Understanding the Differences Between Cash Discounting and Surcharging


It’s a hot topic now: Cash Discounting vs Surcharging. How are they defined? How are they implemented? What are the repercussions of running one of these programs improperly?

There is a shift in merchant processing and many processors are scrambling to understand Cash Discounting and Surcharging as the rules become clearer on how merchants can pass the processing fee off to the cardholder when using a credit card.

The Difference Between Cash Discount vs Surcharging

Cash Discounting is when the sticker price for goods/services is listed on the price tag/quote and a discount is given to anyone who uses cash or a debit card (i.e.- the price of the item goes down).

Surcharging is when the sticker price for goods/services is listed on the price tag/quote and a surcharge fee is given to anyone who uses a credit card (i.e.- the price of the item goes up).

The Ideal Merchants for Cash Discounting and Surcharging Programs

To determine which program is right for the merchant it is important to understand how they price their goods and services and how they charge their customers.

When to Use Cash Discounting
If a merchant provides a verbal or written quote to the customer (i.e.- landscapers, interior designers, auto mechanics, etc) or if their environment allows them to post the cash price AND credit card price of an item (i.e.- petroleum, art dealers, specialty stores, etc), they will be a good candidate for Cash Discounting.

When to Use Surcharge
If it is unrealistic for the merchants to list cash and credit card prices for all items (i.e.- convenience and retail stores, clothing shops, and restaurants), they will be a good candidate for Surcharging.

Implementing Cash Discounting and Surcharge Programs

Once the type of program is determined, it is important for the processor and merchant to be familiar with the guidelines that are required. Card brands (i.e.- Visa, MasterCard, Discover) require merchants to follow a set of rules and regulations and these requirements can change based on which state the merchant processes in.

Rules every Merchant Must Follow

  1. Merchants must register their surcharging program with each card brand no less than 30 days of implementing the surcharge program.
    Visa’s Registration Page
    MasterCard Registration Page
    Discover Surcharging Notification Form

  2. The appropriate signage must be placed (if applicable) notifying the customer of the cash discount or surcharge program
    Sample Cash Discount Sign

  3. The amount of the Cash Discount must not be greater than 4% and the merchant can NOT profit from the fee.

  4. The surcharge fee must be shown as a separate line item on the credit card slip.

  5. The fee and the cost of goods/services must be processed as one transaction. This will require compliant credit card terminals to list the charge individually and submit one approval code for the fee and the goods/services.

  6. Similar to number 6, the merchant will need to run credit card terminal that can decipher debit cards from credit cards by reading the bin numbers and displaying the fees appropriately.

Repercussions for Not Following the Card Brand Rules

Complaints from cardholders can trigger an investigation from the major card brands. If it is deemed that the merchant was improperly marking up credit card transactions and not following the card brand rules, the merchant can be fined up to $1,000 per occurrence, increasing up to $25,000 per occurrence for repeat offenders. There is also the risk of the merchant losing the ability to process credit cards as well as being placed on a Terminated Merchant File (TMF) list where it would become very difficult for them to process cards in the future.

The steps for running a proper Cash Discount or Surcharge program can seem daunting, but, when done right, the reward can far outweigh the risks. It is important for the merchant to document and stay up-to-date on regulations.

To learn more about cash discounting and how to properly implement it for your merchants, please send us a message below”

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