If you want a cash discount definition, you gotta start with the fact that the Wu-Tang Clan is wrong.
In their legendary song “C.R.E.A.M.”, the WTC rapped cash rules everything around me. Maybe that was true in 1993; if they wrote that song today, C.R.E.A.M. would stand for Credit Rules Everything Around Me.
All Card, No Cash
In 2019, cash accounted for 26% of all transactions while credit cards and debit cards accounted for 51% of transactions. Other forms of payment like checks and wire transfers account for the remainder of transactions. Cash is NOT king, as cash transactions declined 40% last year.
Younger millennials and Gen-Z’ers almost never carry cash. Many don’t have a bank account and often use contactless Near Field Communication (NFC) technology like Apple Cash.
Credit Card Fees Are Killing Me
But businesses, both brick and mortar and online, pay fees when processing credit and debit card payments. A bakery owner might raise her pricing by 1-2% to account for credit and debit card processing fees. When customers pay with cash, they also pay that 1-2% price increase. Cash customers are essentially subsidizing people who pay with cards.
What Is Cash Discount and Is It Right for You?
Instead of raising prices for everyone, customers paying with cash and debit card pay the posted price, and customers that elect to pay with credit card pay a small fee. Businesses pass the fee on to the customers that are receiving the perks of using a credit card.
Cash discounting is when a business offers a discount to incentivize customers to pay in cash or with a debit card to avoid credit card merchant fees.
To remain compliant with Visa and Mastercard rules, debit cards need to be treated as cash and are much less expensive to accept.
The big credit card brand companies like Visa and Mastercard have rules where companies can’t profit from adding a fee if a customer pays with a credit or debit card. Businesses often ignore these rules, as they aren’t policed.
The rules are complex. Merchants are almost never compliant with this type of cash discounting. Businesses could face fines from credit card companies or their state attorneys general for non-compliant cash discounting.
Wait, That Banana Bread Is $30k?
Though fines are infrequent, I do know of one restaurant that settled for a $30k fine for not following the cash discounting rules. Imagine a bakery getting hit with a fine in the tens of thousands of dollars simply for adding a fee to a few debit cards!
Another track on the Wu-Tang Clan’s first record is “Can It Be All So Simple.” In our next post, we’ll discuss how to do cash discounting legally and pass credit card charges on to the consumer. The Wu-Tang was right. Cash discounting can all be so simple and compliant!
At Ethical Pay Pro, we guide you to process your credit card payments with the best payment processor for your business. We also offer consumer financing and business loans to help your business grow and thrive. If you want to improve the way you get paid, tap here for a free consultation.