Does Your Business Need A Change?
As a business owner today, it’s important to accept debit card and credit card transactions to increase sales. Mobile transactions (such as Apple Pay) increase in use every year, especially with new initiatives to touch as little as possible when out and about. Credit cards are extremely convenient for customers but the convenience comes at a cost paid mostly by merchants. In 2019 swipe fees for credit card transactions amounted to $93 billion in the U.S., or 2.2% of credit card sales, according to Nilson Report.
Cash Discount: The Good-
Cash discounts are permitted in all 50 states, whereas surcharging is prohibited in only Connecticut (as of writing this article). Previously, there were many more states, but regulations have overall laxed. Turnkey is located in Meriden, CT, so we still have to be cautious of this law ourselves.
For most businesses, there’s no harm in offering a cash discount if you’ve set/show prices to account for card fees. Simply put, the ‘fee’ means that you’re passing the credit card processing fee savings to your customer. Be aware though that some customers may not immediately take to the idea depending on the type of business and location.
But, if you are going to do this program it’s important that you do it right.
Implementing a true cash discount program sounds easy, but keep in mind that to do this correctly, you’ll need to list credit prices on the menu. If you’ve already priced your goods or services to account for the cost of credit cards, a cash discount program is easy. You won’t need to change your shelf or menu pricing and can simply offer a discount on those prices to cash customers.
Cash discount programs are non-compliant when they post cash prices, but then add a fee at the point of sale. This type of cash discount program falls under card networks surcharging rules making the program illegal in CT. While it may sound like a minor difference, it’s actually very important in terms of legality and compliance with card brand rules. Getting it wrong means risking fines or having your merchant account shut down. However, this isn’t much of a problem for anyone outside of that one state.
As the business owner, it’s entirely up to you how much of a discount to offer. Although not every customer will take advantage of your offer, always assume that your customers will take the discount when deciding just how much you can afford. Everyone likes a discount, even if it’s just a few dollars. Giving your customers a cash discount will likely motivate them to pay early, or at the very least, on time.
The Bad-
By law, merchants cannot apply surcharges to certain card types, namely debit cards and gift cards. A study conducted in 2017 indicates that debit cards are used in 28-54% of transactions, depending on the type of business. Business owners who see a high number of debit card transactions will be forced to pay processing fees on these transactions, which start low but can be much higher depending on the markup rates the processor offers.
Also, some customers may get the impression that cash-preferring businesses may not properly pay taxes, which can negatively affect perception of your business.
A recent Consumer Credit article pointed out that 80% of consumer spending in the United States is cashless. 80% of Americans prefer to use their debit or credit cards for daily use; no customer wants to be penalized for using their preferred payment method.
Surcharge: The Good
For many of our customers, the cons ultimately outweigh the pros with surcharging. There’s really just one pro; cost. Many business owners see this as a great opportunity to keep a little more money in their pockets, especially when margins are tight. If you operate in multiple states, you can still surcharge credit transactions (but only in the states where it’s permitted).
The Bad-
Handling a surcharge program properly comes down to a few important rules to remember.
You must register with the major card brands. You’ll have to send written notice to card brands like Mastercard, Visa, and Discover so they know that you’re imposing a surcharge on customers using their cards. (American Express doesn’t require this.)
Your surcharge can’t exceed 4% per transaction. Merchants can’t profit from this fee. It’s supposed to be about recouping processing costs.
You can’t add surcharges to debit card payments. Surcharge programs are only for credit card purchases. You’ll have to cover the cost of debit card transactions.
You must make your customers aware of any surcharge fees. Merchants are required to use clear signage at their point of sale (POS) as well as their online checkout page.
Your receipts must show the credit card surcharge as a separate line item. You’re required to process the product or service price and the credit card fee on the same invoice but have two separate line items for each. That way, customers can clearly see and understand the individual charges.
To get an idea of how much it will cost you to process credit card transactions, ask a processing company to show you a sample bill or quote.
You might also want to look for a processor that offers no contract, or short term services, versus a long-term contract like Turnkey does. Be careful, credit card processing companies charge early terminations fees that can cost you thousands if you cancel your contract early.
Why Go Cash Discount?
Cash discount, we find, tends to be the more flexible offer. Turnkey can certainly find you a great rate on either program but cash discount allows you to use your own business as a cover for your processing. Without running the risk of upsetting customers with added charges and fees. There is a sort of psychology that goes into all this. Mentally speaking customers are going to be more receptive to a discount than what they view as more frivolous fees. Sometimes for small amounts, it may not be worth the trouble to be seen as a business who is overcharging.
Cash discount also in Turnkey’s case, gives you access to our Payzero Program. As the name suggests, it also is covered in your cash discount fees. This gives you access to valuable services to drive your business forward. Services like, logo design, website hosting and creation, social media marketing, photography shoots, print materials and more. These services can really make a difference for your business. It is also just another perk of utilizing the cash discount program. If the program was appealing to you before, this is just another reason to check it out.
At the end of the day, you know what is best for your business. We can create a plan that accommodates whatever you choose. We simply believe cash discount is the way of the future for a lot of processing done in the US, especially as prices continue to rise. Cash discount allows us to provide you more services for less money. Traditional processing fees do not all come to Turnkey when processed. You can read our article about interchange and how those fees get divided up amongst multiple platforms. With cash discount we want to reward you as credit card companies provide rewards to the people who use their cards; it’s as simple as that.
