Two Sides of the Same Coin? Surcharging And Cash Discounts Puzzle Some in Acquiring

Curiosity, and a bit of confusion, about what constitutes credit card surcharging and cash-discount programs surfaced this week at the Northeast Acquirers Association annual conference in Uncasville, Conn.

During a panel discussion about the benefits and challenges of credit card surcharging and cash-discount programs for merchants, participants explained how their programs worked.

“A surcharge is an additional amount imposed at the time of sale,” said Rachel Hirsch, an attorney at Ifrah Law, a Washington, D.C.-based firm. “A cash discount is removed from the price.” Though there is a difference in terminology, each program represents different sides of the same coin, she said.

A surcharge is a fee a merchant adds to the purchase price to cover the cost of credit card acceptance. Though Mastercard Inc. and Visa Inc. have their own rules for surcharging, generally the amounts are capped at actual acceptance costs, or 4%, whichever is lower. The rules also require consumer disclosure. Debit card surcharges are not permitted by network rules. A cash discount is when the merchant offers a discount from the published price when the consumer pays with cash.

Though the definitions appear straightforward, questions abounded from sales agents at the NEAA event. One was about how offering a program affects merchants who may have a majority of debit card transactions and how to price it.

There are two ways to configure a merchant account in this instance, said Benjamin Grossman, co-founder and chief executive of Pinpoint Intelligence, a Fresh Meadows, N.Y.-based merchant-services company. One is to ensure the merchant knows that debit card transactions cannot be surcharged and she will have to pay those direct costs. Another option is for the payments provider to absorb the debit card transaction costs, Grossman said. If the latter is chosen, the payments provider may be able to offset the costs with other account fees.

Some also wondered if moving the credit card acceptance costs to consumers might push them away from using the electronic payment method.

“That’s one of the challenges,” Hirsh said. “How do you, as a merchant, adjust your pricing so it doesn’t feel like the consumer is being penalized when they can easily [make a similar purchase] somewhere else.”

Panelist Ed Levene, president of CardCharge, a Stamford, Conn.-based merchant-services company, said consumers have long been accustomed to paying convenience fees, especially when using a card at a government agency. “It’s transparent what the fees are and people choose to pay it,” he tells Digital Transactions News. “If a merchant chooses to pass along its costs for accepting credit cards, he should have that right.”