24 May 2023 |: Traders | Dustin
How to reduce processing fees
When merchants are looking for reliable payment processing for their e-commerce or retail business, there are some programs available through payment processing providers to help reduce your processing fees. Two of these programs are the so-called Merchant Account Cash Discount Program and Credit Card Surcharge Fee programs. While negotiating a good interest rate is important, the ability to pay off and offset the cost of a credit card with consumers is attractive to many merchants in order to save BIG.
What is a cash discount?
a cash discount is when you post credit card only prices and provide a discount on that price for customers paying cash.
What is the surcharge?
a surcharge that’s when you post traditional “cash” prices and charge an extra fee for customers who pay by credit card.
Cash payment discount vs credit card surcharge
With a cash discount, the customer pays less than the listed price. If surcharges are applied, they pay more than the specified price.
If you charge more than the price listed at the register, it’s a credit card surcharge, despite what the processors may call it. Even if the merchant tells you that you’re just adding a “service fee” or even a “cashless adjustment,” it’s still a credit card surcharge.
While this may seem like a minor difference, it’s really important in terms of legality and compliance with Visa and MasterCard brand rules. Getting it wrong means risking penalties or having your trading account closed.
Visa rules for cash rebates and credit card surcharges
When asked about cash rebates, Visa advised people close to the payments community that a cash rebate is different from a surcharge. The rule states the price posted must be for the cards, however, merchants may offer a lower price for accepting cash. Cash rebates are permitted by Visa. However, merchants are not allowed to post cash and then charge a higher price for the cards.
Visa makes it clear that a company offering a cash discount is allowed, but that the posted value must be for the card to be accepted. Merchants can provide a lower price than that posted (card) price as a cash discount.
Why are the Visa cash rebate/surcharge rules important?
There are two reasons why implementing a cash rebate program is important. state law where surcharges are prohibited and prohibition of surcharges on debit cards.
States where credit card surcharges are prohibited
To begin with, although cash rebates are allowed in their true form in all 50 states, several states have laws against credit card rebate programs. If you include premiums in a state against which there is a law, you are violating that state’s laws. As of 2018, credit card surcharges are prohibited by law in Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, and Oklahoma.
Surcharge laws have come under scrutiny over the past few decades, and many states have gone to court over the practice. State laws where credit card surcharges are prohibited may change in the future, so be sure to consider this when applying for cash rebate programs. If you add a credit card surcharge to a debit transaction, even when you call it a “cash adjustment,” you’re putting your merchant account at risk.
Consequences of a credit card surcharge
The consequences of running a credit card rebate or cash rebate program disguised as a rebate program without complying with the rebate rules can have serious consequences. Processors may close their merchant accounts with major card brands for non-compliance. In addition, both Visa and Mastercard have forms on their websites that allow cardholders to easily report that they charge a fee for using their card.
For the sake of your merchant accounts and your wallet, be sure you’re on the right side of the law and card brand regulations before paying a credit card premium or signing up for a cash rebate program.
Should you implement a cash discount?
It may seem like a no-brainer to run a real cash rebate program, but remember that to do this, you have to write off the loan costs on the shelves. If you’ve already priced your products and services with credit card costs in mind, implementing a cash rebate program is simple. You won’t have to change your shelf or menu prices and can simply offer cash customers a discount on those costs.
For many companies, there’s no harm in offering a cash discount if you’ve set prices for the cards. It simply means that you pass the credit card processing fee savings on to your customer. But be aware that some customers believe that cash rebates or companies that promote cash may not pay taxes correctly, which can negatively affect the perception of your company.
In comparison, credit card premium payment programs pay at the time of payment. Some surveys show that consumers react negatively to increased fees, which means you may be more hesitant to implement a premium program than a cash rebate program. Additionally, surcharges cannot be added to debit cards, so be aware that you will still pay debit card processing fees.
So credit card bonuses and cash rebates aren’t automatically bad ideas.
However, credit card rebate programs disguised as cash rebate programs can open you up to unintended consequences. If you want to take advantage of a cash rebate program to reduce your processing fees, be sure to partner with a processor to help you get it right. Avoid processors who charge extra under the guise of a “cash rebate”.
Credit card top-up program
The tricky part is that many processors that offer “cash rebate” programs actually offer premium programs, but label them as cash rebate programs.
How do you know if a processor is offering a genuine cash rebate program or if it’s a credit card rebate program in disguise?
If the processor states that customers paying with credit cards will be given a non-cash adjustment or service fee when they check out, it is a credit card surcharge program.
Processors offering credit card surcharges may describe that your business will write “cash prices” on the shelves, as well as add a fee for customers who don’t pay with cash. If you don’t post charge card costs and don’t offer a cash discount, it’s a premium program.
Looking at the first sentence with the phrase “customer service” removed, it’s even clearer that it’s a premium program. “This program enables merchants to charge their customers who pay with any form of payment other than cash…”
Charging a card payment fee is, by definition, a credit card surcharge. Claiming it’s a “customer service” fee doesn’t change that.
As a result
Consultation with a payment company such as Paykings, Visa/MasterCard and (possibly) with an external payment consultant necessary prerequisites. To properly implement the applicable Cash-Rebate program and/or premium, you need to do it right the first time to save fees and avoid negative consequences. Done right, and if allowed by law, will result in a huge increase in merchant income.
24 May 2023 |: Traders | Dustin