Merchant Account Cash Discount Explained
What is a cash discount? A cash discount (often confused with “zero fee processing“) is a pricing plan that adds a fixed surcharge to all prices in a merchant’s store and then waives that surcharge for customers who pay with cash. In effect, this means that all customers who pay with anything but cash will pay the surcharge (usually between 1% and 4%) at checkout, and that the extra revenue generated by this surcharge can be used to offset the merchant’s transaction fees for accepting credit and debit cards. This passes the cost of accepting electronic payments from merchants to customers.
Cash discounts are often confused with “zero fee processing,” “free processing,” “reverse fee processing,” and other surcharge-based pricing structures. However, there is a key difference between a cash discount and these other programs. Cash discounts have been permitted by Visa and MasterCard for more than a decade and are completely legal as long as merchants provide adequate disclosure of the surcharge and apply it to all non-cash transactions. Surcharges, on the other hand, have been hotly litigated and remain illegal in 10 states. While cash discounts simply add a fixed percentage to all non-cash payments, surcharges cannot be added to debit cards, cannot exceed 4%, and must be disclosed via proper signage at least 30 days in advance of the surcharge. In other words, cash discount programs achieve a similar outcome to surcharge-based programs, but they are subject to fewer restrictions.