Cash Discount

A cash discount is a method of pricing some merchants use to save money on credit card fees.
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What is a Cash Discount?

A cash discount is a method of pricing some merchants use to save money on credit card fees. With this method, merchants post slightly higher prices and offer a discount to customers who pay with cash.

Cash Discount Explained

Cash discounts are a popular way for merchants to reduce or eliminate their credit card fees.

By encouraging customers to pay via cash, merchants cut down on credit card costs. They also charge slightly higher prices for credit card sales, and they use the extra profit to offset their own fees.

To understand cash discounts, it helps to understand surcharging. These are two similar but distinct strategies to save money on fees.

With a cash discount, merchants post a specific price and charge less for customers who pay with cash.

With surcharging, merchants post a specific price and charge more for customers who pay with a credit card.

The card associations forbade surcharging for many years. In 2013, a class-action lawsuit against Visa and Mastercard resulted in the brands changing this rule.

After 2013, some states still had laws against surcharging. These laws have mostly changed over the years. As of late 2021, only Connecticut, Massachusetts, and Puerto Rico prohibit the practice.

Cash discounts have been allowed since 2010. That year, the Durbin Amendment stated that merchants are allowed to offer customers a cash discount.

It’s important to know that there are specific regulations surrounding both surcharging and cash discounts. These regulations come from the card brands and state and federal laws. One example is that merchants must apply the higher non-cash price to all other payment methods, including checks and debit cards.

Merchants who want to use cash discounts or surcharging should ensure they understand the rules and follow them carefully. Failing to do so might result in expensive fines.

Cash Discount Examples

Theresa is the owner of a bookstore that accepts credit cards and other forms of payment. Lately, Theresa has felt that her credit card fees are taking up too much of her profits. She decides to start offering a cash discount.

Theresa contacts her credit card processor, who helps her implement the cash discount.

With surcharging, merchants need to notify the card brands that they are going to begin implementing surcharges. There isn’t any notification requirement for cash discounts. Neither Theresa nor her processor needs to notify the card brands.

Theresa’s processor advises her to update her pricing system. Her new prices, which she posts in her store, are 3% higher. Next, she posts a sign next to her register advertising a 3% discount for cash.

When a customer pays with cash, their receipt reflects the cash discount, including the specific amount they saved.

Many of Theresa’s customers continue to pay with credit cards. Others, noticing the sign, decide to pay with cash or a debit card. Theresa begins to see some savings on her monthly credit card processing statements.

Occasionally, after seeing her sign, a customer tells Theresa that they’ll shop somewhere else. They don’t want to pay 3% more to use a credit card. Theresa resolves to keep a close eye on her statements to make sure she doesn’t begin losing business.

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