By Elie Y. Katz
National Retail Solutions
Credit cards offer many advantages to both customers and merchants over paying with cash. They provide convenience, security, and the ability to earn rewards or cash back on purchases. On the downside, merchants must pay a fee for each credit card transaction, which can be detrimental to their bottom lines.
To mitigate this issue, some merchants and their service providers have found a creative solution: encouraging customers to pay with cash. With cash discounting, customers can save money while also helping lower processing costs for merchants. In this article, I'll explain how cash discounting works and how you can help merchants implement this strategy to increase their profit margins and remain competitive in the market.
For those new to the payments business, a cash discount program is a payment processing strategy merchants employ to encourage customers to pay with cash rather than a credit card by offering a discount on the purchase price for those who pay with cash. The discount is usually a small percentage of the purchase price, up to 4 percent.
This is often used by small businesses to mitigate the total expenses of credit card processing fees, which can be a financial downside of credit card acceptance. Depending on the terms of an individual merchant's processing agreement, fees and how they are assessed vary.
In addition to offsetting the impact processing fees have on merchant profits, cash discounting may also increase customer sales, because when customers are given the option to receive a discount when paying for cash, this can incentivize impulse purchases, which increases sales volume totals.
There are more ways merchants can incentivize customers to pay with cash. Card brand rules dictate that merchants prominently display signs or stickers near the POS system to inform customers that a cash discount is available. And these notices work in merchants' favor, calling attention to their chance to save money. Merchants can also advertise on their website and on social media platforms to reach more customers.
Additionally, merchants can train their staff to inform customers about the program and the benefits of paying with cash. To make the program successful, merchants can also regularly evaluate the effectiveness of the program and adjust it as needed. And they should consider implementing other incentives, such as exclusive deals or rewards, to encourage customers to use cash for their purchases.
Cash discount programs have been legal since the Durbin Amendment, which was passed as part of the 2010 Dodd-Frank Act and regulates the amount merchants can be charged for processing debit cards. Businesses can legally offer a discount to those who pay in cash, but they need to be sure they are always operating under the law. Thus, merchants' service providers need to be sure to make them aware of a number of issues.
For a cash discount program to be compliant, merchants must disclose terms to customers up front and use a reputable cash discount provider. They can include this information on the signs they place around the store. This way, there is no confusion about the terms of the program, and customers can make informed decisions about whether or not to participate.
Merchants also need to make sure that they have accurate price listings on display for customers, and while not required, it’s a good practice to display cash prices as well. That way consumers can see what potential savings they can get by paying with cash.
When looking for a cash discount provider, merchants and merchant level salespeople seeking business partners should look for providers with many years of experience, a good reputation, and a track record of honesty and transparency.
A reputable provider should have a deep understanding of the payment processing industry and be able to help tailor solutions to specific merchant needs. They should also be transparent about their costs and provide the merchant with a clear breakdown of the fees. Any provider that does not meet these standards should be avoided, as it may lead to unexpected charges and financial losses for the merchant, and reputational damage to agents working with them.
Following these guidelines can ensure that cash discount programs are compliant with both Visa and Mastercard rules. This will help to protect merchants from potential legal issues or financial penalties.
Starting a cash discount program can provide numerous advantages to businesses. It can help offset expenses, increase cash flow, and improve customer relationships. And, with the right tools and resources, businesses can continue to improve their products and services, while customers can enjoy better experiences and more value for their money. This is a win-win situation for both businesses and customers, and it has the potential to lead to long-term success and growth 
Elie Y. Katz is founder, president and CEO at National Retail Solutions (NRS), https://nrsplus.com. Contact him by phone at 201-715-5179 or by email at ekatz@nrsplus.com.
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