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Payment Processing Statement Models Exposed: Dual Pricing and Surcharging

Updated: Dec 26, 2023




MERCHANT ACCOUNT SECRETS REVEALED – ONLINE SERIES – PART 7


In the previous section, I discussed various traditional pricing models available with your payment processing statement. In this, article I will cover two more – Cash Discounting and Surcharging. These are two different pricing models that businesses use to offset the cost of accepting credit card payments and involve charging customers different prices depending on how they pay. Each of these options has its pros and cons, so it's important to choose the one that's right for your business.

dual pricing - signage is essential

CASH DISCOUNTING (DUAL PRICING)


A True Cash Discount (also known as Dual Pricing), in essence, represents a gesture extended by businesses to reward customers who choose to settle their transactions with cash, checks, or store-branded gift cards, as opposed to utilizing credit or debit cards. To put this into practice effectively, business proprietors must adhere to specific guidelines aimed at ensuring transparency and clarity for their patrons.


While Cash Discounting is legal in all 50 states, you must be careful to comply with all applicable laws and regulations. To implement a True Cash Discount effectively, business owners are obligated to conspicuously display signage both at the entrance of their establishment and at the point of sale. Moreover, they should prominently showcase both the cash price and the card price for each item on offer. This clear distinction ensures that customers are well-informed and eliminates any ambiguity concerning the actual cost of an item.


The process begins with the obligation to display signage prominently. These signs must be placed at the entrance of the establishment and at the point of sale, leaving no room for ambiguity. This practice extends beyond just the signage though. It is also reflected in the inventory, and, most importantly, on the receipts issued to customers. Truly for this program to be compliant, both the cash price and the card price for every item should be readily available to customers, eliminating any confusion about the actual cost of the items they wish to purchase.


For example, a restaurant might display a cash price of $10 for a sandwich and a credit card price of $10.50. A customer who pays with cash would pay $10, while a customer who pays with a credit card would pay $10.50.


BENEFITS OF DUAL PRICING


Dual pricing is a straightforward way to offset the cost of accepting credit card payments. This pricing can encourage customers to pay with cash, which can save businesses money on credit card processing fees.


DRAWBACKS OF DUAL PRICING


Dual pricing can be perceived as unfair by some customers. It can also be confusing for customers, especially if businesses do not clearly display the cash and credit card prices.


SURCHARGING

Surcharging is a payment processing method that involves adding a fee to the total cost of a transaction when a customer pays with debit and credit cards. This fee is typically a percentage of the total transaction amount and is intended to cover the cost of accepting credit card payments.


To qualify, a business must notify the card brands at least 30 days before implementing a surcharging program at their business. Notably, it's imperative to recognize that surcharging is prohibited in six states: Colorado, Connecticut, Kansas, Maine, Massachusetts, and Oklahoma. In addition to these legal constraints, business owners are obligated to display appropriate signage both at their establishment's entrance and at the point of sale. Additionally, some states have laws that restrict how much you can surcharge customers and what types of cards you can surcharge. For example, some states prohibit surcharging debit cards. The card brands such as Visa or MasterCard also have rules regarding the practice. Failure to comply can result in hefty fees. Certain states, such as New York, impose additional requirements, including signage placed on or near each item. This supplementary signage must unequivocally communicate the contrasting costs customers will incur based on their choice of payment method, be it credit card or cash.


To illustrate, let's consider a hypothetical scenario: Imagine a coffee shop in New York that employs surcharging. At the entrance, there's a conspicuous sign that reads, "Surcharges Applied to Credit Card Payments." Near the cash register, another sign clearly displays the credit card surcharge percentage, say 3%, along with the total price a customer would pay when using a credit card. This level of transparency ensures that customers are well-informed and able to make informed decisions when choosing their preferred payment method.


BENEFITS OF SURCHARGING


Surcharging is a more flexible pricing model than dual pricing. Businesses can choose to surcharge all credit card transactions or only certain types of credit card transactions. Surcharging can allow businesses to recover more of the cost of accepting credit card payments.


DRAWBACK OF SURCHARGING


Surcharging is more complex to implement than dual pricing. Businesses must follow certain laws and regulations when surcharging customers. Surcharging can be perceived as unfair by some customers.


WHICH PAYMENT PROCESSING STATEMENT OPTION IS RIGHT FOR YOU?


The best option for your business will depend on several factors, including your industry, your target market, and your average transaction amount. If you have a high average transaction amount, surcharging may be a good option for you. However, it's important to keep in mind that surcharging can alienate some customers.


If you have a low average transaction amount, cash discounts or dual pricing may be better options. These options are less likely to alienate customers, but they may not be as profitable as surcharging.


It is also noteworthy, that not all payment providers and credit card machines support the use of these payment options. It is essential to choose a provider and equipment that will meet your processing needs.


SUMMARY


  • Dual pricing is when a business displays two prices for each item: a cash price and a credit card price. Customers who pay with cash are charged the lower cash price, while customers who pay with a credit card are charged the higher credit card price.


  • Surcharging is when a business adds a fee to the total cost of a transaction when a customer pays with a credit card. This fee is typically a percentage of the total transaction amount and is intended to cover the cost of accepting credit card payments.


CONCLUSION


As a business owner, you have a few different options when it comes to accepting credit card payments: cash discounts, dual pricing, and surcharging. Each has its pros and cons, so it's important to weigh them carefully before choosing the one that's right for your business.


No matter which option you choose, it's important to be transparent with your customers about your pricing policies. Make sure to clearly display signage that explains your policies and gives customers the information they need to make informed decisions about how to pay.


TO BE CONTINUED IN PART 8

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