Cash discounting gains momentum, backlash

The rising popularity of cash discounting programs is sparking lively debates among legal and payments analysts, most recently with reports that First Data Corp. has deleted a cash discount app from its Clover app marketplace. James Shepherd, CEO at CCSalesPro and cohost of The Green Sheet's podcast series, first broke the story in a Sept. 19, 2018, blog post titled "News Alert: First Data Drops Cash Discounting Apps." These developments have been confirmed by a First Data memorandum and participating First Data ISOs.

In a memo to sales channel partners, First Data acknowledged that some of its cash discount apps were noncompliant. "To protect you and your business from fines, we are removing apps that add surcharges to card transactions," First Data wrote. "Effective immediately, the following apps will no longer be available on your Clover devices and Clover App Market: PaymentLOCK Plus, Surcharge App and Cash Discount Offered Here!"

"Clover no longer supports the cash discount program," stated Ferne Glemby, CEO at CardPlus Empower LLC. "I tried to place an account for a test with [two different ISOs] and both gave me the same response. I will not be surprised if First Data comes out with its own product built into the system with an add-on fee."

Discounting versus surcharging

Shepherd said First Data's removal of noncompliant apps underscores the need for acquirers to adhere to card brand rules and state guidelines and differentiate between cash discounts and surcharges. Cash discounting, legal in all 50 states, applies service fees to all transactions and subtracts the fees for cash-paying customers. Surcharging applies service fees only to credit card transactions, Shepherd pointed out. Surcharging is an illegal practice in California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, Texas, Oklahoma and New York, he stated.

"Although I'm very 'bullish' about cash discounting, I'm going to be devil's advocate today and agree somewhat with Clover and First Data," Shepherd wrote. He proposed the following two takeaways for ISOs and agents from the Clover announcement:

1. Be aware that Clover doesn't do cash discounting anymore. First Data doesn't want to be the poster child that gets sued by Visa for surcharging illegally, Shepherd noted. Reach out and advise potentially affected Clover merchants that they no longer have this option.

2. First Data is giving us a glimpse of how Visa is going to attack cash discounting. Shepherd suggested that Visa may have already addressed concerns about cash discount implementation with First Data, which may have prompted First Data to remove these apps.

While First Data acted swiftly by removing noncompliant apps, it maintains it hasn't closed the door on cash discounting. The company said it plans to publish compliant cash discount apps in the Clover App Marketplace "as they become available" and has apologized for any inconvenience. "Cash discount apps that offer a true cash discount will remain available," the First Data memo stated. "A 'true cash discount' does not add any fees or surcharges at the register; it can only provide a discount for cash and debit transactions."

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