A Cash Discount is a compliant way to pass on the fees of accepting a card transaction, to the customer. It is the payment industry’s newest version of a surcharge designed by merchant services resellers.
A Cash Discount is when a business offers a discount to customers who pay by cash or check. If a card is used for the transaction, a flat rate service fee will be passed to the customer. Typically the service fee is 3%-4% of the total purchase amount. The business owner and payments provider will determine a custom service fee to all credit and debit card transactions.
The payments company and commissioned salesperson will also enter a revenue-sharing relationship with the merchant from the fees collected.
A business owner should look at the offering in two ways:
1. You’re rewarding customers who pay by cash or check.
2. You’re punishing customers who pay by card.
In SwipeSum's online payments consultation, we have seen an interest in passing on transaction fees to customers on the rise. Payments companies are furiously pushing this product. For them, it adds .70% to 1% of margin compared to a typical interchange-plus pricing structure.
Cash Discounting is extremely lucrative for payments companies and their salespeople. Before doing business with any payments company, make sure they're a trustworthy payment processor. Are they persuading you to offer a Cash Discount for the right reasons?
We want to be very clear. It can be a perfect solution for some businesses and industries, but for many, it does not make sense. When switching your payments provider, here is how to determine if the Cash Discount program is right for your business.
Even if you have informed your customers, will they be surprised or upset? While the additional revenue to your business from a cash discount might seem like extra revenue it often creates a poor end experience causing long-term consequences to your bottom line.
If the offering will not hurt customer experience at all, offering a Cash Discount could be great for your business. This happens when most of your customers are already paying with cash.
If you have seen other local businesses doing it, odds are your customers have experienced that as well. If that is the common practice then your customers could also expect a Cash Discount from you.
If you are the only business in your market or industry offering a Cash Discount you should expect complaints. If you're the only one doing it, odds are you should avoid Cash Discounting programs.
You should consider how many new non-repeat customers you have, and how many are regular recurring customers? If you rely on repeat business Cash Discounting might not be the best practice. Customers who often pay with card will consider your competition when it comes to making their buying decision.
We have seen the Cash Discount program work wonders in businesses that have no repeat customers, such as vacation destinations.
In the end, offering a Cash Discount could increase profitability and overall revenue for some businesses, and be detrimental for others. If you would like to talk over the decision with a payments expert, click here for a free consultation.
SwipeSum is a software-enabled service that acts as a Chief Payments Officer. We help businesses eliminate the fees associated with accepting payments or turn them into a lucrative revenue stream. Our offering is free to all business owners with no commitments or strings attached.
We will schedule a quick consultation call to go over how you're currently handling merchant services at your bank, show you our menu of options, and plan for a successful launch.