By Dee and Emily Karawadra
Impact PaySystem
One of the hot topics we get asked about daily is the cash discount program. Many of our merchant level salespeople (MLSs) and agents find this program to be a win-win product for many scenarios. Most notably, when a merchant who is averse to fees gets presented a cash discount program to pass fees to the cardholder, it can be a real game changer for the sales person.
At Impact PaySystem, we currently do not offer a cash discount program. However, we've learned from our MLS/agent partners who sell this type of product through alternative providers, that it is proving to be very successful. Notwithstanding, in 2018, Visa issued an opinion that the cash discount product is non-compliant. This left many sales agents and MLSs scratching their heads. Additionally, Visa claimed that merchants already participating in the program could be subject to non-compliance action.
The major card brands also have said publicly they prefer the surcharge program, which is limited to certain states, and involves a delayed process for setting a merchant up. Unfortunately, this program is not ideal, because the requirement to register a participating merchant with the card brands or provide notification 30 days prior, tends to be a hard sell for some merchants. Conversely, agents and MLSs have reported the cash discount concept is picking up momentum within service industries, where merchants are willing to pass fees along to customers.
We interviewed Hawkins Siemon, one of our ISO/agent partners, to discuss the cash discount program. He is the CEO and founder of Elevate Payment Alliance, an ISO founded on doing business the right way and building strong, long-lasting relationships. Elevate strives to grow based on the success of its sales partners, merchants and employees, and according to Hawkins, the company was the first ISO in the industry to offer ownership to sales partners and employees.
He told us his team successfully embraced the cash discount program through another processing partner. We asked him a series of questions about what he and his team are experiencing, and he agreed to share his insights in the Q&A below:
Q: From your experience in the field, how open are merchants to the cash discount program?
A: This depends on the merchant type and the personality of the owner. I would estimate 25 percent are adamantly opposed to the idea, 50 percent are open and ask follow-up questions, and the remaining 25 percent are saying, "sign me up!"
Q: What business types have benefited the most from your cash discount program?
A: We have had success with small ticket merchants, including retail, convenience, deli and quick-serve. We also see a lot of merchants benefitting who provide professional services that are necessary to the customer, such as auto repair, used auto sales, tire sales, etc.
Q: Are your MLSs experiencing any opposition?
A: By far, the number one concern merchants express is fear of upsetting their customers and losing business. This is a valid concern, but the reality is far less scary than the merchants believe. Merchants who make it through the first month on the program are generally very pleased. They generally find there are only a handful of customers who say anything about the fee, and they realize quickly they just eliminated hundreds to thousands of dollars in monthly business expense. It is especially powerful if you're a local sales agent and you can reference other local businesses that have adopted cash advance, so the customer can feel comfortable knowing other merchants in their area are also doing it.
Q: Without giving us your trade secrets, can you share what the revenue opportunity has been on a cash discount merchant account versus the traditional merchant account?
A: We are seeing between 1.20 percent to 2.50 percent in profit margin on the residuals. In comparison, you might see an average of 0.60 percent to 0.80 percent on traditional accounts. In effect, it's anywhere from two-to-four times the profit of a traditional account.
What's more exciting, is the fact that once merchants are using the cash discount program, they are no longer paying the processing fees on their accounts. Therefore, they are far less likely to move to a different processor, ultimately yielding a much lower attrition rate.
Q: What percentage of your cash discount merchants ask to be converted back to a traditional program?
A: A very small percentage – approximately 10 percent – switch back to traditional processing.
Q: In a nutshell, what do you feel the pros and cons of the cash discount program are?
A: Adopting the cash discount product can truly be a win-win-win for the merchant, sales agent, and processor. The merchant literally eliminates thousands of dollars in expense almost instantly, which increases the merchant's sales margins. This can be a vital game changer for the small ticket merchant. Also, the sales partner makes a much better residual, and the program yields a much lower attrition rate, which is just as good for the processor as it is for the agent.
The only con is the perceived concern by merchants they'll lose business through the program. However, in our experience, this isn't a huge threat, and the actual benefit to the merchant is far more valuable.
Thank you, Hawkins. The first-hand look into this program from the MLS/agent perspective has truly been valuable. The residual potential is most definitely an attention getter to us veterans in the business.
We have been resistant as a company to pursue this program, especially after the Visa pronouncement last year. In fact, what we've been most worried about is the repercussion the merchant might get in non-compliance fines or potential termination from accepting cards altogether.
We've been going the surcharge route within the states where it is permissible, but we are also seeing an ever-increasing willingness from merchants to pass along their processing fees to the customer. We're also working with a processing partner to bring a new program to market this summer, designed to observe card brand rules, but also deliver a more immediate option for merchants to pass fees to the cardholder.
With all the positive feedback Hawkins' team has received, we are determined to take this product into the field, because it is so beneficial to both MLSS and merchants. 
Dee Karawadra is president and CEO of Impact PaySystem, and Emily Karawadra is the company's chief financial officer. Since 2001, Impact PaySystem has been a leading provider of payment processing technologies and services to merchants throughout the United States. Through alliances with payments industry leaders such as Chase Paymentech, First Data, Buypass, Sage and more, Impact PaySystem offers tailored solutions to meet the unique needs of each merchant. Dee and Emily will welcome your questions and comments at dee@impactpays.com and emily@impactpays.com, respectively.
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