How to Lower Processing Fees
Merchants seeking reliable payment processing for their eCommerce merchant account or retail businesses can explore programs to lower processing fees. Two such programs are the Merchant Account Cash Discount Program and Credit Card Surcharge Fee programs.
Defining Cash Discount and Surcharge Fee
Cash Discount
A cash discount is when you post only credit card prices and provide a discount on that price for customers who pay with cash.
Surcharge Fee
A surcharge is when you post traditional "cash money" prices and charge an additional fee for customers who pay with a credit card account.
Cash Payment Discount vs. Credit Card Surcharge
- In a cash discount scenario, a client pays less than the listed price.
- With surcharge fees, customers pay more than the listed price.
It's crucial to understand the difference, as it affects legality and compliance with Visa and MasterCard rules.
Visa Rules for Cash Discounts and Credit Card Surcharge Fees
Visa states that:
- The posted price must be for cards
- Merchants can provide a lower price for cash acceptance
- Cash discounts are permitted
- Merchants are not allowed to post a price for cash, then charge a higher price for cards
Importance of Visa's Rules
State laws where surcharges are prohibited
Surcharge prohibition on debit cards
States Where Credit Card Surcharging is Banned
As of 2018, credit card surcharging is prohibited by law in:
- Colorado
- Connecticut
- Florida
- Kansas
- Maine
- Massachusetts
- Oklahoma
Repercussions of Credit Card Surcharging
Consequences of non-compliance include:
- High risk merchant accounts being shut down
- Potential legal issues
- Negative customer reports to card brands
Implementing a Cash Discount Program
Considerations:
- List credit costs on shelves
- May be simple if prices already account for credit card costs
- Potential negative perception from customers
Credit Card Surcharge Programs
Challenges:
- Added fees at checkout may deter customers
- Cannot be added to debit card transactions
- Must comply with state laws and card brand regulations
Spotting a Credit Card Surcharge Program
Red flags:
- Mention of "non-cash adjustment" or "service fee" at checkout
- Listing "cash prices" and adding fees for non-cash payments
- Using terms like "customer service fee" to disguise surcharges
Best Practices
Partner with a processor that helps properly execute cash discount programs
Avoid processors offering surcharge fees under the "cash discount" name
Consult with payment companies, Visa/MasterCard, and potentially outside payments counsel
Ensure compliance with state laws and card brand regulations
By implementing these programs correctly, merchants can potentially see a significant boost in revenue while avoiding negative consequences.