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Cash Discounting: Happy Shoppers, Lower Fees

Who doesn’t love a discount?

For both merchants and customers, cash discounting is a powerful tool to add more value in every transaction. It enables merchants to provide a promotional discount and minimize the cost that each customer pays.

While COCARD leverages its deep relationships and innovative technology solutions to provide our merchants the best service at competitive rates, we know that a cash payment is always cheaper than swiping.

There can be confusion about cash discounting, including how it differs from a credit card surcharge. In this article, we dive into what exactly it is, and how to leverage it for happier customers and lower costs. 

What is Cash Discounting?

Card transactions cost you a little more than receiving a cash payment. Card processors apply fees for using their networks, and these fees are either passed onto customers or absorbed by the business. As every store owner knows, those costs can really add up!  

As the name implies, cash discounting is a discount for paying with cash. The idea is to reward customers who make things a little easier (and cheaper) for the business.

Generally, the discount is 2-4%, similar to the transaction cost for the merchant. It can also be a flat number, such as a $0.30 discount per transaction.

The benefit to customers is obvious: if they don’t use a card, they don’t pay for the cost of processing it. For merchants, cash discounting helps to avoid the negative perception and regulatory issues of surcharges.

Cash Discounting Vs. Card Surcharges

Cash discounts and surcharges for using a card essentially do the same thing: only customers who use a card pay the transaction cost. The key difference is that for cash discounts, stores list the card price as the “sticker price” of a good.

If a salad’s menu price is $10.80 after tax, that’s what the customer pays when she whips out her Visa. If there’s a 3% cash discount, she’ll see the adjustment to $10.48, and pay lower than the advertised price. In the case of a card surcharge, she would pay more than the advertised price for using a card.

In both cases, the customer pays more for using a card than for using cash, compensating the restaurant’s added transaction fee. However, the impact on customer psychology can be remarkably different.

To illustrate, consider this simple question: Which sounds better, a discount or a surcharge? Of course, we all prefer a discount! Customers may resent the additional charge for using a card while finding that the discount offsets the convenience of a card.

Importantly, the two methods can be different in the eyes of the law as well.

Wait… Is this Legal?

You may have heard that price adjustments based on the payment method can be illegal. While this is true for certain types of credit card surcharges, it is not the case for cash discounting!

Cash discounting is legal in all 50 states. It’s legal in Puerto Rico and D.C. You can discount your heart away in Kansas, Guam, or the Virgin Islands. Surcharges are a slightly different story.

  • California,
  • Colorado,
  • Connecticut,
  • Florida
  • Kansas
  • Maine
  • Massachusetts
  • New York
  • Oklahoma
  • Texas

If you’re looking to pass along those card costs, you may run into problems when surcharging in certain states. Some states outright ban the practice.

No matter what state you’re in, you can’t surprise your customer with a surcharge. Major card networks such as Visa and MasterCard have their own transparency requirements when it comes to surcharges, as well as requirements to notify them in advance if you’re rolling out a surcharge system.

There are also rules regarding the minimum transaction amount to avoid a surcharge and limits on how much extra you can charge for a card payment.

We discuss the ins and outs of surcharges and NCA (non-cash adjustments) here. The bottom line is that there is a lot less regulation around cash discounts.

Cash Discounting: Pass on the Savings 

Cash Discounting is a great way to show your customers that you value their business and to reward them for saving you money on transactions. It also can save you thousands of dollars in card fees.

At CoCard, we’re in our clients’ corner when it comes to minimizing costs and finding creative ways to cultivate better customer relationships. We leverage our relationships with the industry’s biggest payment processors to bring you the best rates.

Get in touch today to learn how COCARD empowers members and merchants every day with industry-leading service.