There is no doubt that accepting credit cards comes with a cost. The total monthly cost to you as a merchant is based upon many factors that you have no control over so there is no doubt the cost of accepting credit cards can be a source of frustration for business owners. This frustration is one that your customers likely don’t care anything about until you try to pass the cost on to them. Customers expect the cost of accepting credit cards to be your responsibility as a merchant, the same as electricity, water and other costs of owning a business.

As a result of the significant cost of accepting credit cards in a cashless society small businesses have been implementing solutions that pass the cost on to their customers in creative yet sometimes illegal methods. However, one method that was legalized in all fifty states in 2011 is a program known as “cash discounting”. However, there has been some confusion as to what a cash discount program is and how it varies from surcharging a customer.

The two key sources of law to be aware of are contracts between you and the card issuers (Visa, MasterCard, American Express, etc.) and state statutes. Here are the main differences between a surcharge and a cash discount program and how to implement a legal and successful cash discount program.

What is a Surcharge?

 A surcharge is a specific charge or fee that is added towards the price of products or services. Forty states in the US allow surcharge fees to be added for customers who choose to pay by credit card. The states that prohibit such surcharges are California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas. Surcharges, however, can never be assessed for debit card purchases. Typically, surcharges are based on either a flat fee or a specific percentage of the total price of goods or services before tax is assessed. Do not include Sales Tax in a surcharge percentage as that would be illegal in all states required to collect Sales Tax.

What is a Cash Discount Program?

 A cash discount occurs when a merchant decreases the price for of cash purchases and offers merchants an alternative method to credit card processing. Cash discount programs are not credit card surcharges because they do not levy a fee that is added to a credit card transaction. There has been much confusion around cash discount programs as people tend to associate them with surcharge programs.

Using a cash discount program, businesses are permitted to offer a discount to customers as an incentive and to encourage customers to pay by alternative methods such as checks or cash in order to receive a discount on their purchase. The cash discount works by applying a small customer service fee on all customer transactions. This fee is removed if the customer pays with cash or in-store gift card. True cash discount technology will automatically determine the service fee or discount amounts depending on the payment type. Legal cash discount programs must present a clear receipt detailing the service fee or cash discount amount. The service fees are collected by the credit card processor who then pays off the credit card charges on behalf of the merchant, essentially removing the need for any back-end accounting or complex statements. The merchant will usually see their credit card processing fees dramatically reduced with only a small technology fee to pay at the end of the month. While state laws may vary for surcharge programs, there has yet to be issued any direct language that prohibits a merchant implementing a cash discount program as long as consumers are notified prior to purchase.

Implementing a Legal Cash Discount Program

To implement a successful cash discount program, a merchant must overcome the confusion and questions that consumers and employees will have surrounding a cash discount program. At a minimum, a merchant is required to provide at least one point of notification prior to sale that there is a service fee applied to all sales and a discount will be given if a cash payment is made. Multiple points of notification are recommended – such as at the door, cash register of a store and throughout the establishment if needed. Additionally, the reference to the program should be made verbally at point of sale. It is important the correct language is used, such as “Would you like to save (X amount) today by paying in cash, or use your card?” This language clearly indicates the service charge applies to all transactions.

Unlike surcharge programs, cash discount programs are seen in a better light, and fare better with the consumers.

Things to Consider when Evaluating Cash Discount Programs 

  1. Legality – Not all cash discount programs are built the same. Make sure your credit card processor has good standing with the BBB and that they adhere to all state and federal laws in their processes. In order to adhere to federal standards, the cash discount program must show the service fee or discount amount clearly to the customer on their receipt.
  2. Equipment – Make sure the provider technology and equipment accepts all card types as well as mobile wallets and EMV chip cards. Cash discount technology does not work on all equipment brands.
  3. Hidden Costs – Some processors will require a setup fee. In some cases, this might be waived. Cash discount programs are simple in concept and a good provider will be completely transparent in their pricing and not charge unnecessary fees.
  4. Fee Options – Good providers offer two service fee pricing options- either by an average ticket size (flat fee) or a percentage of the sale amount. Businesses with a big ticket discrepancy need the percentage model, while businesses with consistent average ticket size work well with a flat fee.
  5. Support – For a successful rollout, merchants will need the cash discount supporting materials such as in-store signage, training guides and videos, quick reference handouts as well as a hotline to answer customer questions. A good provider will offer all of these things free of charge, in addition to being on-hand to troubleshoot equipment, answer billing questions, or assist with additional training.

Additional Legal Information

Restrictions Under Credit Card Agreements

Historically all of the major credit card companies have included terms in their service agreements prohibiting merchants from imposing fees on customers paying by card. For the time-being those restrictions remain in place; however, merchants may take interest in a current lawsuit pending against Visa and MasterCard. As part of that litigation Visa and MasterCard initially agreed to revise their rules on credit card surcharges—a change that would allow surcharges in many states. But recently the Federal Court of Appeals for the Second Circuit rejected that settlement agreement, which means that the preexisting rules remain in place for the time-being. And in any event, the Visa-MasterCard litigation is not binding on American Express. So regardless of the outcome of that lawsuit, merchants will be bound by any agreement they may have with American Express.

Merchants are generally required to treat all credit cards alike. In other words, merchants are not allowed to steer customers away from or toward any given card. Moreover, even if Visa and MasterCard permanently agree to change their rules to allow for credit card surcharge fees, merchants accepting American Express would still be foreclosed from imposing surcharge fees. And because merchants must treat all cards equally, that means merchants accepting American Express would likewise be foreclosed from imposing fees on any other card they might accept.

Should you have any questions about this article or need any guidance, please don’t hesitate to reach out to Remedy Payment Solutions at 714-461-2200 or

Remedy Payment Solutions is powered by Chosen Payments whom is a registered ISO and FSP of Wells Fargo Bank, N.A., Concord, CA and BBVA USA, Birmingham, AL., and Elavon, Inc., N.A., Atlanta, GA and Evolve Bank & Trust; Memphis, TN., and Merrick Bank, N.A., Draper, UT.