Surcharging and cash discount programs are popular ways to help offset the cost associated with processing credit cards at your business. There are similarities between the two programs, however, different laws and card brand regulations affect their implementation. Before deciding which program works best for your business, it’s important to understand how they both function, and their key differences.
What is Surcharging?
Due to use agreements with our software partners, merchants who utilize Gravity Payments’ integrated processing (you accept payments through a POS or management software) are unable to utilize surcharging at this time.
The process of surcharging allows you to pass on the cost of credit card fees to your customers by adding a percentage fee to all transactions representing the cost to your business. This can only be applied to customers paying with a credit card, not a debit or prepaid card.
There are state-by-state laws and different card brand regulations surrounding surcharging:
State Laws
This is legal* (or anti-surcharging laws are unenforceable due to legal precedent) in US states and territories except Connecticut, Oklahoma, Maine, and Massachusetts with Colorado limiting surcharging to 2%. Surcharging in these states and territories remains illegal and Cash Discounting is the only option.
In the case of card-not-present transactions, if the cardholder’s billing address is from a state that does not allow surcharging, the card-not-present transaction will be processed without surcharge due to the cardholder billing address being in a state that prohibits surcharging. However, if a card-not-present transaction’s billing address is from a state where surcharging is legal, they will be charged the surcharge fee.
*Research the rules of surcharging thoroughly and provide any additional disclosures as required by state law.
Surcharging guidelines for each card brand
- Visa
- Mastercard
- Discover (no specific rules at this time)
General Rules
- Notify your card brands by writing at least 30 days before implementing a surcharge
- Properly disclose surcharging using signage at your entrance and register in addition to having the surcharge listed on the customer’s receipt.
- A notice must be displayed on your checkout page for card not present transactions as well as having the surcharge listed on the customer’s digital receipt.
- Your business cannot profit from surcharging. The cap for cost cannot exceed 4.0% of the transaction amount or the cost of acceptance per transaction. The surcharge must be applied to all credit card transactions and all items in the sale.
- Your business cannot selectively apply a surcharge.
- Surcharge cannot be applied on debit (including signature, PIN and PINless) or prepaid card transactions.
What is Cash Discounting?
More commonly-used, cash discounting is the practice of deducting the value of a transaction fee at your business when a customer pays in cash. This is legal in all 50 states.
It is required by Visa and Mastercard that you post a Standard Price in your POS or Management Software: This is the cost for your goods as if the customer were to pay with a credit card. Then, you can apply a discount for cash customers.
Gravity Payments can help set up cash discounting for non-integrated merchants, with integrated merchant support coming soon. To learn more, contact us at 866-701-4700.