Many of you may already be aware of this big development in the cash discounting world. For months I’ve been warning reps not to do cash discounting on Clover. First Data does not believe in cash discounting. I cautioned that when First Data realized what is going on, they would cut it. That’s exactly what happened.
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Cash discounting is a huge opportunity which we don’t want to squander. But I fear our industry is handling cash discounting the wrong way. By examining the rationale of Clover and First Data, hopefully some helpful insights can be found. We should consider how Visa will attack cash discounting.
The Clover action involved a simple logic which gives insight into the path of attack. They removed apps from the app store that are adding a service fee only to credit card transactions at the point of sale. They maintain those apps are surcharging the consumer in a way not in accordance with Visa and MasterCard rules. This viewpoint says putting a sign at the counter stating there’s a price increase which will be waived by cash payment is not a true price increase / cash discount but instead, it represents a surcharge. Surcharging is not allowed on check cards.
Although I’m very “bullish” about cash discounting, I’m going to be devil’s advocate today and agree somewhat with Clover and First Data. I want to discuss something the industry might want to consider. Hopefully, some of you who are in a position to make changes will consider my thoughts.
Cash discounting is comprised of two parts: a price increase and a cash discount. Can Visa attack by saying businesses may not increase their prices? Businesses are free to do so. Can they say businesses may not do a cash discount? The Durbin Amendment gives a federal guarantee to businesses to do that. So, the question is, “How WILL Visa attack?” I believe this attack will come through the way cash discounting is being done. Visa will claim our method does not represent a true price increase since the service fee is only applied on credit / check card transactions.
Here is my opinion. The POS should make the service fee a line item on the receipt for both cash and non-cash purchases. The service fee should be evident on both cash and credit sales receipts, but the cash discount only on cash sales receipts. Suppose a customer spends $100. There is a 3.99% service fee and a 3.84% cash discount. If the receipt says the payment is cash, it would read $100 plus $3.99 service fee minus $3.99 cash discount = $100 total. If the receipt says the payment was a card, it would read $100 plus $3.99 service fee = $103.99 total. This way, Visa cannot argue that the service fee is really a surcharge applied only to card transactions which would be a violation of their rules and many state laws.
Here are two takeaways from this announcement by Clover.
#1. Be aware that Clover doesn’t do cash discounting anymore! First Data doesn’t want to be the poster child that gets sued by Visa for surcharging illegally. Believe me, they are not the only one that is concerned. If you have clients on Clover doing cash discounting, you don’t anymore! What is the solution? Here is a picture from a Pizza shop I visited last week that has Clover but runs all their transactions through a separate terminal for cash discounting. Not ideal.
#2. First Data is giving us a glimpse of how Visa is going to attack cash discounting. Visa will use the argument of a legitimate price increase. I personally believe Visa has been talking to First Data with their concerns, and this is what prompted First Data to remove these apps.
The wording of the notification states that a price increase must be on the sticker. If the increase is on the sticker, then a cash discount can be given at the counter. Our processing industry must think of creative ways to offer cash discounting. It is easy with a point of sale system but would be tricky with an individual terminal. There are different ways to do it.
Somehow the service fee should be on everything, but the cash discount only seen when there is cash payment.
If you are an individual rep, there’s nothing really to do about this yet. I just want you to be aware that it’s happening. We all knew it was going to happen; we knew Visa was going to come after cash discounting. This process will take a while. I don’t anticipate a podcast next week or even next year saying cash discounting is over. I forecast about three years. But during that time there are going to be some compromises that need to be made. If you are an ISV partner or a CEO of a processing company, think about this. What if we just added the service fee to everything, like a delivery charge or some other fee that is regularly added, and then did the cash discount? That would make cash discounting more legitimate – then cash discounting would clearly be cash discounting.
Have an awesome day!
James Shepherd