For merchants looking to reduce credit card processing fees, cash discount programs provide an appealing option. Here’s an in-depth overview of how cash discount processing works and its benefits:
What Is Cash Discount Processing? 💵💸
With cash discount processing, merchants can offer discounts or incentives to customers who pay with cash, check, or debit cards. These discounts motivate purchases with cash over credit cards.
It works like this:
Merchants set a standard price for all transactions. This is the full, regular price.
When customers pay with credit cards, they are charged the standard price.
For cash, check, or debit payments, the customer receives a discount off the standard price. Discounts are usually 1% to 4% of the transaction amount.
The discount comes out of the fees merchants pay to credit card processing networks on card transactions.
By bringing in more cash sales through discounts, merchants reduce their processing fees and retain more revenue per transaction.
Why Do Merchants Offer Discounts?
There are two compelling reasons merchants implement cash discount programs:
1. Lower Processing Costs
Every time a customer pays with a credit card, merchants are charged interchange fees by the card networks. These fees range from 1.5% to 3% of each transaction and quickly add up.
With cash payments, there are no processing fees for merchants. Cash discounts incentivize cash transactions over card payments. More cash sales mean less card fees.
2. Increase Profit Margins
The money merchants save on credit card fees goes right to their bottom line. By reducing fees through cash discounts, they increase profit margins on transactions.
Research estimates merchants can save 10% to 40% on processing costs with an optimized cash discount program. When multiplied over thousands of transactions, these savings are substantial.
The Xsellarate Cash Discount Programs allow for merchants to save up to 90% in some cases.
How Do Cash Discounts Work?
Here is a step-by-step overview of implementing cash discount processing:
Partner with a Cash Discount Provider
Merchants work with specialized providers like FattMerchant or CardFellow who handle program setup and management.
Configure the POS System
The provider will program your POS system to automatically deduct the discount for cash/debit payments during transactions.
Checkout signs informing customers of the discount are required by card network regulations.
Employees charge credit cards the standard price. For cash/debit, the discount is deducted from the standard price at checkout.
Deposit the Discounted Amount
The merchant receipt shows the standard price and discounted price for cash transactions. Only the lower amount is deposited.
What Are the Benefits?
Top benefits of offering cash discounts include:
Lower credit card processing fees - discounts reduce card transaction volume which cuts costs
Increased revenue and profit margins from reduced fees
Draw in new customers by advertising discounts
Reward customer loyalty with discounts and build retention
Simple to implement for merchants - usually uses existing POS systems
Permitted by card networks when program follows all regulations
Very positive response from customers who like getting a discount
See all benefits: Xsellarate - Cash Discount
Are Discounts Compliant & Legal?
Yes, when implemented properly, cash discounts follow all card network rules from Visa, Mastercard, Discover, Amex, and debit networks. Discounts are distinctly different than credit card surcharging, which is prohibited in some states. Reputable providers ensure full compliance. For a full list of laws and regulations, visit our site:
How Do Customers Respond?
Customers react very favorably to cash discounts for several reasons:
They feel good about getting a discount or "getting a deal." It's seen as savings.
Cash discounts reward the behavior of using cash, which customers appreciate.
Discounts actually change purchasing behavior. Customers will deliberately pay with cash/debit to obtain discounts.
Clear signage and staff communication prevents confusion about the pricing model.
It is becoming more popular and consumer familiarity is increasing.
Follow these best practices when implementing cash discounts:
Thoroughly research providers and choose one experienced with your business type.
Supply detailed information on your volumes, average transaction size, and business model.
Work with your provider through all setup steps including staff training and signage.
Promote new cash discounts through all customer touchpoints - in-store, website, receipts, etc.
Monitor transaction reporting frequently to ensure your program maximizes savings.
*If you are ready to start, check out our Ultimate Guide On Cash Discount
What Matters & Why
Cash discount processing enables merchants to reduce credit card fees by incentivizing cash transactions. The system is simple to implement and provides dramatic cost savings alongside customer rewards.
With an experienced partner handling compliance, merchants of all types can benefit greatly from offering cash discounts.
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Quick Overview FAQ:
How much can I discount cash payments?
Most providers allow 1% to 3% discounts. 4% is generally the maximum discount rate.
Do customers see it as a credit card surcharge?
No - when presented as a discount off the standard price, customers perceive it as savings.
Can I stop discounts in the future?
Yes, merchants can discontinue a cash discount program at any time. But you lose the fee reduction benefits.
Do I need new POS equipment?
Are discounts considered taxable income?
No, only the discounted cash amount of each sale is reported for taxes, not the full standard price.