What is the Merchant Cash Discount Service and Its Features?

Are you a customer or a merchant trying to familiarize yourself with merchant cash discount service? If you have heard the term but do not know what it means, then you are on the correct website. Here, we will help you to have a basic working understanding of the subject.

You might have come across the term merchant cash discount service especially if you are work as a merchant in any service industry. Cash discount offers are becoming more and more popular with sale agents as well. But, there is still lack of clarity on this topic. Customers, as well as merchants aren’t able to make the most of such opportunities because they aren’t aware of what it is.

Until recently, MasterCard and Visa regulations stated that merchants were not allowed to charge more to a customer who chose to pay with a credit card than they would charge over other payment methods. In May 2011, Federal Trade Commissioner, M. Katz said that “Neither surcharging, nor a cash discount is unlawful. Earlier the fees that every credit/debit card swipe had was paid in full by the company, which is how they came up with cash discount offers such as merchant cash discount service. This program has proven to be beneficial to the merchants and companies and can be good for the customers as well.
For us to understand what a cash discount is we also need to understand what a surcharge is.

What is surcharge?

A surcharge is a fee that is added towards the existing tax and amount of a good. The plus point of a surcharge fee is that the customer cannot be charged more than the required amount while making the payment with a credit card because all the transactions are noted. It is different than a merchant cash discount service. About 40 states in The United States allow customers to pay the surcharge fees while paying with a credit card. The states that do not allow surcharge are Colorado, Connecticut, Florida, Kansas, Maine, New York, Massachusetts, Texas, and Oklahoma. The maximum limitation on the surcharge fee is 4%. The Durbin Amendment prevents the surcharge from being added on debit cards.

What is cash discount?

A merchant cash discount service or a general cash discount is when the merchant reduces the price of the product and offers the customer an alternative to paying by credit or even a debit card. They are different than surcharge because there is no extra fee added to the transaction.
Merchants benefit the most from this because they don’t have to pay any charge like before and all the charges are to be paid by the customer. Earlier, each transaction that was made on credit card came with a fee that the merchants had to pay. It was a small amount for big companies. But, for small time companies that made little profit on a big number of sales, it was proving very difficult to keep any profit as all the money they made went into paying the credit card fees.

This was when merchants came up with merchant cash discount service to avoid them having to pay the fees. They added the fees to the customer’s total amount instead. To be fair to the customers and to encourage them to pay with cash, the merchants came up with cash discount programs like merchant cash discount service. This meant that the customer was offered a discount if they chose to pay with cash.

Most of the times, customers do not mind paying the little extra money. It’s almost natural for them. But, if some customer objects to having to pay the extra money and doesn’t want to pay it, then they have the free choice to pay with cash. This way, not only will they get a cash discount under merchant cash discount service but they would also completely avoid having to pay the extra bit of money. Sometimes, the customers don’t have any choice except to pay by card as they aren’t carrying enough cash on them.

In this field also there are some bad people that try to exploit people. Certain MSLs and ISOs exploit it which leads to unethical and illegal practices taking place. If you are a customer, then make sure that the merchant isn’t overcharging you, and if you are a merchant or a company then be very careful in choosing your partners and deciding upon a cash discount or a merchant cash discount service.

Whether or not your cash discount is successful depends on some different factors. The factors location and the type of customers also play a huge role. For example, it works well for gas stations across The United States, which is why this method is widely adopted by the owners. Using the correct type of merchant cash discount service can help to attract a lot of new customers and build a loyal network with your old ones.

This article explains in detail what a cash discount is and how is it different to a surcharge. People often get confused between the two, but this easy-to-understand explanation should help clear all the doubts that they might have. The terms have been explained in simple terms so non-professionals like everyday customers can also understand what these programs mean for them.

If customers are clear on the topic, then they will be able to benefit from it the most and merchants or anybody else will not be able to exploit them. Knowing their rights is important and empowering in such situations. Having proper knowledge on this topic for merchants can mean that they can come up with the best merchant cash discount service, which would not only benefit them but would also help to attract new customers to their business thus increasing their income. While partnering up, merchants need to be very careful as well, so they aren’t exploited either.

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