Surcharging vs. Cash Discounting: What’s the Best Way to Manage Credit Card Fees?
Surcharging vs. cash discounting is a critical choice for businesses looking to offset growing credit card processing fees. With more customers paying by card than ever before, understanding how these two strategies work—and when to use each—can help your business reduce costs, stay compliant, and maintain a positive customer experience.
Below, we break down how each method works, their legal considerations, and how they may impact customer experience.
Surcharging vs. Cash Discounting: Key Differences
Cash discounting and surcharging are two strategies businesses use to manage credit card processing fees, but they approach the situation from different perspectives.
Surcharging adds a fee to credit card purchases, while cash discounting offers a discount for cash payments. The key difference is that surcharging passes the cost of card processing to the customer, while cash discounting incentivizes the customer to use cash by offering a lower price.
Surcharging
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Definition: Adding a fee to the purchase price for customers who use credit cards.
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Purpose: To offset the fees merchants pay to credit card processing companies.
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Legality: While federal law allows surcharging, some states, like California, Colorado, Connecticut, and others, prohibit it.
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Impact: May be seen as adding to the price, potentially impacting customer perception and loyalty.
Example: A customer is charged $103.00 instead of $100.00 because a 3% surcharge is added to cover credit card processing.
Compliance Tip: If you surcharge, you must clearly disclose the fee before the transaction and follow card brand rules (e.g., Visa, Mastercard). You must also register with your processor and card networks in advance.
Cash Discounting
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Definition: Offering a discount to customers who pay with cash, while maintaining the standard price for credit card purchases.
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Purpose: To reduce the impact of credit card processing fees by encouraging cash payments.
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Legality: Generally legal in all 50 states.
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Impact: May be perceived more positively by customers as a benefit rather than a penalty.
Example: An item is priced at $100.00, but the customer pays $97.00 if paying with cash (a 3% discount).
Benefits:
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Avoids legal issues in states that restrict surcharging.
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Customers may feel rewarded instead of penalized.
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No need to register with card brands.
Implementation Note: The “discount” must be genuine—cash payments must actually cost less than card payments to be compliant.
Dual Pricing
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Definition: A hybrid approach where businesses display both a cash price and a higher credit card price.
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Purpose: To be transparent about the cost of different payment methods and comply with card brand guidelines.
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Legality: Generally legal and compliant with card brand rules when implemented properly.
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Impact: Can enhance transparency and customer trust.
Example:
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Cash price: $10.00
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Credit card price: $10.50
Advantages:
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Makes pricing transparent
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Avoids legal concerns in states that restrict surcharges
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Aligns with what customers see at gas stations and some retail locations
In Essence
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Surcharging makes credit card use more expensive, while cash discounting makes cash payments more attractive.
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Dual pricing offers a middle ground by clearly presenting both options.
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Businesses should carefully consider the legal and practical implications of each approach before implementing it.
Which Option is Right for Your Business?
Not sure which strategy is the best fit for your business? Ask us. We’ll help you evaluate your location, customer base, and payment setup to determine whether surcharging, cash discounting, or dual pricing makes the most sense for you.
Let USB Help You Choose the Right Solution
At USB, we specialize in helping businesses navigate payment strategies that reduce costs and improve transparency. Whether you’re looking to:
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Offset card processing fees
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Stay compliant with state and federal laws
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Maintain positive customer experiences
—our team is here to help.
Contact us today to speak with a payment expert or request a customized plan for your business.
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