These days, it seems like credit card processors that offer cash discount program are popping up left and right. What is less common is cash discount program compliant brands. In fact, many of the present cash discount programs are literally surcharge programs in disguise.
Cash discounting confused enough people who Visa itself issued a bulletin to acquirers in October of 2018 outlining compliant vs. non-compliant cash discount programs.
In this article, I’ll go over cash discounting vs. surcharging and cite Visa’s bulletin to supply clarity on the principles surrounding compliant cash discounts.
Cash Discount or Surcharge?
At the foremost basic, a cash discount is when a customer pays but the shelf or menu price because they pay with cash. For example, if the shelf price is $10 and a merchant offers a 3% cash discount, the customer will pay $9.70.
A surcharge is when a customer pays quite the shelf or menu price because they pay with a credit card. For that $10 item with a 3% surcharge, the customer will pay $10.30.
Any tinkering with these scenarios doesn’t change the end result. A program during which merchants add a “service fee” or a “non-cash adjustment” that's immediately removed for cash customers isn't a reduction , because the customer didn't pay less than the shelf or menu price. That is, there was no actual discount.
For example, if the shelf price is $10 and the merchant adds a 3% “non-cash adjustment fee,” the price goes to $10.30. The customer chooses to pay with cash, so the merchant removes the fee, dropping the item back to the original $10. No discount on the shelf price occurred. Instead, the customer simply wasn’t surcharged. “Not being surcharged” is not the same thing as “receiving a discount.”
What Visa Said
This issue of customers not receiving a discount is at the heart of the bulletin Visa issued. Visa explicitly stated that, “Models that encourage merchants to feature a fee on top of the traditional price of the things being purchased then give an instantaneous discount of that fee at the register if the customer pays with cash or debit card aren't compliant with the Visa Rules…”
The bulletin goes on to state that posting two prices, one for cash and one for cards, is a suitable method. Gas station brand cards highlighted as an example of the trader often uses double the price tag.
However, posting cash prices and charging a “service fee” that's immediately removed for cash customers isn't a reduction and programs that use that model aren't compliant.