Payment Pulse – Ep. 33

Learn how cash discounting, surcharging, and dual pricing can help businesses reduce or offset credit card processing fees while protecting margins.

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Episode Transcript

 

Noelle:  Welcome back to the Payment Pulse. On our last episode, we broke down interchange and the pricing behind payment processing. If you miss that episode, I’d recommend you go back and give that a listen because it sets the stage for today’s conversation.

Today we’re taking that one step further and focusing on something every business owner thinks about, and that’s how to actually reduce or offset those payment processing fees. To help us dig in, I’m joined again by Joe. Joe, welcome back.

Joe: Great to be back. Looking forward to discussing a function many business owners are requesting in today’s market.

Noelle: Alrighty. Let’s start with a quick refresher on what exactly goes into your payment processing fees.

Joe: Yeah, of course. So when a customer taps, dips, or swipes their card, several parties are involved. The merchant, the processor, the card network like Visa, MasterCard, and the customer’s bank. Interchange is a portion of the transaction fee that goes to the issuing bank, and those rates are set by the card networks, not by the payment processor.

Every time a customer makes a purchase with a card, several parties are then gonna be at work together to complete the payment. It’s important to note that interchange rates are not set by payment processors. Instead, they are established by the card networks, such as Visa and MasterCard, and apply across the entire payments industry.

And because these rates are standardized, every processor works from the same underlying interchange costs.  Since these fees are non-negotiable, we have seen a rise in cost savings programs.

Noelle: Awesome. Thanks for that quick refresher. So now that we’ve laid that groundwork, when we say cost savings programs, what does that actually mean?

Joe: At a high level, these are strategies and programs that help businesses reduce or offset the cost of accepting credit cards. Instead of absorbing all of the processing fees, these programs allow businesses to shift some of that cost depending on how they’re structured. The most common ones are cash discounting, surcharging, and dual pricing.

Noelle: So let’s break those down. Let’s start with cash discounting. What should business owners know?

Joe: Cash discounting is one of the most popular approaches. The business sets their price, assuming a card payment, and then offers a discount to customers who pay with cash. So instead of adding a fee, you’re rewarding a different payment method. From a compliance standpoint, it’s generally a more straightforward approach, which is part of why a lot of businesses gravitate towards it.

Noelle: So it’s framed as an incentive, and not as an additional fee.

Joe: Exactly. And that tends to resonate well with customers.

Noelle: Great. So let’s compare that then to surcharging. How is that different than cash discounting?

Joe: Surcharging flips the approach. Instead of offering a discount for cash, a small fee is added when a customer pays with a credit card. That fee helps cover the cost of processing.

Noelle: And I’m sure that’s where some hesitation comes in.

Joe: It can, yeah, but consumer behavior has evolved. People are used to seeing fees more so now than even just a couple years ago. As long as you follow industry regulations, it will not come as a surprise to your customers, which will be a better flowing transaction experience. It’s also important to note that surcharging is the most regulated channel by states.

It is capped federally across the board at 3%. This program is also only applicable to credit cards in qualifying states. Debit is excluded. From a business owner’s standpoint, from compliance, it’s a pretty easy change to implement, but there are a few states that do not allow for it or have even kept it lower than 3%.

Noelle: And then there’s dual pricing. How does that fit in?

Joe: Dual pricing is all about transparency. Businesses display two prices, one for cash, one for card. So customers can see the difference upfront and choose how they wanna pay. This keeps your customers aware of what they are about to pay prior to even paying it.

Noelle: So nothing is added or adjusted at checkout. It’s already built into the price.

Joe: Exactly. It removes surprises and keeps things very clear. It’s worth noting that this one comes with a bit more compliance on the merchant side, but it can also deliver strong results. It’s allowed in all 50 states, and in some cases, the rules around processing fees actually align pretty closely with how this program works.

Noelle: So if you zoom out, all three of these are solving for the same problem, but just in different ways.

Joe: That’s right. They’re all designed to help businesses protect their margins while still giving customers flexibility in how they pay.

Noelle: So are there certain types of businesses where these programs tend to work the best?

Joe: We see strong adoption in industries with tighter margins or high transaction volumes such as retail, service businesses, and quick service environments. But ultimately, it comes down to the business and their customers. Some prefer the customer-friendly feel of cash discounting. Others want the direct costs of offsetting with surcharging, and some just like the clarity of dual pricing.

It’s completely customizable.

Noelle: All right. Thank you Joe. So before we wrap, what’s one thing that business owners should keep in mind if they’re considering one of these programs?

Joe: Implementation matters. There are compliance requirements, signage guidelines, and best practices for how these programs are presented to customers, and even how they function. Finding the right payments partner and getting that right is key to making the program successful.

Noelle: That’s a great point because when it’s done well, this isn’t just about cutting costs. It’s about doing it in a way that still feels seamless for the customer.

Joe: Exactly. So, I got compliance, customer experience, and protecting your business margins all in that package.

Noelle: Thanks again, Joe, for walking through this and for anyone who’s listening, if you’re looking at your payment costs and wondering what your options are, this is a great place to start. Thanks for tuning in and we’ll see you next time.