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  • Writer's pictureDane Young - Credit Card Guy

June 2022 Newsletter Surcharging and Cash Discount


Now that laws have changed in all fifty states allowing merchants to pass credit and debit card processing fees on to their customers, you are seeing this become much more common. For years, this has been the practice of merchants of many countries worldwide. It is now starting to become the norm for many businesses here in the United States. You have probably experienced a time recently when you, as a consumer, have used your card and noticed a surcharge on your receipt. Most consumers are becoming accustomed to it.

Because there are regulations from the Card Brands (Visa, Mastercard Discover and American Express) revolving around these programs, merchants are not allowed to arbitrarily add these fees to credit and debit card transactions. Merchants that do so can end up paying hefty fines to the Card Brands. Since this is the case, the card processors have come out with programs to help keep merchants compliant.

There are two ways a merchant can pass on these fees and stay compliant; Cash Discount and Surcharging. Let’s look at the differences.



To fully understand the difference between a Cash Discount program and a Surcharge program, you first need to be clear on the difference between credit cards and debit cards. Debit cards are also often known as “check cards”. This is because when a consumer uses a debit card, the money is immediately debited from the consumers checking account that is tied to the card.

Credit cards are tied to a line of credit that the consumer pays off as agreed to between the consumer and the bank that issued the card to them. Some credit cards have a balance associated to them that has been pre-paid. These pre-paid cards are also considered credit cards, not debit cards.

Now that we have a better understanding of these card types, let’s talk about the Cash Discount program and Surcharging.



Simply put, Cash Discount Pricing gives the consumer paying with cash or check, a discount. This is typically achieved by adding a fee to the use of credit or debit cards and then eliminating this fee when the customer pays with cash or check. The merchant places a sign at the point of sale to let the consumer know that the fee can be waived if paying with cash or check. With this program the fee can be applied to both debit and credit cards, allowing the merchant to pass on nearly all the fees associated with accepting these cards. In the case of an ecommerce merchant, the purchasing website is set up to let the consumer know they will have a surcharge if paying with credit or debit cards.



Surcharging is quite a bit different than Cash Discount. A merchant that is surcharging still needs to place a notice of the fee for use with a credit card. In the case of a surcharge program the merchant can only surcharge credit cards. Debit cards cannot be surcharged. The point of sale equipment used by the merchant is programmed to determine whether or not the card is a credit card or a debit card and charges the surcharge when it is appropriate based on the card type. With this program, the consumer can avoid paying the surcharge by paying with a debit card, check or cash. Debit card processing is then typically charged to the merchant at a rate near 1.00%, much lower than current credit card fees. In the case of an ecommerce merchant, the purchasing website will let the consumer know that they are paying with a credit card and that they can avoid the fee by using a debit card or electronic check.



These two programs have an application for nearly every merchant processing type. Most common are merchants processing through a standard credit card terminal. Many merchants that use an online virtual terminal have moved to these programs and the virtual terminal has been designed to make the process simple. Ecommerce merchants, that is where their cardholders input their credit cards online, can also benefit from these programs. Nearly every merchant accepting cards can greatly lower their processing costs by using these methods. Consumers today understand that merchants are paying fees to accept their credit and debit cards and typically don’t mind paying a fee of 3.00-4.00% for the convenience of using them.

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