By Gregg Aamoth
POPcodes
As economic uncertainties and pressures continue to build, more merchants have implemented or are now considering dual pricing, cash discounts or credit surcharging as a way to attract customers and reduce their credit card processing fees. This often involves the addition of POS software features sold as value-added capabilities by their merchant service provider.
However, the guidelines surrounding these processes have recently become a subject of intense debate within the industry and government levels. Consequently, many merchants are now uncertain about what is allowed and what is not. They may be unaware of the potential implications and compliance requirements associated with these value-added capabilities.
Limited awareness of the guidelines and surcharge fees further complicates the situation, leaving merchants unsure about permissible actions regarding dual pricing. To overcome these complexities, avoid costly fees and ensure compliance, it is imperative to help merchants gain a clear understanding of these guidelines and uphold transparency in their pricing practices.
Over the last 50 years, most state attorneys general issued guidelines requiring businesses to adopt fair and transparent pricing structures. The initial purpose was to ensure that advertised prices were legitimate sales and that in-store signage had pricing that matched what was being charged at checkout.
Now, with the advent of dual pricing on a much wider scale, the legislative scrutiny has shifted to merchants, and it is now their obligation to inform their customers when distinguishing between cash and credit card prices at the product level. This expansion is likely a catalyst for new policies, procedures and guidelines, and the recent drive for increased enforcement of the same by the card industry itself.
With merchants facing a perfect storm of economic challenges; technical changes; and at times new, yet conflicting regulations and expectations; clear, concise and timely communication becomes essential for merchants. Unfortunately, this is where the payments industry does not have a history of success.
The terms "cash discount," "credit surcharge" and “non-cash adjustments” were essentially used interchangeably to describe the same concept: charging consumers a higher cost for credit card transactions or a reduced price for cash payments.
This terminology creates confusion and challenges for merchants who are unsure about whether they could implement surcharges or just offer cash discounts, as some issuers had differing views on what was permissible. The lack of clear guidelines made it difficult to distinguish between the two pricing practices easily.
Eventually, card issuers began making exceptions because some merchants were charging substantial incremental percentages, sometimes as high as 5 percent, for credit card transactions, and they were actually making a profit.
In response to this, Visa set a maximum limit of 3 percent per transaction back in April 2023, explicitly stating that charging more than this under the guise of a "cash discount" would be a violation of Visa policies, resulting in additional confusion for merchants.
Now, failure to comply with the surcharge rules may result in fines amounting to $25,000 per month. As a result, conflicts emerged when Visa enforced these limitations and pushed back against merchants who attempted to exceed the allowed threshold for cash discounts.
With potential fines hanging over merchants' heads, ensuring compliance, and gaining awareness becomes even more critical. However, finding clear guidelines and rules related to surcharging and dual pricing is not as straightforward as it should be.
To clarify, the card networks and card issuers have the right to enforce their product usage guidelines. However, there remains a concern, as they seem to be pushing the accountability solely onto the merchant and the majority of the responsibility onto the processor.
While guidelines are available on the various card issuer, processor and state attorney websites, they aren't always easily accessible. Merely placing information on a website for small and midsize business (SMB) owners to find and interpret is inadequate when it’s clear that many lack the time and expertise to navigate such resources.
To help SMBs address these challenges, it is crucial for card brands and payment processors to collaborate on campaigns that inform and educate merchants of these guidelines. This proactive approach will ensure that merchants are well-informed, fostering stronger relationships in the process.
However, there is no guarantee that these parties will assume full responsibility. Therefore, it becomes important for merchants to leverage other resources that can directly communicate the guidelines and keep them well informed.
Today, technology offers solutions that can bridge the communication gap between complex guidelines and merchant compliance. Processors can leverage their smart terminal platforms to enable direct-to-merchant communication, real-time updates, compliance resources and fee avoidance while gaining a clear understanding of dual-pricing guidelines.
These capabilities also enable merchants to make informed pricing strategies, all while ensuring compliance and transparency in their operations.
When it comes to navigating the complexity of dual pricing and cash discounts, it is vital for the payments industry to find a balanced approach that benefits all stakeholders involved. To achieve this, fostering a collaborative and well-informed ecosystem is essential.
Regardless of merchants' familiarity with compliance requirements, using a direct-to-merchant communication platform can be immensely helpful. Such platforms assist in driving awareness and enrollment among merchants, ensuring that they are well-informed about the guidelines and services. Moreover, these platforms guide merchants through a seamless implementation process, ensuring the effective adoption of a compliant dual-pricing strategy.
By embracing technology-driven solutions, the payments industry can promote transparency, while improving relationships among merchants, processors and customers, creating a more equitable and efficient merchant services landscape. 
Gregg Aamoth has over 30 years of experience enabling secure communication, promotion and omnichannel shopping experiences for globally recognized retailers and financial services brands. He is the founder and CEO of POPcodes, a provider of smart-terminal based direct-to-merchant communications and value-added solutions platform that is used by leading payment processors and 10’s of thousands of merchants across North America. Contact him at linkedin.com/in/greggaamoth.
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