Consumers understand and appreciate the ability to use their credit or debit card for transactions at virtually any location. In fact, total credit and debit card usage rose over seven percent between 2015 and 2016, totaling $5.98 trillion in card payments for 2016. As consumer preference for card transactions increases, merchants, however, struggle to maintain profits amidst processing fees associated with every card transaction.
The Interchange Dilemma
In the United States, the level of interchange or “swipe” fees seem to rely on merchants’ ability to negotiate with credit card processors, giving larger corporations like Walmart a competitive advantage by allowing them to pay much lower processing fees than smaller merchants. American interchange fees vary greatly, and according to a comparison by NerdWallet, the difference between minimum and maximum rates is the highest among 35 nations. The Visa France interchange sheet identifies a single class for credit cards and six types of payment technologies while the Visa U.S. interchange sheet includes at least 26 types of merchant classifications and four separate classes of consumer credit cards.
The ongoing battle over interchange fees has led many states to take matters into their own hands. While 10 states ban the action altogether, the remaining 40 states have adopting legislation that allows merchants to surcharge card transactions up to four percent to recoup card processing fees. Merchants don’t have to surcharge their customers to protect against growing processing costs, though. In all 50 states it is legal for merchants to offer discounts for cash payments.
Maintain Profits with Cash Discounts
Merchants and retailers can eliminate 100 percent of interchange fees by instituting a cash discount program as long as required pricing notice is posted. Cash discount fees are automated. Surcharge fees, on the other hand, require manual calculation and an all-inclusive price increase that results in consumers paying full price all the time. PaySavvy, a Star Financial Services product, offers a limitless program in which any non-cash price is passed on to the customer for all card transactions, allowing merchants to save nearly all the money they are currently paying in processing fees.
According to the white paper Flexible, Limitless Payments…Is Your Business Up to Snuff, merchants can choose between a flat rate per-transaction or a percentage-based fee with a cash discount program. The service fee allows merchants to split the fee for card transactions with the customer, while customers paying in cash are offered a discount since there are no related processing fees. For example, if a merchant charges a five percent service fee on each item the notice will reflect that a product or service that is listed at $50 will actually be $52.50 unless the customer is paying with cash.
The transparency of cash discount programs generates a positive response with consumers, especially Baby Boomers and Millennials – the biggest users of cash, who appreciate the option to save money by paying with cash.
To find out more about cash discount options for your business, download the white paper, or contact Star Financial Services.