Cash discounting is a pricing strategy where a business offers a discount to customers who pay with cash, effectively encouraging them to avoid using a credit card. This approach allows merchants to cover their processing fees indirectly, as card transactions remain at full price while cash customers get a lower price.
Consider a Surcharge or Cash Discount Program
A cash discount program incentivizes customers to pay with cash, eliminating transaction processing fees. Alternatively, adding a small surcharge to credit card payments can help cover the cost of processing without impacting your margins.
Services like Apple Pay and Google Pay don't charge any extra fees on top of credit card processing fees, so the cost is the same as accepting card payments directly. PayPal does charge an additional fee for each transaction, so it's more expensive for merchants – but it's also a more established payment method.
There are many ways to avoid paying merchant fees, but one of the most effective is to use a payment processor that offers a low-fee or zero-fee option.
Add a service or convenience fee
Alternatively, many small businesses add service fees to cover costs unrelated to payment processing. In return, these charges can offset some merchant credit card fees. These may cover delivery, labor, fuel, carryout or packaging, or other business expenses.
If you're wondering if it is legal to charge credit card fees, the short answer is yes in most states. The practice of surcharging was largely outlawed for several decades until 2013 when a class action lawsuit permitted merchants in several U.S. states to implement surcharges in their businesses.
Pricing and credit card processing fees
No payment processing solution can be completely free. Although you're passing the processing fees onto your customers, you're probably still going to be charged additional fees. Read the fine print and look out for: PCI compliance fees.
There are a few ways of legally passing on credit card fees to customers. Some are direct, and some are indirect. Adding a surcharge to cover the credit card fee is the more direct method while incentivizing cash payments is indirect.
How to Avoid Convenience Fees? Use Alternative Payment Methods: Opt for traditional alternative payment methods like cash or checks, which often do not incur convenience fees. Choose Fee-Free Payment Options: Some businesses offer fee-free options for online payments or bill pay. Check for these alternatives.
Stopping a card payment
You can tell the card issuer by phone, email or letter. Your card issuer has no right to insist that you ask the company taking the payment first. They have to stop the payments if you ask them to. If you ask to stop a payment, the card issuer should investigate each case on its own merit.
You qualify for a fee waiver if:
For example, you qualify if you receive unemployment, Medi-Cal, Food Stamps (Cal Fresh), WIC, Cal-Works, General Assistance, SSI, SSP Tribal TANF, IHHS, or CAPI. You will need to list which benefit you receive to qualify this way.
Payment processing fees refer to fees charged to merchants for processing credit card payments and online payments from customers. The amount of payment processing fees depends on the pricing model preferred by the payment processor, as well as the level of risk of the transaction.
Some credit card processing fees are negotiable, and some aren't. If you're looking to lower credit card processing fee, put the spreadsheet aside for a moment and read this article before you call another processor to ask the fateful question, “What's your rate?”
Surcharging is widely accepted in the US except in Maine, Massachusetts, Connecticut, and Puerto Rico. Illinois, Colorado, Georgia, Kansas, Texas, Nevada, New York, South Dakota, New Jersey, Minnesota, California, Florida, Oklahoma, Michigan, and Montana allow surcharging with certain contingencies.
In most cases, credit card processing fees will run between 1.5% to 4% of the total value of a transaction. A $1,000 transaction, therefore, could have fees ranging from $15 up to $40. The overall impact depends on your margins.
Free payment processing options like PayPal, Venmo, Square Cash, Google Pay, Zelle, and Apple Pay offer viable alternatives to traditional payment processors, allowing you to minimize costs and maximize profits.
Zelle is a P2P payments solution created for financial institutions of all sizes. You do not have to look far to find a bank or credit union that offers Zelle. Nearly 70 percent of financial institutions offering Zelle through Fiserv have less than $1 billion in assets.
No fees to use Zelle® in our app 2 or Online Banking.
Use a different payment method.
Merchants often charge convenience fees or surcharges when credit cards aren't a standard payment method. If you have a rent, utility or tax bill, consider paying by check or electronic transfer instead.
There is no prohibition for credit card surcharges and no statute on discounts for different payment methods. Merchants can impose a surcharge as long as it doesn't exceed the cost of the merchant's processing fee. Merchants may offer discounts for payment by cash, check or other methods unrelated to credit cards.
Consumer Financial Protection Bureau Releases Final Rule on Credit Card Late Fees, with Overdraft Fees on Deck. On March 5, 2024, the Consumer Financial Protection Bureau (Bureau) announced the final rule governing late fees for consumer credit card payments, likely cutting the average fee from $32 to just $8.