What is Surcharging?
Surcharging is the practice of adding a fee to credit card transactions to cover the cost of processing fees. When customers choose to pay with a credit card, they incur an additional charge, typically a percentage of the transaction amount.
Key Points:
• Legal Considerations: Surcharging is regulated at the state level in the U.S., and some
states prohibit it. Always check local laws before implementing a surcharge program.
• Transparency: Retailers must disclose the surcharge fee clearly at the point of sale and on receipts.
• Card Brand Rules: Visa, Mastercard, and other card networks have specific guidelines
that merchants must follow, including notifying the card networks in advance.
• Applies to Credit Cards Only: Surcharges cannot be applied to debit card transactions.
Pros of Surcharging:
✅ Reduces merchant processing fees
✅ Encourages cash payments
✅ Helps recover costs associated with credit card transactions
Cons of Surcharging:
❌ May deter customers from using credit cards
❌ Can lead to negative customer perception
❌ Compliance with regulations can be complex
What is Cash Discounting?
Cash discounting is a pricing strategy where businesses offer a discount to customers who pay with cash, effectively passing the credit card processing fee onto card users by charging them the full price.
Key Points:
✅ How It Works: Instead of adding a fee for credit card payments, merchants increase their listed prices and provide a discount for customers who pay with cash or other non-card methods.
✅ Compliance-Friendly: Unlike surcharging, cash discounting is legal in all 50 U.S. states, making it a more accessible option for many businesses.
✅ Customer Perception: Since customers see the cash payment as a benefit rather than an additional charge, they may respond more positively.
Pros of Cash Discounting:
✅ 100% legal in all states
✅ Customers appreciate a discount instead of a fee
✅ Simplifies compliance with card network rules
✅ Encourages cash transactions, reducing processing fees
Cons of Cash Discounting:
❌ Requires price adjustments across all products and services
❌ Some customers may still prefer card payments despite the discount
❌ May require additional staff training to implement correctly
Which Option is Right for Your Business?
The choice between surcharging and cash discounting depends on your business model, customer preferences, and compliance requirements. If you operate in a state that allows surcharging and want a direct way to recoup processing fees, surcharging may be a viable solution. However, if you prefer a universally legal approach that frames the cost shift positively, cash discounting may be the better fit.
Conclusion
Both surcharging and cash discounting are effective strategies to help retailers manage credit card processing costs. By understanding the key differences and considering factors like legality, customer perception, and implementation requirements, retailers can choose the best solution to save money while maintaining a positive customer experience. Looking to implement a surcharging or cash discounting program? Ensure compliance with regulations and select a reliable payment processor to guide you through the process.
