Free Processing Program: What’s It All About?

You have likely heard about Cash Discount Programs that help you reduce or even eliminate the cost of processing credit cards. One thing to keep in mind is that most customers who use credit cards have no idea that the merchants they are doing business with are charged fees for accepting a credit card as a form of payment. In fact, most consumers falsely believe that the card brands (Visa, MasterCard etc.) make money from the interest the consumer pays. They are completely unaware that the credit card brands are making money from both the consumer and the merchant during each transaction. Implementing a Cash Discount Program will require some customer education, some store signage and some adjustments on the part of your employees and your pricing models.

Let’s break it down into a concept that is easy to understand. A cash discount occurs when you decrease the price of your product or service for customers who are paying with cash. Unlike a credit card surcharge or convenience fee for using a credit card, customers paying by cash receive a lower price calculated by cash discount technology at the Point-of-Sale. The selling price will be based upon the type of payment presented.

What is a Cash Discount Program?

Cash discounting allows merchants to accept credit cards without the typical 3-4% loss of profit being spent on processing fees. Cash discount processing is becoming a popular option for reducing or even eliminating the expense of accepting credit cards by shifting the cost to the consumer. While it is spreading in popularity, you have likely been aware of it for decades. You are reminded every time you pump gas into your vehicle. Gas stations have used cash discounting on the price of gas forever. If you pay with cash, it costs a little less per gallon. If you pay with a credit card, the cost you pay is the price per gallon displayed on the pump and the signage displayed in the parking lot. Our guess is, you are still using your credit card at the pump and your customers will continue to do the same if you implement a Cash Discount Program.

You’ve Heard This is Illegal

This program is completely legal. It is totally acceptable to offer a discount to customers who opt to pay with cash or charging them the “displayed price” of the goods or services at the credit card terminal. If the cost of processing credit cards is built into your prices and you assume that every customer will pay by credit card, your credit card costs are covered. But, for those customers who pay in cash, they will receive a discount for doing so.

As part of the 2010 Dodd-Frank law, businesses are permitted to offer a discount to their customers as an incentive for customers to pay by cash or check rather than using credit/debit cards and automatically receive a price discount that is applied at the Point-of-Sale.

There is no distinction between using a PIN or not and if the card is a bank debit card it is always to be considered as a debit transaction. Debit cards can never be treated as a credit sale.

In summary, it is legal to pass credit card fees to customers. It is legal and compliant to pass fees on using both surcharge fees and cash discount programs. Surcharge fees are legal in 40 states while cash discount programs are legal in all 50 states.

In January 2013, many changes went into effect as the result of a federal class action lawsuit brought by merchants against the major credit card brands. The settlement required Visa and MasterCard to change their rules for merchants who accept credit cards, including allowing merchants to “offer discounts to customers who pay with payment forms less expensive than Bank Debit cards”.

While the laws may allow such practices, the individual card brands may have rules that forbid a merchant from passing on service fees and processing costs to the customer. Before setting up a program for your business, it is vital that you understand the rules of acceptance with the major credit card providers. Your Chosen Payments Account Executive can help you create a Cash Discount Program that is compliant with both card brand rules and the laws pertaining to your state.

What You Need to Know

You must post clear and conspicuous signage as required by law to be displayed at the entrance to your business AND at the point-of-sale. The sign must convey the discount program payment options available for customers such as, “If you choose to pay with cash or check the service charge is discounted”.

The customer service fee or the discounted price amount must printed on the transaction receipt. Cash Discount Program compatible POS or terminal devices must generate receipts that show the Base Cost, Cash Discount and Total Sale.

Comparison Examples

Cash Transaction

Your customer brings a product to the cash register with a price of $20 on the item and on the shelf display. He reads your posted sign at the Point-of-Sale that says a 4% service charge is added to all transactions except those paid for by cash. The customer elects to pay with cash and would not be charged the 4% service charge. The cashier would collect $20.

Credit Card Transaction

The same customer approaches the cash register with the same $20 item and reads the same sign explaining that a 4% service charge is added to all transactions. The customer presents a credit card for payment and the total sale price is calculated at the POS as $20.80. The customer has the option to save .80 by paying cash.

Confused About Cash Discount vs. Surcharging?

A Cash Discount Program and a Surcharge Program are both payment systems that merchants can use to recoup the cost of accepting credit cards in transacting business. A surcharge program tacks on an additional fee to the sell price at the POS system or credit card processing terminal.

A true Cash Discount Program gives the customer a discount for paying in cash and avoiding any additional costs. Merchants who offer a Cash Discount Program, display the regular price or “posted prices” on each item that represent the price assuming a credit card sale. Any form of payment other than cash keeps the price of goods the same as the posted price to cover credit card processing costs. Using cash will reduce the purchase cost by 4%. Using Chosen Payment’s Cash Discount Program, your customers will appreciate it. When it comes to being assessed a credit card surcharge vs. being offered a cash discount, your customers will appreciate the offer of a discount option.

A Note About Debit Cards

Surcharge fees can never be applied to debit cards or other forms of prepaid cards, like gift cards. Surcharge fees are directed only towards credit card purchases. Debit card transactions are not charged the same fees as credit cards or gift cards. Debit cards are charged a flat fee when presented as a means of payment. The prohibition on debit cards is nationwide.

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