Cash discounts, convenience fees, and surcharges are three ways that merchants can re-coup some of their credit card processing costs. The concept of offering a cash discount, how it differs from implementing a surcharge and knowing when to add a convenience fee may all be confusing and unfamiliar. Merchants need to understand the difference between the three in order to make an informed decision about what works best for their business. Below is a quick explanation of each.
Please keep in mind that it’s very important to keep yourself and your business up to date on the ever-changing laws and regulations associated with these options.
Cash Discount
Allows merchants to offer customers a discount for using cash, check or debit card to pay for purchases – typically 1-4 percent of the sales amount.
If participating, merchants must disclose to customers that a discount for paying cash is available.
An example of this is a gas station, which posts a price for both the discounted cash/debit price and for credit card payments at the pump.
A merchant cannot add a fee on top of the usual price and then give a discount at the register if the customer pays cash.
Convenience Fee
A convenience fee is levied by a merchant on purchases for the privilege of paying with an alternative payment method that is not standard.
For example, a theater or concert venue that allows customers to purchase tickets online or by phone for a fee versus having to stand in line at the box office.
A convenience fee is typically a flat dollar amount.
It is not a surcharge because technically, you're not paying for using your credit card, but for the privilege of using the pay-by-phone or pay-by-online option.
Convenience fees are allowed in all 50 states. As with surcharges, it is best to check with card networks and your processor. For example, Visa allows convenience fees if:
Payment takes place across an alternative channel such as online or by phone
Customers are told of the fee in advance, or it is clearly disclosed
The fee is a flat or fixed price rather than a percentage of the sale
Credit Card Surcharge
Merchant charges a customer an additional fee to cover the cost of accepting credit cards.
The surcharge is a percentage of the sales amount.
The surcharge can’t exceed 4% or what the merchant pays in swipe rates.
Surcharges cannot be used on debit cards or prepaid credit cards.
Colorado, Connecticut, Kansas, Maine, Massachusetts, Oklahoma, and Puerto Rico have banned surcharges.
All major card brands have strict guidelines for surcharging.
