Information on Merchant Accounts,
Ecommerce and Credit Card Processing

January 15th, 2020 by Evan V

Free Credit Card Processing? Is this possible?

Filed in: Merchant Accounts | 1 comment

In short, no. You may have received marketing information describing the perfect world of having free credit card processing. While it is possible to establish an account and have the business pay zero processing fees, it simply means that those fees are being assessed to someone else. Welcome to the new world of merchant services, it’s called Cash Discount.

Let’s go through a scenario. It’s a new year, and you want to maximize your profits and are looking at ways to cut down on your costs. One of the most obvious ways is to reduce what you pay on processing fees. Looking over your processing statements, you equate your effective rate to 4 percent. So, for every $100 dollars you are receiving, you are paying $4 effectively. You call your processor, and the sales agent mentions a program called Cash Discount, which essentially takes away the cost of your processing fees.

How does this work?

Enrolling in a Cash Discount program, your processing fees will be passed onto your customers. While it differs between processors, the standard is around 4%. One way this works is by increasing retail pricing of goods and/or services by 4% and then offering to discount the sale by the same percentage for certain forms of payment. Usually the discounted form of payment is cash, but you could also give discounts to any other form of payment like checks or in-store gift cards. If you are interested in details about the other ways this is being implemented check out are article entitled, Tired of paying credit card processing fees?

It is important to note; customer satisfaction should always be a considered, which is why this model may not work for everyone. It is up to the business owner to see if and how this model will fit into their business. While a 4% increase to retail costs may be unnoticed by some consumers, others might be a more price sensitive. Businesses need to know how they can best explain the their discount program to their customers in the right way.

Cash discounting has been around for 20+ years, but its really starting to pick up steam. It would be surprising for anyone who regularly uses credit and debit cards to have not been offer a discount to use cash, or discount reversal percentage at the bottom of their credit card receipts. There has been some backlash in the industry, calling the cash discount nomenclature just a name for an additional surcharge. Some even calling for its outright ban, and unconvinced of the longevity of the practice. In any form, as of the beginning of 2020, many business are rushing to get in and offset their processing costs. Business owners are beginning to see a vast expanse in the array of various cash discount applications, programs with processors, and pressure from sales agents to investigate the programs and see if it is right for their business. While the program seems like a simple concept, there is a difference between surcharging customers, and offering a true cash discount.

VISA has mandated the program to abide by certain regulations. While the practice is completely legal when done correctly, where the grey area lies is the difference between a cash discount and a surcharge program. A true Cash Discount program is when the businesses list the credit card prices for the goods and discount the 4% or whatever the processing fees upon payment in cash. A surcharge program (an extremely common practice, and considered by some to be mislabeling of cash discount), is when the prices posted are for the already discounted cash prices, and the processing fees are charged on top of the listed price to the customer. According to VISA, the practice of the surcharging is against its regulations. The Durbin Amendment, made surcharging against the law for debit cards altogether. Additionally, specific states have set laws against Surcharging practices all together (CO, CT, FL, KS, MA, MS, OK). It is important for each merchant to do their research to determine exactly what type of program they are getting into, and whether it is in line with the standards and practices set-forth by card associations.

To summarize, it is worth any retail merchant to investigate whether this practice is right for their business. In the long run, this practice has the potential to save the business hundreds, or even thousands of dollars per month. While the program may seem like a savior to some businesses, it’s not going to be for everyone. It is also important that if a business implements a method of cash discounting that they continue to look for changes in regulations and laws, and make sure everything is above board because changes are always taking place.

If you have any questions we are always willing to lend whatever knowledge we have. Feel free to reach out to us at (888) 528-0058 .

One Response to “Free Credit Card Processing? Is this possible?”

  1. Gisele Miller January 21, 2020 at 11:08 pm

    Need to know how to get started

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