Page 28 - GS210802

CoverStory

Businesses must post signs at the entrances to their shops, Niec said the average residual on a card sale by merchant
and at checkouts, detailing cash discounting policies. accounts on Certain Pay's cash discount program is 175
They must also verbally offer customers a cash discount basis points (1.75 percent), compared to 60 basis points on
before completing a transaction, and any cash discounts interchange-plus.
must be clearly printed on receipts.
VizyPay is seeing gross profits in excess of 200 basis points
Implementation of cash discounting can vary. The tradi- for large-ticket merchants, Mac Nab said. Merchant ac-
tional method, what some call "cash discounting 1.0," adds counts with lower average tickets (up to $100) can gross
a non-cash adjustment to each transaction. The alterna- between 170 and 200 basis points per transaction. These
tive, "cash discounting 2.0," requires merchants to mark-up compare to between 80 and 150 basis points with sur-
prices on all products to compensate for processing fees, charging, and 20 to 50 basis points on interchange-plus,
then discount the purchase by that percentage for custom- Mac Nab added.
ers paying with cash or check. Typically, non-cash adjust-
ments and cash discounts are in the 3 to 4 percent range. "Cash discounting not only improves [an account's resid-
ual] performance, it allows my reps to serve lower-volume
One big difference between surcharging and cash dis- customers," Fisk said. Plus, when a merchant pays nothing
counting, however, is that higher prices can be charged to for card processing, they can't be poached by competitors
both credit and debit card paying customers in a cash dis- selling lower rates.
count program. Most ISOs and MLSs say they offer cash
discounting on a trial basis, but add that once the savings Other benefits include shorter training and sales cycles.
become apparent few merchants return to traditional pric- Rather than training new agents on all the ins and outs of
ing models. payment processing, they only need to know how to con-
vince merchants they can eliminate payment processing
"Our team has been offering cash discounting for the bet- fees. "With cash discounting it's much easier to get new
ter part of three and a half years," said Dustin Magaziner, reps out selling," Fisk said.
partner and CEO at PayBright, in Raleigh, N.C. "Across
the several thousand accounts we've boarded on cash dis- Benabu concurred, stating, "All the time spent collecting
counting, we've seen 10 percent switch back to traditional." statements, creating spreadsheets, haggling over price,
and even integrating with existing systems just goes out
Mac Nab has observed that most merchants are open to the door."
getting card processing fees absorbed. "Cash discounting
2.0 is certainly the way to go for certain businesses," he Technology underpinnings
said. These include restaurants with limited menus (think Whether selling cash discounting or surcharging, technol-
pizza shops), auto repair shops and HVAC companies. ogy solutions need to be in place. Merchants need a termi-
nal, and an API or app that can distinguish between credit
The best fit is with merchants that have average tickets and debit cards, for example. Settlement and reconciliation
between $25 and $50, Fisk added. are other key components, and in the case of surcharging,
Customers also seem to be OK with cash discounting. there are state compliance considerations. Available solu-
Swipe4Free, in Long Island City, N.Y., reported that only tions address these requirements.
about 1 to 3 percent of card-paying customers inquire
about the additional cost when merchants surcharge or of- CardX built a solution that meets all compliance require-
fer discounts for cash. ments of the 48 states that permit surcharging, Razi noted.

"We cover about 97 percent of the population," he said,
"The answer to complaints should relay the decision to adding that the front end built by CardX can sit in front of
keep the price lower for cash-paying customers by en- most processors. "Virtually any ISO will find one of their
suring the price increase only impacts customers using partners is supported by CardX," he said.
cards," Chris Benabu, Swipe4Free co-founder and COO,
wrote in a recent ebook, How to Sell Cash Discounting. "If Swipe4Free offers physical and virtual terminals that sup-
that answer is given, our data suggests there won't be any port non-cash adjustments and surcharges, as well as a
significant drop in revenue," waive-the-fee option that can be used for those few cus-
Higher margins, more sales, less churn tomers who may balk at paying more for using their cards.
Benabu said the company also works with POS providers
The biggest draw for ISOs and MLSs selling cash discount- to create semi-integrations with its terminals. "If they re-
ing is improved margins. "The residuals are significantly fuse, we work with merchants to integrate the terminal
higher, allowing agents to hit their goals much quicker," into the sales process, while showing them how to recon-
Magaziner said. "What used to take two to three years [to cile this approach with their existing POS," he said.
achieve in residual streams] can now be done in six to nine
months." Patti Murphy is senior editor at The Green Sheet and co-host of the
Merchant Sales Podcast. Follow her on Twitter @GS_PayMaven.
28