No-Fee Payment Processing: Understanding Surcharging, Cash Discounts, and Dual Pricing

As payment processing costs continue to rise, many businesses are searching for ways to reduce or eliminate fees associated with accepting credit cards. No-fee payment processing models have emerged as a popular solution, allowing merchants to pass on the cost of processing fees to customers. The three primary models for doing so are surcharging, cash discounts, and dual pricing. While these models can be effective, it’s important to understand their differences and legal implications.

Let’s take a closer look at how each of these no-fee payment processing methods works and how your business can benefit.

1. Surcharging

Surcharging is a practice where businesses add a fee to the customer’s total when they pay with a credit card. The fee, typically a percentage of the transaction, covers the cost of processing the credit card payment.

• How It Works: Surcharging is only applied to credit card transactions, not debit cards or cash. The surcharge amount is typically disclosed before the transaction, either as a line item on the receipt or displayed at the point of sale.

• Legal Considerations: While surcharging is legal in many states, some states have restrictions or outright bans on the practice. It’s essential to check your state’s regulations before implementing a surcharge program. Additionally, card brands like Visa and Mastercard have specific rules regarding how surcharges must be presented to customers.

• Pros and Cons: Surcharging allows businesses to recover credit card processing fees, but it can create friction with customers who may perceive the fee as an additional cost for using their preferred payment method.

2. Cash Discounting

Cash discounting offers customers a lower price if they pay with cash instead of a credit card. Instead of adding a fee for card payments, the advertised price is higher, and a discount is provided for cash transactions.

• How It Works: In a cash discount program, businesses display the higher “card price” as the standard, and customers who pay with cash receive a discount at the time of payment. This model incentivizes customers to pay with cash, which helps the business avoid processing fees.

• Legal Considerations: Cash discounting is generally legal across the United States, as long as it is implemented correctly. Businesses must ensure that the advertised price reflects the higher card price, with the discount being applied for cash payments. This transparency is key to compliance with federal and state laws.

• Pros and Cons: Cash discounting is a straightforward way to reduce processing costs, but some customers may be less inclined to pay with cash, especially in a digital-first world where convenience matters. However, the discount can be seen as a reward for cash-paying customers, making this method more appealing to them.

3. Dual Pricing

Dual pricing provides customers with two clearly marked prices: one for card payments and one for cash payments. It’s a transparent way for businesses to present the cost differences between payment methods, allowing customers to choose which option works best for them.

• How It Works: Dual pricing displays both a cash price and a credit card price at the point of sale. Customers are given the choice to pay either price depending on their preferred payment method. There’s no surcharge or fee—just two distinct prices.

• Legal Considerations: Dual pricing is compliant in all 50 states because it doesn’t impose a fee for using a credit card. Instead, it offers customers a choice between two payment options, making it a consumer-friendly approach. Businesses must ensure clear communication of both prices to avoid confusion.

• Pros and Cons: Dual pricing offers transparency and gives customers more control over how they pay. It avoids the potential negative perception of surcharges, as customers see the value in choosing between two different pricing structures. However, businesses must ensure they have the proper technology to display both prices effectively.

Conclusion

No-fee payment processing models like surcharging, cash discounting, and dual pricing offer merchants a way to offset the rising costs of credit card processing. By understanding the legal requirements and customer perceptions associated with each model, businesses can choose the option that best suits their needs.

At Corpay USA, we provide businesses with the tools and support they need to implement these no-fee processing solutions smoothly. Whether you’re looking to introduce surcharging, cash discounts, or dual pricing, our team is here to help you navigate the process and ensure compliance.

Contact us today to learn more about how we can help your business reduce payment processing costs and increase profitability.