I’ve noticed a trend as I’ve talked to ISOs and agents who follow my content.  Many of them still in their minds think that surcharging and cash discounting are the same.  There are a lot of differences between the two.  However, I’ll just give a thirty-second snapshot here, so you’ll understand the information as I delve into the content today.

The cash discounting (cash adjustments, in-kind incentives, or whatever name is used) programs are predicated on increasing the revenue on all non-cash sales, including both pin debit and signature debit.  Whether a check card is run as credit or debit doesn’t matter.  If the payment isn’t cash, it’s a card.  The service fee (non-cash adjustment, price increase, or whatever name is used) must be added to any card payment.

On-the-other-hand, surcharging is heavily regulated by compliance rules and state laws.  Currently, merchants cannot add the surcharge to a signature debit or pin debit transaction, only to pure credit card transactions.   That is the fundamental difference between cash discounting and surcharging.

The big question in our industry right now is, “should we switch from cash discounting to surcharging, or should we add surcharging?”  There are three big issues with surcharging which comprise the reason why I’m advising most of my clients not to make a full switch to surcharging just yet.

#1.  Surcharging is much more complicated for a sales agent to price and sell.  Especially newer sales agents are struggling with understanding the details involved.  For instance, many newer agents don’t even know what signature debit is.  They don’t even know it exists!  Three agents with whom I spoke last week thought that since they didn’t set up merchants with a pin pad, it was the same thing as cash discounting because they were adding the service fee to everything. In using our instant quote tool which gives an accurate proposal, these agents couldn’t understand why there were still debit fees?  I explained that even though the card is processed without a pin, it’s still a debit card.  Another problem is with negotiating the pricing.  Without good understanding of the pricing, newer agents can very easily give away all the margin.

I am creating two new courses.  One is on surcharging.  The other is explaining cash discounting and surcharging.  These will hopefully help with this issue of agents’ lack of understanding.

#2.  Surcharging is not legal in all fifty states yet.  Also, the ruling in New York to “allow surcharging,” has further complicated the issue.  The ruling is prohibitive in the way that pricing and labels must be adjusted.

I think within six to twelve months surcharging will be in all fifty states, and the New York law will be struck down or revised in some way.  Thus, the time will come when surcharging makes good sense.  I personally think the time will come when surcharging will be allowed on all the card types, too, as it is in Australia.  However, this issue seems to me a big barrier to entry right now for surcharging.

#3.  Surcharging isn’t integrated with any POS systems.  I don’t know of any POS systems which do compliant surcharging.  I looked about a week ago at Clover, and even they didn’t have any surcharge apps.  Hopefully, someone watching or reading this episode will contact me saying their company does surcharging on a POS system.  Please do reach out to me.  We’ll do a podcast interview, and I’ll promote it.  That would be great!  But, as of right now, I literally don’t know of anybody.

The reason for this is simple.  To develop software for the cash discount program is not complicated.  If the transaction is a cash sale, the service fee is not added.  If it is not a cash sale, add the service fee.  All of that can be done in a one-step process.

However, there are extra steps in that process necessary for surcharging. First, the type of card used must be determined.  If a credit card is being used (NOT A DEBIT CARD), then – and only then – the service fee (or surcharge) must be added.  Then the transaction total must be presented to the customer.  To do this is definitely possible, but apps for it haven’t been written yet.  I haven’t seen surcharge apps in Poynt or Clover, or in any of the other popular POS systems. They just don’t have the capability yet to do surcharging.  Now, having said this, there are terminals such as Pax and Dejavoo that do surcharge for sure.  There are many companies using terminals to do compliant surcharge programs, so agents can do that on a smaller merchant.

My advice right now is to offer a compliant surcharge program and a cash discount program.  More experienced agents could actually sell more surcharging than cash discounting.  When talking to merchants in the field, the biggest objection will be, “My customers won’t like that they have to use cash.  They don’t carry cash.”  When selling surcharging, agents can say, “Well, that’s okay.  Consumers could still just use their check card.  By using pin debit or signature debit, they can avoid the surcharge (service fee.)”  So, the experienced agents are going to like the surcharge program.

Obviously, the cash discounting (cash adjustments) programs are still significantly more profitable than surcharging.  I think in our industry we’ve “picked sides” on this issue.  I’m sorry I’ve also been guilty of this; I’ve been talking about cash discounting for a long time.  Because of the three reasons I just gave you, I still believe cash discounting is on par or a little better than surcharging for a sales organization.  However, there is no reason these two things must be mutually exclusive.  I recently talked to someone whose company offers true cash discount, another cash discount, and a surcharge program.  He will be a guest on a podcast soon.  I believe that’s the right way to go at this transition time.

If you have questions or are looking for a company fitting that description, let me know.  Reach out to me if you need consulting services.  I’m glad to help throughout this tricky transition period.  I think the key is offering surcharging and cash discounting now.  Then, perhaps in a year or two, cash discounting will phase out and surcharging will be integrated with everything.  Surcharging will be in all fifty states, and we’ll have all the tools and training for you to make it easier to sell.

Have an awesome day!