By Jeh Holsomback
Secure Payment Solutions and Paradise POS
Cash discount technology has emerged at the perfect time for ISOs and POS value-added resellers (VARs). Broadening your offerings to add a cash discount program to the POS and payment solutions you provide is a win-win: your merchant clients recoup payment card processing fees and you can increase margin on your sales and close more deals with a system that has fast return on investment.
Basically, cash discounts are rewards for using cash. When a consumer pays with a credit card, the merchant owes fees for processing the transaction. With a cash discount program, the merchant applies a small additional fee to each sale for all payment types. If a customer pays with cash, the merchant offers a cash discount for that type of payment.
For example, with a 3 percent cash discount, if the sale totals $100 after the additional fee is added, you could then offer a cash discount of 3 percent so that the customer would pay only $97 with cash. The amount of the cash discount can vary and does not necessarily need to correspond to the additional fee.
Cash discount programs are not the same as credit card surcharges. With a surcharge, a fee is added to the final sale when the customer uses a credit card, as opposed to a cash discount program in which everyone pays the additional fee. From a consumer's point of view, it's easy to see that the cash discount model creates a better customer experience – everyone feels good about a discount, but no one wants added fees.
Keeping track of both the way each customer pays and the applicable payment processing fees would be hard for merchants to accomplish with a manual process. Cash discount program technology and services, which you can provide, will automatically and accurately assess the additional fees on behalf of the merchant and report what those fees are.
By selling this service, you will receive monthly recurring revenue – and it makes it easier to increase margin by bundling cash discount programs with POS and payment processing solutions.
The additional fees your clients collect offset their increased costs whether they are increased labor costs, fuel costs or the merchant fees they owe for credit card processing. Even though the additional charge on each sale is a small amount – usually about 3 cents on the dollar – this adds up to big savings for your customers. Merchants using a cash discount program can see as much as a 95 to 100 percent reduction in fees.
Providing cash discount program solutions will also help position you as a trusted business adviser with your clients' best interests at heart. You are enabling them to save money while offering discounts to their customers, which can help them increase profits and operate more competitively.
It's important that you partner with a reputable cash discount program provider. Do your due diligence to make sure the provider complies with federal and state laws. Ask for a sample receipt to make sure it includes the requisite information about the discount.
It's also important to make sure that partnering with the cash discount program provider won't limit the types of payments your customers can accept. Not all cash discount program technology works with all payment equipment, so ensure your customers will still be able to accept, for example, EMV chip card payments and near-field communication contactless or mobile wallet payments.
Also understand the terms of your partnership with the provider, including whether you will receive a flat rate or a percentage, and whether they offer service and support to you and your customers.
Although credit card surcharges are legal in some states, cash discount programs are legal throughout the U.S. The Durbin Amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act states that credit card companies may not inhibit merchants from encouraging their customers to pay with other forms of payment besides credit cards. So, using a discount as an incentive to pay cash is legal. However, you must follow certain requirements and best practices:
According to the 2016 Federal Reserve Payments Study, noncash payments increased at an annual rate of 5.3 percent (3.4 percent in value), between 2012 and 2015. And a 2016 TSYS survey of 1,000 consumers revealed 40 percent prefer using credit cards, compared to only 11 percent who prefer cash.
As cash moves towards extinction, merchants need to find ways to subsidize their growing credit card processing fees. Merchants will turn to you as a business advisor to help them find a solution that will keep them profitable. Providing cash discount programs will put you ahead of the curve, help you win more business and build long-lasting relationships with your clients that see the partnership with you as a valuable one to keep.
Jeh Holsomback, CEO of Secure Payment Solutions Inc., has been active in the payments space for 15 years. He has helped to grow SPS from founding to 27 employees with clients in all 50 states. SPS is involved in all aspects of electronic payments, including their development and launch of Paradise POS. He can be reached via email at jeh@spscards.net.
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