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Education

What Visa's bulletin Per the bulletin: "Models that encourage merchants to
add a fee on top of the normal price of the items being
on cash discount purchased, then give an immediate discount of that fee at
the register if the customer pays with cash or debit card,
are NOT compliant with the Visa Rules and may subject
means to you the acquirer to non-compliance action."

All major programs marketed as "cash discount" add a fee
at the point of sale for an obvious reason: merchants don't
want to raise their prices across the board. No business
wants to appear excessively expensive or uncompetitive by
increasing its stated price on shelves, so every purported
"cash discount" program adds a fee at the POS to recover
the costs associated with card acceptance.

When the fee is added at the point of sale it is, by definition,
a surcharge.
It is no surprise that both acquirers and merchants
gravitated to this model – in every market where both
surcharging and cash discounting are permitted,
By Evan Weese surcharging is strongly preferred. (See my prior article
CardX "Making the most of the rules: Passing on credit card
fees," The Green Sheet, Oct. 22, 2018, issue 18:10:02, for more
n Oct. 18, 2018, Visa released a bulletin that details.) The problem is that the so-called cash discount
changed the payments industry immediately programs add fees at the POS without complying with the
and permanently. Addressing the reality that surcharge rules.
O programs for passing on processing fees "have
become increasingly popular at merchants," Visa clari- The Visa bulletin effectively means that this "cash
fied that the most common model for "cash discount" is discount" model is now defunct. With processors
"NOT compliant with the Visa rules and may subject the anticipating enforcement from the card brands, ISOs and
acquirer to non-compliance action." agents should be prepared for "cash discount" merchants
to be assessed fines or, even worse, shut down for non-
This definitive statement of the rules, coupled with Visa's compliance.
admonition that it "actively enforces its rules pertaining to
cash discount programs," has been met with considerable The good news is that the surcharging rules provide a
interest, with agents, ISOs, and processors wondering what compliant path forward for acquirers and merchants who
this means to them. Many had enthusiastically adopted previously offered noncompliant cash-discount programs
programs for passing on fees in response to both merchant to do what they always intended: add a fee at the POS to
demand and the profitability of this processing model, offset the high cost of credit card acceptance.
and the guidance from Visa represented a potentially The surcharging model
seismic shakeup to their plans for continued growth in an
intensely competitive industry. In addition to allowing merchants to compliantly add a fee
at POS, the surcharge model ensures a level of transparency
As the dust settles on Visa's pronouncement, many and customer friendliness that benefits ISOs, merchants
acquirers are recognizing this update as an opportunity. and customers.
Merchant demand for lower processing costs will not
abate anytime soon, and the clear guidance provided by One major advantage of the surcharge model is that it
the card brands enables acquirers to build a high-margin, passes on fees only for credit card acceptance, assessing
high-retention book of business with complete confidence customers no fee for debit. This benefits ISOs considerably
that they're working within the card brand rules. because it provides the customer with a "no fee" card
option rather than steering customers to cash or check
What 'cash discount' really means (from which the ISO does not profit at all).

Although some in the industry use the terms 'surcharging'
and 'cash discounting' as if they were interchangeable, Merchants also benefit because they're able to fully off-
they are, in fact, two distinct pricing models. The most set the high cost of credit card acceptance by passing on
important difference between the two, which the Visa the fee and paying only the low transaction fees for debit,
bulletin addresses emphatically, is that cash discount which are typically significantly less than the handling
programs cannot add a fee at the register. cost for cash or checks. Additionally, merchants avoid the
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