relief to the merchants who want a break from the processing costs for credit and debit cards.

Credit card surcharging, according to Murphy is grudgingly authorized based on card rules.

For example, card brand rules dictate that a surcharge not exceed the cost of acceptance, which can vary by card type. Surcharging also is prohibited under the laws of six states: Colorado, Connecticut, Kansas, Maine, Massachusetts and Oklahoma. Several technology providers have developed software that simplifies the process by integrating with POS systems and processors to calculate allowable surcharges in real time, based on interchange rates and the laws of governing jurisdictions.

While credit card surcharging may seem to be the easier program to implement, cash discounts may actually be a more popular method with consumers, who prefer discounts to surcharges. It always feels a bit like a bait-and-switch to see one price on the gas station sign, only to find a higher price for credit cards. But it would be a pleasant surprise to find that the price is lower for a cash payment.

While cash may not be possible for ecommerce merchants, there are ways to offer certain kinds of discounts and surcharges for credit card payments. Corepay can show you how. For more information, please visit our website or call us at (800) 408-0095.

Photo credit: Hiloom Templates (Flickr, Creative Commons 2.0)