DISCLAIMER: I want to preface these opinions by saying I’m not an attorney. This is not legal advice. These are my personal opinions. I don’t accept any risk or liability for any actions that you may or may not take. Here are the three reasons I currently sell cash discounting:
#1. I know the core concept of cash discounting is compliant with the law. How do I know that? Read the Durbin Amendment below. The Amendment clearly states that a merchant offering a discount when someone pays with cash is compliant. Therefore, it’s legal. And the Amendment further says that no state, card brand, or bank can prohibit or limit a merchant in any way from offering a cash discount. Cash discounting IS compliant. Also, notice that this federal law not only protects “discounting,” but it also protects “in-kind incentives.” In my opinion, that would include adding a service fee to a non-cash transaction, as long as the signage clearly states these actions are for the purpose of promoting more cash payments.
LIMITATION ON RESTRICTIONS ON OFFERING DISCOUNTS FOR USE OF A FORM OF PAYMENT.—IN GENERAL.—
A payment card network shall not, directly or through any agent, processor, or licensed member of the network, by contract, requirement, condition, penalty, or otherwise, inhibit the ability of any person to provide a discount or in-kind incentive for payment by the use of cash, checks, debit cards, or credit cards to the extent that—
(i)in the case of a discount or in-kind incentive for payment by the use of debit cards, the discount or in-kind incentive does not differentiate on the basis of the issuer or the payment card network;
(ii)in the case of a discount or in-kind incentive for payment by the use of credit cards, the discount or in-kind incentive does not differentiate on the basis of the issuer or the payment card network; and
(iii)to the extent required by Federal law and applicable State law, such discount or in-kind incentive is offered to all prospective buyers and disclosed clearly and conspicuously.
LAWFUL DISCOUNTS.—For purposes of this paragraph, the network may not penalize any person for the providing of a discount that is in compliance with Federal law and applicable State law.
Of course, I am aware that cash discounting has been challenged, and I realize the issue is not that simple. I’ve posted many blog articles about the nuances of it. But at the end of the day, cash discounting is protected under federal law. And, I might add, that in my opinion the Visa bulletin identifying some cash discounting programs as being out-of-compliance with Visa rules could be perceived as a card network trying to penalize a person for offering an “in-kind” incentive to promote cash payments. That is one reason I believe they are treading carefully on this issue.
Let me be very clear on this issue. I believe the intention of the Durbin Amendment in this section was to give anyone accepting payments the ability to incentive their customers to pay with cash through a discount or some other “in-kind” approach. I also think it was understood that Visa, the other card brands, the states, and even the banks might try to limit the ability of merchants to offer these discounts and incentives. Thus, the reason the language so clearly identifies these entities and prohibits them from interfering.
Read this statement one more time and tell me if you think this doesn’t protect the cash discounting programs we are offering in our industry, with or without a service fee: “A payment card network shall not, directly or through any agent, processor, or licensed member of the network, by contract, requirement, condition, penalty, or otherwise, inhibit the ability of any person to provide a discount or in-kind incentive for payment by the use of cash…” What does “in-kind incentive” mean? I don’t know for sure, but I do know it is NOT a discount. I think adding a service fee for non-cash payments sounds like a very good example.
#2. Cash discounting is easy to sell. To me, a sale isn’t just a sale; it’s a relationship with the merchant. So the more relationships I can get with merchants as a merchant services sales agent, the better. The more relationships you get, the better.
If the landscape changes, then will be the time to reconsider. I am baffled by ISOs and agents saying they plan to start selling surcharging. When questioned about their motive, they answer, “Well, eventually I feel like it’s going to go to surcharging.” If it will eventually go to surcharging, which is debatable in my mind, then let it go to surcharging and switch your clients at that time.
Right now you can save merchants as much as 90% of their processing with cash discounting. So why would you go in there with a pitch to save them 40%? That mindset is to jump the gun, using a more complicated pitch now because you think eventually it’s going to be worse. Why wouldn’t you sell it now in the way that is better – simpler and easier – then eventually make a change when necessary? Once you have the merchant relationship through cash discounting, you will be able to maintain it through surcharging if the cash discounting option is closed. No hard feelings toward those selling surcharging. I have good friends at CardX and many different ISOs who are selling Surcharging, and we can agree to disagree for now.
#3. Cash discounting is more profitable. Somehow in our industry we have become a little squeamish about making a decent profit on an account. I do not believe profits are inherently evil! Let me be really, really clear – I’m in business to make money. I don’t make any apology for that. I have integrity; I am doing things in a way I believe is honest; and I’m transparent with people. I believe you can do all of those things and still make money. Why is it okay for the banks to make 170 basis points from every transaction when all they do is move money from one account to the other, but the idea that we might make 100 basis points on a cash discount deal is greedy when we are providing tech support, funding, billing, terminals, risk expenses, and saving the merchant 90% in the process?
In summary, cash discounting is more profitable. It is a win for merchants; they save a lot more money. It’s a win for me; it is more profitable. So, all things being equal, I’m going to do the thing that is more profitable for me to do. Don’t be concerned that cash discounting is a fringe program. For those who don’t realize this, there are literally thousands of merchants (I’m sure now over 10,000 merchants a month) who are signing up for these cash discount programs. This is not a fringe thing. It is massively profitable; it is extremely easy to sell; it’s completely compliant under the cash discounting Durbin Amendment regulations and laws. There are a lot of questions about compliance. I’ve posted plenty of content which delved into all the minutiae, and I just completed a big workshop about it. I do understand all the nuances. But the bottom line is this. Under the Durbin Amendment cash discounting is protected by federal law. In my mind, Visa is certainly entitled to their opinion. All evidence at this time is that they aren’t taking action. When they do, and when they prove in court that these cash discounting programs are not protected by the Durbin Amendment, then I’ll start selling differently. But right now I love selling cash discounting because it is simple, and it is a win for everybody.
James Shepherd