The Green Sheet Online Edition
February 2, 2024 • 24:02:01
Street SmartsSM
Essential distinctions between cash discounts and dual pricing
Businesses are always looking to do more with the money they receive. However, each time a customer makes a purchase using a card, a business typically ends up forking over a transaction fee to process the payment through a payment processor.
To mitigate these processing fees, businesses have a couple of options: cash discounts and dual pricing. In this article, I will take a look at what these methods are and how they support both customers and businesses.
What is a cash discount?
A cash discount is an opportunity to save customers money by allowing them to pay a lower amount when they agree to pay in cash as opposed to with a credit or debit card (see tinyurl.com/32dd9fxn). Since companies often end up paying fees when processing card payments, a cash discount can make it easy for those who aren’t paying with a card to save since they will not cost the company any additional fees.
The amount of a cash discount can vary, but it is often a percentage of the total purchase price. Although paying in cash is less common than it has ever been, offering a cash discount allows businesses to provide better service to customers whose purchases will not lead to additional fees. Sixteen percent of customers carry cash on them at all times, and they will often pay in cash to avoid fees if they can (see tinyurl.com/nbpzdjbn).
Businesses that offer cash discounts can provide a better customer experience and encourage customers to save them money on fees.
What is dual pricing?
Dual pricing is the act of applying surcharges to purchases, a practice that involves applying a secondary fee when customers choose to pay with a credit or debit card (see tinyurl.com/2m4bvdsz). For businesses, the goal of this process is to have the customer cover the cost of the fee associated with their transaction.
Businesses that embrace dual pricing can make it easy to cover fees from payment processors. More importantly, they make it so customers that are not causing fees will not have to pay the price. It places the responsibility on the customer for choosing their payment method of choice.
The amount of a surcharge can vary. However, these fees are highly regulated and are often determined by the payment processor, as well as the government. Additional rules often apply when using dual pricing with customers.
Differences between cash discounts and dual pricing
Following are some main differences between these two popular ways to navigate transaction fees.
- Cash discounts focus on cash customers specifically: All good businesses want to reward great customers. When it comes to cash discounts, customers who pay in cash have a lot to gain. While some companies apply fees across the board to cover transactions, a cash discount makes it easy to save customers who pay in cash additional and unnecessary expenses.
- Cash discounts incentivize savings to lower transaction fees: A visible cash discount serves to incentivize customers to pay in cash. Ultimately, this means that cash-paying customers save money and businesses also end up paying out less in fees—a win-win.
- Cash discounts lower payment fees: When companies offer a cash discount, they are instituting a significant change—fewer fees. Nobody likes paying extra fees, and this is true for both businesses and customers. Through a cash discounts program, the total number of fees is reduced incrementally every time a customer makes a purchase with cash, which can add up to significant savings.
- Dual pricing targets customers paying with a card: While cash discounts target those who pay in cash, dual pricing targets those who pay with a credit card. Instead of offering a discount when someone pays in cash, dual pricing applies an additional fee whenever someone pays with a card. Although those who pay in cash are also rewarded, the real focus is on cardholders.
- Dual pricing adds payment fees: Cash discounts take away fees; dual pricing adds them. Rather than focusing on cutting down on unnecessary fees for customers, this practice applies them to the relevant customers (those who pay with a credit card) instead. Businesses that offer this solution will display a separate line item on the customer's receipt that shows the fee for paying with a credit card.
- Dual pricing is more closely regulated: Although cash discounts are largely considered a business decision, dual pricing is a highly regulated financial practice. Businesses that offer this option must adhere to quite a few extra rules to remain in compliance. Companies that do not remain in compliance can be fined or may find themselves in trouble with their payment processing partners.
The regulations pertaining to dual pricing can cover everything from how customers are informed and how information is presented to the actual amount of the fee itself. It is very important to know the right way to apply these surcharges before beginning this practice.
Different paths to the same goal
Cash discounts and dual pricing are different practices, but they ultimately have the same goal—navigating payment processing fees.
Each option takes a different approach to accomplishing the same end goal, which is to help companies balance fees and provide exceptional pricing for their customers.
Companies that use either of these approaches are going to be able to reward those who pay in cash since they do not result in any additional transaction fees.
They are also both designed to make it easier for companies to balance how much these fees cost them on every transaction.
Payment gateways empower companies to accept payments from their customers, supporting businesses that are big and small. Part of that support is to help them use dual pricing and cash discounts to navigate common fees. Either option can help companies manage their fees more effectively, all while providing a better customer experience.
My biggest piece of advice is to stay compliant. A surprising number of platforms handling cash discounts and dual pricing are not fully compliant. Do you research and select the right gateway for your ISO. 
Nicholas Cucci is the co-founder and COO of Fluid Pay LLC. Cucci is also a graduate of Benedictine University and a member of the Advisory Board and Anti-Fraud Technology Committee for the Association of Certified Fraud Examiners, as a CFE himself. Fluid Pay is the ONLY 100 percent cloud-based Level 1 PCI Payment Gateway processing transactions anywhere in the world. Contact Nick at Nick@FluidPay.com.
Whether you want to upgrade your POS offerings, find a payment gateway partner, bone up on fintech regs or PCI requirements, find an upcoming trade show, read about faster payments, or discover the latest innovations in merchant acquiring, The Green Sheet is the resource for you. Since 1983, we've helped empower and connect payments professionals, starting with the merchant level salespeople who bring tailored payment acceptance and digital commerce tools, along with a host of other business services to merchants across the globe. The Green Sheet Inc. is also a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals.
Notice to readers: These are archived articles. Contact information, links and other details may be out of date. We regret any inconvenience.
