By Patti Murphy
ProScribes Inc.
We live in an age where conveniences count for a lot in the lives of most. And increasingly we've grown accustomed to paying for conveniences. Twenty-five years ago, when ATM surcharging began, I was aghast. No one, least of all me, would willingly pay 50 cents to $1 to access cash they had in deposit accounts, I thought. Was I wrong! Just the other day I paid $2.97 to withdraw cash from an ATM because the nearest surcharge-free ATM was 12 miles away.
Truth is, I've also grown accustomed over the years to paying convenience fees. I readily pay for the convenience of having food delivered, pre-selecting airline seats, and purchasing concert and theater tickets from my laptop or mobile device, among other things. And I know I'm not alone.
Now it's beginning to look like paying for the convenience of using a credit card at the point of purchase will be the next big thing. After all, a credit card surcharge (or a discount for cash) is about paying for convenience.
For years, merchants were prohibited by the card brands from surcharging credit card purchases. Early on, the rationale was that surcharging would dissuade consumers from using fledgling card products. As consumer adoption and merchant acceptance of cards grew, however, that rationale began to fade. Confronted by this changing market reality, and legal challenges to interchange and card brand rules, Mastercard and Visa dropped their surcharge prohibitions in 2013.
Today, merchants are still prohibited from surcharging credit card payments under the laws of 10 states, including several of the most populous states, California, New York and Texas among them. (Debit card surcharging continues to be banned by the card brands, as well as under federal law.) Several of the state prohibitions, however, are being challenged in federal courts, and many legal experts have said it's only a matter of time before they get struck down.
And while Visa, Mastercard and Discover no longer ban credit card surcharging, they still impose strict requirements on surcharging programs. Merchants, for example, are required to register with the brands through their acquirers, 30 days prior to implementing a surcharging scheme, and to make specific disclosure requirements in signage and on receipts. Plus permissible surcharges are capped by all three brands at 4 percent of the ticket or the actual merchant fee, whichever is less.
For their part, merchants working with trailblazing ISOs and merchant level salespeople have discovered a workaround: cash discounting. No one has a firm fix on just how many merchants offer cash discounts, although several experts have put the figure at 10 percent of card-accepting businesses outside of gas stations which long have offered discounts to cash-paying customers.
The appeal to merchants is at least three-fold. There are no limits on the markups applied to goods and services as long as the cash discount mirrors the markup. There are no card brand hoops to jump through, at least not yet. Perhaps most importantly, it provides merchants a means of recouping much of the cost of card acceptance, long a thorn in their sides.
While the emphasis is on discounting cash purchases, the net effect of these programs is the same: customers who want the convenience of using their credit or debit cards for purchases are paying more. Call it a cash discount, or a surcharge, or simply a convenience fee, eventually it may make no difference at all. Most consumers understand businesses pay to accept card payments, and are willing to take on some of that cost. Those who aren't can always shop around for surcharge-free ATMs, or write checks for their purchases.
Patti Murphy is senior editor at the Green Sheet and president of ProScribes Inc. Follow her on Twitter @GS_PayMaven.
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