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banks had good reason to dissuade merchants from impos-
Insider’sreport ing surcharges on card purchases or offering discounts to
customers paying by cash or check. After all, the thought of

on payments outright pricing of card acceptance might have scared off
consumers. But we've become a society that is comfortable
with using cards and even loading those cards on mobile
apps. In fact, Visa- and Mastercard-branded cards (credit,
debit and prepaid) today are more common than smart-
phones. (The average American carries about 2.6 credit
cards and 1.5 debit cards, according to various sources.)

Cash discounting will While merchants are prone to grousing about costs, and
challenges to interchange predate the move to greater pric-
give way to surcharging ing complexity, clinging to the status quo, particularly
when the status quo means thwarting efforts to recoup
costs, seems counter-productive. But that's what appears to
By Patti Murphy be happening as Visa seeks to quash cash discounting and
both companies impose restrictions on surcharging such
ProScribes Inc. as merchant registration and fee caps.

isa recently took aim at cash discounting, or Two approaches, same endgame
at least the way most ISOs and merchant level
salespeople (MLSs) sell cash discounting today, The issue that Visa (and leading acquirers like First Data)
V suggesting the emerging trend runs counter to say they have is not with cash discounting, per se, but with
its rules. Visa's statement – issued in October as a bulletin the way most new cash discounting programs are being
to acquirers and their sales partners – follows a decision implemented. Typically, merchants in these programs will
by First Data Corp. to remove all cash discount programs mark up prices for all products and services and offer a
from its Clover app marketplace. corresponding discount for cash-paying customers. Where
it gets fuzzy is that receipts for these transactions often list
I doubt these are the last two pronouncements on cash dis- both the markup and the discount. And it's not uncommon
counting. They are just the latest salvos in an ongoing de- for the markups to be listed as service fees, which, after all,
bate over the cost of card acceptance. The prevailing pric- are basically indiscernible from surcharges.
ing model – a convoluted set of interchange rates that get
marked up by various parties to a transaction and passed To pass muster with Visa, cash discounting programs must
on to card-accepting businesses – has been challenged suc- follow the model gas stations use, displaying the credit and
cessfully in the courts, the free market and even court of cash prices conspicuously prior to purchase. This may be
public opinion. (Before retailers began portraying inter- easy enough for gas stations, which typically only offer a
change as "swipe fees" most consumers had never consid- few fuel options, but it could prove a herculean task for
ered merchants' cost of acceptance.) merchants selling hundreds or thousands of products.

Outmoded, restrictive model In most cases, I suspect merchants are not to blame for
Visa's problems with cash discounting. Merchants are al-
These challenges, coupled with changes in their corpo- ways on the lookout for ways to cuts costs, and when an
rate structures render it increasingly difficult for Visa and ISO or MLS offers a fee structure that's cheaper and sim-
Mastercard to cling to a pricing model that is predicated pler to understand, it's pretty much a no-brainer. But ISOs
on a wholly different set of risk and reward parameters. and MLSs need to do more to explain how these programs
Founded by banks, Visa and Mastercard were focused at should play out.
the time on growing retailer and consumer card adoption
to the benefit of their owner banks. Interchange was set to
recoup operational costs and costs associated with the risk In the early days, Mastercard, Visa and
to issuers that cardholders might not pay off their charges.
their member banks had good reason
Things got complicated in the 1990s when heated competi- to dissuade merchants from imposing
tion forced issuers to ramp up their rewards and specialty surcharges on card purchases or offering
card games. Mastercard and Visa responded with ever
more complex interchange fee structures that factored not discounts to customers paying by cash or
only merchant categories but also details about the card – check. After all, the thought of outright
rewards, platinum versus plain vanilla, etc.
In the early days, Mastercard, Visa and their member pricing of card acceptance might have
scared off consumers.

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